You know, Jim, I feel like I am living in a different world to you and the other superbears. If money creation really had been excessive as you say, we would be seeing rampant inflation ("inflation is always and everywhere a monetary phenomenon" - Milton Friedman - for the Austrians among us). We are not, quite the opposite in fact.
All the evidence now is that what has been a mild recession, thanks to consumer spending and housing, is now turning. And this is happening with zero fiscal stimulus. During the last recession (1991-92), the federal government ran a $400 billion deficit, compared with what is essentially a balanced budget now. Fiscal policy has been very, very conservative and we are still recovering right on schedule.
Financial reporting is now super-conservative, thanks to Enron, to FASB's elimination of the pooling of interests method of merger accounting and most importantly to the SEC's new regulation FD. Even so, earnings reports are turning positive.
Companies have continued ferocious cost-cutting, as evidenced by the 4Q 2001 productivity numbers. Combine this with the drawdown in inventories across the economy and the raw material is in place for an explosive increase in earnings. Mr. Market understands this, which is why P/Es remain high. The bears are going to be overwhelmed by an earnings tsunami. |
