Sobering chart, Rock. May I add to the attempt at justification. . .
Elementary Level Discussion:
I believe that productivity is the key to justifying the historic readings we get from our economy. And that is why I believe Greenspan looks so closely at the employment cost index. He knows that provided our productivity is ever increasing, we can enjoy low interest rates, low unemployment, high domestic output, high multiples in the equities markets and low producer and consumer prices. . . thus low inflation.
The reason the employment cost index is so important is that if we are paying out much higher amounts in employment. . .our productivity may no longer be the increase. . . which no longer gives justification to the strong economy and low inflation. . . and that would change everything.
However, I believe that the dramatic increase in communications, organization of information, automation and our greater focus on growing information age businesses will continue to increase our productivity domestically. . . and eventually [very soon] globally. And the level of increase will be dramatic.
This is why I don't balk at being a bull in the face of high multiples and unprecedented rises in prices. If we were to stop the increasing productivity. . . .we would have trouble justifying further expansion without worry of inflation. It all keys on how much companies are paying their employees and how that number compares to the production output.
Now here is where it really gets funky. I believe that our productivity will continue to increase for years to come, and globally, will increase by leaps and bounds. This means that I expect this bull market to continue for years to come. Now the problem with that is: I also expect that at some point, each company will have reached diminishing returns, caused by advanced technology. . . .where further expansion would require dramatic technological developments or increase in labor.
When we begin to see signs that this has happened with just a few of the best companies . . . then it begins to spread to the rest of the companies in America. . . . head for the hills with as much cash as you have. . . .because our house of cards will quickly come crashing to the ground. And it will get very very ugly.
I don't expect that to happen for between 4 and 15 years. But it could be the greatest economic collapse in the history of the world.
Just as dramatic increases in productivity has fueled the incredible growth we've seen. . . major signs of a sustained decrease in productivity will signal an end to the party.
And that is why we need to make hay while the sunshines and build up a nest egg of all sorts of investment vehicles. . . bonds, gold, T-bills, cash, foreign equities and U.S. equities. . . .and that is why we need to CONTINUE a balanced focus on VALUE. . .while we play the high fliers. . . this formula will remain the prudent one for years to come.
First Quarter: 1.4% ECI.. . .[0.5% higher than expected] 5.4% GDP.. . . Wages 1.1%. . .
Well, this quarter sounds higher than expected. . .but remember, ECI must be read over time. . . and in conjunction with the increase in productivity . . . as productivity increases, we can "absorb" employment costs. I am not an economist, nor am qualified to make a proper reading from these numbers alone. . . .so I don't have an opinion on it at this time. . . . I would need to do a longer range study to render any useable opinion on these numbers.
We will no doubt see the usual knee-jerk reaction. . . but I am not worried here. . . We'll definitely get our 25 basis points, but I still don't see 50. . . however, I would not rule out another 25 basis points around August/September. . . despite the elections. . . after all. . . this is Alan Greenspan we're talking about.
Rande Is |
