Money is flowing to Asia, yes, we all can see that.
The recent saga - subprime, what happened when it was surfaced? The global financial markets turned upside down for a short period of time. Hedge funds took this opportunity to trash the markets causing panic selling. When various central banks intervened the markets and defeated the hedge funds. What happened now? Within 1-2 months, STI powered up to historical high. Whether subprime issues are resolved is non of the concern.
I would not discount the subprime event so quickly, the fallout is still in progress. While most economists agree that the condition of the global economy is still strong, thanks to China, there is still a fear that the after effects have not truely reared it's ugly head.
Asia stocks rising is a consequence of falling USD strength, money flowed out of USD assets and went right into Asia, which explains the rebound here. The money that is supporting the Asia markets isn't infinite, there will come a point where it will stops and flow somewhere else. Example, the rise in the HK markets and fall in other Asian equities in the past few days can be explained by money moving out of certain Asian bourses and into HK stocks.
The half percentage cut in interest rates should have had a positive effect on US treasuries, but we see a fall in value instead, this indicates that US Treasuries have been sold instead and likely due to the falling value of the USD, for the proceeds to be parked in some other higher yielding assets.
If not for the fallout of the subprime thing, US interest rates would not been cut, US treasuries would not have been sold and Asian stocks would not have risen so quickly as they did in the last month. It's all related.
There is also an IMF reprot that mentions that UK and EU property face a risk of a correction. The degree of the correction will not be like that of the US as the UK does not practice indiscriminate lending, but the prices of UK properties have risen too much relative to salaries.
Spending is partly tied to property prices, people spend because they see themselves as better off due to higher property prices. People also spend more because of the positive economy. They think they are able to spend more as they think they are wealthier, the truth is that it isn't the case, they are spending today what they think they will receive tomorrow. Once this reality sets in, consumers will hold back on their spending. I was reading in the papers the other day that US consumption is 9 times more than China, if US consumer spending slows, China's consumption might not be sufficient to offset this slowdown.
