Something is amiss. Today we have oil at $98 barrel, gold at $824/oz, and most commodities at historic high prices. Even BHP is looking to double the price of iron ore for the coming contract year. By all measures we should have high inflation and possibly be heading into recession (stagflation?) I think the economy has been experiencing the "frog in pot of water" slow heat treatment i.e. slow death without knowing. rather than the shock treatment of being dropped into the pot of hot water. I do not believe the economy can sustain these cost pressures indifinately. It has the look at smell of the 1970's all over again. Stagflation next?
I agree with you 100%. The problem is too many are looking at what caused the last recession (high P/E's) and comparing the current P/E's and saying that there is no over-valuation and stocks are cheap. It will be different this time allright, different in the way we go into a bear market. The so called economic expansion of the last few years was nothing more than a massive expansion of debt. With the inflation you pointed out, this time people will watch as the Earnings factor of the P/E bleeds off rather than the Price being over-cooked like last. People will continue to buy this market all the way down, and lose alot of money in the process.
Papa good point. If you look at P/Es alone the fundamentals would say everything is OK. But, when you look at the macroeconomic situation there are massive imbalances that have to balance out at some stage....maybe the time has come. I cannot see how the US consumer can continue spending like they have over the last few years. It just wasn't sustainable when built on the home equity ATM. It's now pay back time! FED is in a real bind. If they lower rates then this will cuase massive depreciation of the dollar and commodities going higher. To do so would be highly inflationary. December 11th will be make or break time for the US economy. As for stocks I'm actually buying into the "trading down shopping theory" i.e. consumers trading down to lower priced stores Macys>Target>WalMart. In fact while shopping at WalMart recently I'm noticed an increase in wealthier customers shopping there. The easiest measure is to just look for the size of the rock on each womans left hand. Larger the size = more wealth = buy WalMart stock.
ummm...this economy is NOTHING like the economy of the 70's. The economy of the 70's dealt with extreme supply shocks for oil (OPEC embargo) and out of control interest rates. I don't see the US going into a recession and there are no supply shortages. Granted, input prices are going through the roof, but the US is at full employment and will continue to do so with the weak dollar. Additionally, the European and Chinese economies are "OK" at this point, thus the US should actually increase GDP. If anything, inflation could be a good thing in preventing the US economy from overheating with the dollar being so low. I don't see any comparisons with the 70's. This is a completely different macroeconomic environment.