China Cuts Banks' Ability to Lend – Part II

News:
A top Chinese banking regulator said Wednesday that China will tighten its monitoring of banks as it tries to prevent speculative bubbles in areas like real estate. Another report said the China Banking Regulatory Commission asked several banks to stop issuing loans. While the CBRC's chairman denied that he had asked banks to stop lending, Bank of China, one of the country's big banks, said it was taking steps to rein in loans. It would be the latest effort by China to restrict runaway lending and cool that country's overheated growth.

Thought:
The Chinese latest move was predicted in my 1/12/2010 article, China Cuts Banks' Ability to Lend, but the urgency of the action is a surprise. It shows that the government is very serious in slowing down the overheating economy. Today, investors pay more attention to the impact of the news and hand the stock market the worst day of a year (off 1.1%). At the same time, the currencies and the prices of the natural resources mentioned in the last articles are hurt as well.

Besides the move, the bull market shows tiredness recently as the share prices of the big firms (such as Intel and IBM) dropped right after they reported blowout fourth quarter earnings with optimistic forecasts. Moreover, Europe refused to bail out Greece, in which will bring more anxiety to the market. Overall, there is a high possibility of a near-term correction. Around ten percent of fallout from the high is anticipated.