yep...imo the stock market is right at the point where it either tells us that energy really isn't a problem, or that it's slowly but surely getting to be one.
remember, the market tends to discount worsening economic conditions in advance, and since the stock market now effectively IS the economy, it would be discounting it's own bad future behavior....
one economic fact is inescapable: we are facing a combination of an extremely indebted private sector that suddenly has to deal with a sharp rise in important input cost components (be it living costs for households or production costs for corporations). on the other side of this equation in case of the households are the assets held instead of savings,i.e. stocks and real estate, which confer the illusion of wealth due to their rise during the bubble years. what's important is that any scaling back on the part of the consumer can quickly lead to a self-reinforcing vicious spiral, similar to what has been seen with other bubble economies when the end of the road was reached. the widely held belief that a gaggle of utterly complacent bureaucrats that control a short term interest rate can do anything about the unfolding of such dynamics is erroneous - as the very element that is now the potential trigger for the beginning of the unwinding is certainly not within their ambit.
a worst case scenario that would involve a sudden flight of foreign capital as the unwinding gets underway would see them busy putting out the worst fires, with little time and no resources to stop the unwinding as such.
if that were possible, no bubble would ever have popped, and Japan's economy would still rule the world.
one has to keep in mind that every little element that served to re-inforce the bubble dynamics on the upside will ultimately do the same in reverse when the time comes. numerous examples come to mind, from the pension fund gains that are used to fatten earnings to the margin debt that piles up on the way up and is liquidated on the way down, to the mindless buying of index funds that turns to mindless selling, etc. etc.
the bulls will of course counter that the Fed has proven already that it can deal with any sort of crisis threatening the current happy state of affairs and will do so again - perhaps...but every time a crisis gets papered over, the result is even more excess, and thus at some point the papering over must and will fail - as the BoJ has found out. |
