From China, this morning's Financial Times reported that the banks have been instructed by the China Banking Regulatory Commission to roll over certain outstanding loans to local governments and extend repayment dates for several years, thus lessening the risk of a hard landing.

Yes, it may be all buying time. But who isn't buying time in an effort to help the economy? Having just extended its 'extended period' message on interest rates, the Fed is buying time by making sure that the recovery, the prospects for which are looking up, is sustainable. The ECB is buying time through its threeyear LTROs hoping to remove what has been a hugely destabilising influence on the economy. The Bank of England is buying time: the Monetary Policy Committee's recent decision to expand its quantitative easing programme by another £50 billion is about reflating aggregate demand and boosting broad money supply growth in recognition that, without the extra effort, '... it was more likely than not that inflation would undershoot the 2% target over the medium term.' It all needs time and money.

David Fuller's view Yes, everyone including China is buying time to deal with its debt problems and real estate bubbles. Austrian School advocates say we are impeding the natural clearing mechanism and advocate more creative destruction. That may sound OK on paper but I would not want to live through it.

Meanwhile, what can we say about investment opportunities in the current environment?

Monetary policy has become more accommodative than at any time since 1H 2009, thanks to continued QE in the west and a gradual unwinding of last year's moderate squeeze among growth economies.

This is supporting the cyclical bull market forecast by Fullermoney in December. The evidence can be seen in the number of stock market indices which are now above their 200-day moving averages which are also turning upwards once again. Further confirmation can be seen in the improved relative performance for banks - always a crucial indicator. Moreover, so-called emerging markets have been outperforming developed country stock markets this year, although all have moved higher. Similarly, many medium to smaller-cap stocks have been outperforming defensive sectors recently.

A current headwind for global stock markets is a temporarily overextended condition following the best start to any year for at least a decade. A medium-term headwind is likely to be further strength among commodities, many of which have also risen in price this year. The most important of these, in my opinion, is the price of Brent crude oil.

Here is the opening from the FT article referred to by Mike Lenhoff above: China extends loans to avoid mass default, by Simon Rabinovitch:

A mountain of debt is coming due and the principal is unpayable, so governments have agreed to extend maturities.
This could be a description of a bail-out package for Greece. Instead, it is what China is doing to prevent scores of provinces and cities from defaulting on bank loans.

Does that mean China is another Greece? Far from it.

For starters, China's economy will expand more than 8 per cent this year, while the eurozone is confronting the likelihood of recession. And that sustained, high-speed growth will make it much easier for Chinese local governments to pay off debts over time.

More to the point, China's debt woes are very different from those of Europe or, for that matter, the US. In developed countries, the concern is the sheer amount of debt they have accumulated. The Chinese problem is less one of quantity and more one of structure: rather than issuing bonds, local governments have used opaque bank loans for funding.

"The problem is rooted in the national fiscal system," said Huang Haizhou, chief strategist at China International Capital Corp, the country's leading investment bank. "If a successful fiscal reform is implemented over the next three to five years by the new government, the problem will only be a temporary shock."

The flaws in China's fiscal system were savagely exposed during the global financial crisis when Beijing introduced a stimulus package that was largely implemented by local governments.

I commend the rest of this article to subscribers for a better understanding of China's monetary and fiscal policies.