Green, it is not enough to have excess liquidity to get an inflationary spiral going. The turnip's thesis assumes that in the first bull counter move in this long term readjustment of values, we will not have inflation, for the simple reason that there are extremely strong deflationary pressures in force. These are due to worldwide excess capacity. You do not have inflation when supply exceeds demand. Thus you ask, where will all that excess liquidity go? A bunch of it will go into equity, creating once more an overvalued market ripe for another hit from the bear paws. But, that bear phase will not take place for a while, before you will have actual inflation, you will have "fear of inflation", and that will probably push the feds sometime in the next 9 to 12 months to tighten and soak back some of the excess liquidity, until then, the combination of liquidity with "visions" of much better times ahead for corporations will serve a very worthwhile bull market, at least, in the turnips opinion.
Now, if congress passes a new tax law with a change in the capital gains, all bets are off, that will be a triple whamo to the market, it will encourage additional build up of excess capacity, exacerbating current over capacity problems, soak money away from the demand side (if the same money was spent for instance to reduce payroll taxes) that could otherwise mitigate the excess capacity, and last, will create a larger pool of selling any rally, in the hope of getting better cap gain treatment.
By the way, your shock should be greatly diminished, before the September disaster, I had 3800 on the Naz as the top for next year (g), I "gave up" a lot (g).
Zeev |
