A Bourse Diary

Thoughts on stocks, speculation and ... life

Thursday, May 25, 2006

Do they got it? - There will be no inflation...

When I shortly thing about what recently happened on the stock markets - all in all a quite gentle set back as long as the major markets are concerned, - I think, the core message is: folks, there will be no inflation!

That's on the first view exactly the opposite of what all the media and comments are screaming. Everybody points on the "inflation fears", which send stocks down. Well, they are down - in some hotter markets down considerably, in the established down a little.

Though, not "inflation is coming", but "inflation will not be" is the message. The Fed is vigilant, and if necessary it will drive the rates into recession-highs. The financial system, speculation inclusive, is highly dependent on debt, on credit, on interest. There are no shortages of any nature, not even commodities. The global production capacity is sound and capable to meet all the real demand. And it will be hold back from generating inflation. The only source of concern are virtually the commodity markets. I don't know, if I could say it properly: first, commodities are the only big threat for increasing inflation; second, Fed will crush inflation, be sure; hence, commodities will not go up that far to generate inflation (above the Feds target, defined by numbers and a certain time window), be sure as well.

The question is, how much of the commodity prices is "hot air", speculation and how much is fundamentals, i.e. real companies ready to pay real prices because they though make sound profits out of it?

If there is "hot air" - a bubble - it will burst. If not - so what? The corporations will make money, the fed is happy (inflation target kept), and stocks... well, stocks should adapt to the preferences of the investors - and in the long term their earnings yield will get closer at least to the prevailing capital market interest rates. With current valuations, and prospectives, stocks are most likely to perform good in the next time.

So, when will they got it? I think we'll see it in the commodities.

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Disclaimer: All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and are in no way intended to serve as personal investing advice and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Readers should not make any investment decision without first conducting their own thorough due diligence. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed.