United States taught the world wrong principle of the relationship between "Inflation and Stock Market" (Dow & S&P 500 in USA and imitated in India for SENSEX and NIFTY)
Americans used to say that " Non-inflationary growth is best for the stock or bond market" and this saying is widely adopted the world over.
This is really astonishing in that so called experts from Nobel Laureate, great mathematicians, analysts, brokers, investment banks, banks, IMF and World Bank etc. never ever questioned this widely held theory or belief, and on the contrary go on using it as "Standard" which is the basic cause of today's problems - credit crisis, hyper inflation, etc
There is nothing like "non-inflationary growth". It is more like "non malignant growth gland called Cancer".
When the country prospers or does not prosper, there is greater need for "money" which is printed by the Central Bank (RBI in India) at the instance of the controlling government. When the money supply is disproportionate to the supply of goods, the inflation results inevitably. More growth means more consumption, more demand less supply so the consequent rise in prices.
The stock market is the ultimate reflection of "inflation". If there is no inflation, the stock market can not simply rise. The basic principle of stock market rise is the "rise in earnings called EPS".
Earnings or profits do not rise if the prices do not rise, and if prices do not rise, the stock market can not rise. Apply this concept in reverse gear - If the stock market rises, there should be greater profit, higher prices for end products, so there is "Inflation"
Having non-inflationary growth is like having "condom se-x" . In that case, there are no more babies, no more growth in a family, no more inflation.
In other words, the growth invariably result in inflation. There is nothing like "non-inflationary growth" America propounded this principle to contain inflation numbers low, so that interest rates do not rise, so their debt-ridden economy can thrive permanently due to lower incidence of interest cost. If American public debt is 13000 billions (13 Trillions), even 1% savings can save its interest expenditure by US$ 130 Billions. Imagine how much did they save by reducing interest rates from high of 6% to low of 2% (spread of 4%) which can save at least US$ 420 Billions?
To me it is amazing that only few "con men" in the FED and Treasury could brainwash the whole world population with dictated belief, by teaching the upcoming graduates at Harvard and other prominent universities the wrong principles of finance.
When something does not work with reference to some standard, one has to assume that the "standard" itself is wrong. The solution lies in abandoning that so called "standard" which by no means is the "gospel of God".
When the people will learn or that I have to learn to conform to the world opinion which does not have even single solution to the present world crisis in Currency, commodity, food prices, property, health care and practically everything that can be translated into money?
A simple example is - Indians are told by experts in RBI that weaker rupee helps Indian economy to help exports and earn FOREX. What about imports? Are we not overpaying due to wrongly engineered depreciation of rupee?
Ever since the independence, for over 60 years, India followed the concept "weak rupee" and allowed it to depreciate from Rs 4/$ to Rs 43/$ today or by 900%. Even when the Oil prices dived to less than $ 10/brl. Indians never saw the petrol or kerosene prices dipping to less than Rs 10/ litre in the market.
III or India's Intelligent Idiots sitting in FM/RBI/SEBI/NSE?BSE, are still adopting this policy in spite of the fact that it does not work. They treat it like a "dictate of Lord Krishna in Geeta". They never changed their basic view that is the basic cause of 11.05% inflation today.
Kalidas, Hong Kong
21-06-2008 (Ref: 09/059) |
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