Wang Wei, 1.crude oil is a *major* input cost factor in the economy and it may ultimately exert some influence on workers' compensation. some of the more critical economists argue that labor costs may very well rise *because* general price levels are increasing and not vice versa. the price performance of crude in recent weeks coupled with the sinking bond and some revival in the prices of other industrial materials (to name a few: paper,steel,copper,aluminum) must be considered as harbingers of inflation. the wage component will catch up with this, as increased pricing power by companies will lead to higher wage demands by workers. don't forget that a great deal of wage inflation in the high-skills component of the work force is masked by stock options compensation which is dependent on a continuing bull market and not properly accounted for to boot.
if rising commodity prices and bond yields are not warning signs, then what is?
2. allow me to point out that year-on-year broad money supply growth of 9,1% and year-on-year industrial production growth of 0,7% (all referring to the march quarter) seem to invalidate your theory regarding non-inflationary printing of money.
3.AG said he had heard 'new era' talk before and implied that it would be wise to treat it with caution. i happen to agree.
4. extensive economic knowledge has never helped anyone i know of to pick a top in the stock market. i concede that the stock market's valuation as such has been a poor tool to forecast the market's direction in recent years. if you read my earlier reply to you carefully you will note that i have stated that we may well still go higher from here. but i still insist that the 'greater fool' theory applies to this market. if the market were driven by fundamentals, it wouldn't be as highly valued as it is. therefore the only logical conclusion is that the market is driven by liquidity alone, in other words *because* more money enters the market via mutual funds,401k's,online traders etc. prices are driven higher as this money is put to work regardless of valuations. that is the essence of the 'greater fool' theory - to buy at obviously absurd valuations under the assumption that even more absurd valuations will be accorded to shares later on because 'more money is going to enter the market from the sidelines'. this is of course a game in which we all take part - as long as the theory works, nothing is wrong with that. nevertheless it is important to know that this is the stage of the game we're in. not even the most ardent bulls will nowadays tell you that the market is fundamentally undervalued, or even fairly valued. the only question is: how much more overvalued will it get before the party ends? of course all sorts of rationalizations are bandied about to justify current or even higher valuations. if in need of a good laugh, just look at analysts various valuation models for internet stocks. let me remind you that japan in the 1980's serves as the most recent example of such attempts at rationalization of absurd valuations. i distinctly remember that japan was supposed to be 'different'. it turned out it wasn't different after all.
regards,
hb |
