Hi Mike, <<… consider the possibility … seeing is a sound functioning economy … stable consumer psychology … appropriate level of liquidity as evidenced by insignificant cpi inflation and a continuing shift from basic manufactured goods (steel, textiles, rivets) to high value added products (software, aircraft, financial instruments) and to services?>>
In all seriousness, I have not only considered the possibility but also actually tried to make a case based on precisely what you noted. I ran into a series of connected issues/problems for any intrepid investor:
(a) Personal, corporate and governmental debt level as percentage of GDP (high, some of exceedingly poor quality)
(b) Debt (if treated as an exogenous input) effect on the GDP equation (adrenalin boost, possibly of short duration)
(c) Debt as a percentage of total asset (high)
(d) Valuation of total asset (high, but can change with psychology of the marginal buyer)
(e) Ultimate source of debt financing (offshore, can be frightened off)
And also questioned some of the premises you stated:
(a) Insignificant CPI inflation: possibly because manufacturing deflation is disguising service inflation, and asset prices absorbed much of the remaining overall inflation impact via appreciation to an extent not justified by future cash generation of such asset;
(b) Software inherently does not justify a high valuation, is and will continue to deflate; software is also one of the most globally competitive areas, and will become more so. Implication for employment of spending consumers is negative;
(c) Aircraft: competitive and becoming more so; and
(d) Island economies can evolve toward service mix as proportion to GDP. Continental economies’ evolution towards same would be a historically grand experiment.
Fundamentally, I suspect there is an upper limit to prosperity, and such limit is reached faster in a globalizing economy than not.
And …
<<… high profile problems at a number of companies are just the part of a normal ongoing market-clearing process of creative destruction?>>
I think the high profile problems are possibly the tip of the iceberg, indicating a pervasive rotting of the system from politics, regulations, economy, financial instruments, family values, etc, and if so, avoid same, sidestep the lot, until all is clear.
<<unduly high housing prices are merely the reflection of rapidly increasing demand in certain small geographic areas?>> California and New York accounts for a considerable portion of the overall global economy, not to mention the US economy, however limited these two areas are as geographic areas. We in Hong Kong know crazy real estate prices when we see it, and we can justify better than most.
<<… broader market … anticipating a continuation of the prosperity boom of the last decade?>>
This is true, but possibly very wrong. In a horse race, does one advisably bet with or against the odds on favorite?
<<gold is a commodity that is unlikely to be subject to irrational exuberance?>>
USD 40 billion question! If exuberance goes irrational, all hell breaks loose, and as Mr. Larry Summers of Harvard already made the case … to fool the people, one must manipulate the price of gold.
Message 16898478
I am fundamentally a free-market advocate and believer, and I am willing to wait for the answer to the question, slowly, continuously, inexorably, add, and add some more of the beautiful ancient relic born of the sun.
Chugs, Jay |
