The US stock markets are greatly over valued cause the prime reason the US stock markets have gone up in value is due to the Cash inflow into the economy through M2 by the repurchases of bonds. This was the same strategy that Japan tried up till 1989. As can be seen by the YEN strength from the second world war till 1994. Sooner or later, you reach a sort of stagnation point, were no matter how much more cash you print, you only undermine your own economy. That point was reached in 1986{or around than} for Japan. And USA may of already reached that point.
Why will the Dow go to 6300? The great growth of the Dow 30, and nearly ever other stock in the US is directly related to M2 {Greenspan said it a year ago, and I'll see if I can find it again} As the US has inflated M2, a person can easily compare the M2 growth rate to Corporate growth rate. Yes, it's true that the DOW was trading higher than M2 rate, but since 1996 that spread was narrowing. And if we check now, we may see a negative spread. Sure there is no signs of inflation, but that is only being masked by M2.
So were does the inflation go? It gets exported. And as Asain countries and other try to keep a peg on the US dollar they cause a deflationary state in there own economies. This can be seen by commodity deflation, which spreads into othre sectors later. Utilmately the breakdown occurs in the service sector... and in Canada we can get cheaper services than a year ago. Needless to say the growing number of unemployed in housing in NA...
Why GOLD? Cause gold is a neutral currency, and as markets correct, the US Dollar will fall, since it's the most over valued. And since Gold is based in US Dollar terms it should raise. |
