Like this post ... from Vi
One way to look at it is that the international and commodity
markets are growing too fast. The other way to look at it
is that the dollar is falling much faster now, so the prices
go up fast in terms of the rapidly depreciating dollar. Both
parts are right, since commodities are going up faster than
the dollar drops.
Prices will slow or fall only if the world gets into a recession, IMHO.
The problem is that the interest rates are still very accomodative,
since the true rate of inflation is masked by the faulty
government statistics that underestimates true rate of
inflation a lot, at least in the US and, quite likely, in some
other countries. The government, any government, NEVER EVER
overestimates the rate of inflation, or reports it right,
although some governments do a better job than other
governments.
Now, as USD drops, currencies in some foreign countries that
are tied to the dollar, such as Chinese Yuan, drop as well
(the dollar peg), causing excessive growth and excessive
commodity consumption in countries that peg their currencies
to the dollar. When they unpeg, we'll see a dramatic
fall of the dollar (to, say, Bill's 40) and some deflation in
the world, while US will experience hyperstagflation (some
prices of assets might fall sharply, while prices of
necessities will appreciate sharply). I would argue that's
where we are now, with the bond prices and housing prices
in a free fall, while inflation is on the rise. I'm not
talking about the treasuries here, rather, corporate bonds
and bonds tied to mortgages. We should see the stock market
drop soon. However, I suspect that our markets are not free
anymore, and a great deal of manipulation is going on in
some places, at least the t-bond market that is so far
from reflecting the true rate of inflation. Manipulation
of the treasury market by the dealers was confirmed by
the treasury a year ago, so I'm not making this up.
When the treasuries are too high, interest rates get too low,
and stock prices too high, because of asset allocation
game between stocks and bonds (SP earnings yield vs 10-year
Treasury bond yield is the name of the game)
A lot of things don't make sense now in the markets because
of persistent manipulation and persistent efforts to bail out
some markets by the government.
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