Inflation? Deflation? Goldman takes on Morgan Stanley

This is the original article appeared on Bloomberg: http://www.bloomberg.com/apps/news?pid=20601087&sid=aXE_NxcOLRXc

Another piece of the debate. May we call it "great debate of the year"? it may very well be the topic of the next a few years - keeps economists busy. let's see.

At least one may conclude that since Goldman and Morgan Stanley can't agree with each other, then no one truly knows which way the wind is blowing at. Prepare for some more roller-coaster rides along the way. If you are trading, it may not be a one-way ride so watch your levels; if you are investing, long-term may really mean looong term... just prepare for it.

I find it more interesting to look at this side of the world, which will probably mean much more to you and me living in Asia... While it looks that everything we've seen so far has refuted the "decoupling" argument someone suggested many month ago, i am hesitant to jump on the bandwagon yet, at least on one aspect - liquidity. Specifically, i refer to Chinese banks and Chinese government actions. While no Chinese banks suffered from collapse of asset bubble nor Chinese consumers/corporates are facing a massive de-leveraging process, it looks that where the Government stimulus goes deserves additional scrutiny. After all, Chinese government is good at delay tactics... now the economy is already flushed with liquidity before export shows any sign of picking up in near term, despite the aggressive export tax rebate on nearly all items. It seems logic that when one is swimming in the river of cash and at the same time the factory is still idle, the money has to go somewhere - stock market, real estate, stockpiling of commodities... we are seeing reports on all the above.

If bank lending keeps going with the same pace as in the past 2 quarters, it will soon be another around of "inflation" outcry... when the time comes, I am afraid that all focus will be on China, China, China...

We are indeed heading for a very uncertain future.