IT IS telling that regional markets hardly even blip at the historic move made by the US central bank to slash interest rates to near zero.
Currently, the benchmark Straits Times Index is up about 1 per cent, after halving its opening gains. Performances by Tokyo and Hong Kong are similarly lacklustre. Nikkei-225 Index is up 1 per cent, while Hang Seng is up about 1.7 per cent.
Why the lack of exuberance among regional investors, even though Wall Street jumped with joy by gaining 4.2 per cent?
One trader says that financial markets are now behaving like drug junkies who need bigger and bigger fixes from the Fed to get the same 'high'. 'Now that interest rates has been cut to almost zero, it also means that financial markets may be running out of fixes too,' he said.
And each new move by the Fed brings fresh risks to the financial markets.
In theory, once interest rates hit zero, the Fed can print money at no costs at all. This means that it can create money without limit - like transforming straw to gold.
This will cure the scourge which governments are fearing - a downward spiral in prices which can cause entire economies to collapse because people stop spending altogether, as anything they buy today will cost less tomorrow.
But the biggest problem does not lie with the costs of funds, but making it available to cash-strapped firms which need working capital to keep their businesses going.
Since September, when investment bank Lehman Brothers collapsed and unleashed a fresh round of convulsions on global financial markets, governments have undertaken to guarantee bank deposits around the globe. In United States and Britain, governments have also poured enormous amounts of money to shore up the capital bases of their shaky banks.
Such moves were made on the assumptions that once the banks have the capital, they will get over their fear of lending. Well, the banks are very well-capitalised now but they are still not lending. They prefer to park their money in US government bonds where the yield has turned negative - for every dollar they put in, they only get 99 cents back.
Next year will indeed be a challenging year. By some estimates, about US$1 trillion worth of corporate loans are due to be rolled over. The credit situation will be very tight, with banks and companies alike hoarding every dollar they can find. I have already highlighted the credit squeeze faced by local small and enterprises in yesterday's entry.
So, until the credit chokage problem is resolved, traders are likely to be sceptical of every move made by the Fed and other central banks to restore the global financial system back to health.