Markets rally amid bubble concerns

Markets rallied strongly on Monday. Bloomberg reports:

U.S. stocks extended a global rally, sending the Dow Jones Industrial Average to a 13-month high, and the dollar slid after the Group of 20 nations agreed to maintain economic stimulus efforts. Commodities climbed, with gold reaching a record above $1,100 an ounce.

Adding fuel to markets, economic data continued their positive trend.

In Germany, industrial output rose more than forecast. Bloomberg reports:

German industrial output rose more than economists forecast in September as factories ramped up production of investment goods to meet export demand.

Output increased 2.7 percent from August, when it advanced 1.8 percent, the Economy Ministry in Berlin said today. Economists had forecast a 1 percent gain, according to the median of 37 forecasts in a Bloomberg survey. From a year earlier, production declined 12.9 percent when adjusted for the number of work days.

So did exports. Again from Bloomberg.

German exports rose more than economists forecast in September as a global recovery stoked demand for goods made in Europe’s largest economy.

Sales abroad, adjusted for working days and seasonal changes, increased 3.8 percent from August, when they fell 2.8 percent, the Federal Statistics Office in Wiesbaden said today. Economists expected a gain of 2.5 percent, the median of 13 forecasts in a Bloomberg News survey showed. Exports still declined 18.8 percent from a year earlier.

And in Canada, housing starts rose to the highest this year in October.

However, a renewed boom in housing poses its own risk, something that Asian policymakers recognise, at least in Singapore. From CNA:

The rise in risk appetite and sharp rebound in financial markets since the start of the year may have outpaced economic fundamentals, according to the Monetary Authority of Singapore (MAS) in its annual Financial Stability Review on Monday...

Despite such uncertainties in the global outlook, Singapore's property market has taken on its own dynamics. Private home prices rose almost 16 per cent in the third quarter – the highest quarterly increase in almost three decades.

This has led MAS to warn that a speculative bubble could form...

There are similar concerns in China. From Bloomberg:

China’s central bank and banking regulator may “soon” issue measures to limit the use of debt in real-estate purchases after asset prices climbed, a Shanghai official said.

Regulators may reduce “leverage ratios,” Fang Xinghai, the director-general of Shanghai’s financial services office, said at a forum in Beijing today. “I would think that soon you will see these measures coming out of the central bank and banking regulatory commission.”

Certainly, policymakers in Asia and elsewhere won't want to repeat the experience of the US. While the Fed's report on Monday that fewer banks tightened lending standards in the third quarter indicates that the credit crisis may be abating, John Hussman warns in his latest commentary that the second wave of mortgage foreclosures is beginning.