Hi Sam

SH >well, for a year now market monitors and other assorted "experts
SH >have been us  mugs that what was happening locally was essentially
SH >global  trends etc etc so why is the dow within 40 points of its 
SH >all time high despite the mexico glitch and why is the all 
SH >ords floundering in areas that haven't been visited for 15-
SH >17 months. the answer obviously isnt global trends its the 

Actually, there is a 60% plus correlation of the AOI with the DOW (JB 
Were research) over a decent time interval.  The current divergence will
largely correct over this year - either by the AOI rising significantly,
the Dow falling, or some combination.  We saw the same effect a few 
years ago when the AOI eventually "caught" the Dow.

Markets are strongly interest rate (long bond) driven.  What we are 
seeing now is a fairly normal market cycle playing out here and in the 
US, with one very crucial difference:  For the first time in post-war 
history central banks have taken a pre-emptive strike against inflation.
If the long bond rate eases in mid year (as I expect), we will get a 
market rally and a slowdown on GDP growth in 1995-96.  This is the so-
called soft landing in a decade-long business cycle.

The time to get worried is in 1997 or 1998 when we may well be heading 
for recession.  Recessions have not been repealed.  The return of HK to 
China may well be a trigger point for the next big market collapse.  But
history also says the big corrections (40%) always come as a surprise.  
I guess if they didn't everyone would have taken pre-emptive measures 
and there would not be a big correction (if you follow this circular 
reasoning).

SH >bloody government with its botchinh efforts and lost 
SH >opportunities. every investor just loves a government that 
SH >raises taxes so it can spend more. while i've been rather 

Our problem is that fiscal policy has become too inflexible as an 
instrument of economic policy because no one (ie you and me) wants cuts 
in our excessive government benefits.  We give handouts to many people 
who already are well off.  The US and the EU have this problem in 
spades.

Actually, I like the idea of a compulsory superannuation levy on all 
earnings (a la the Singapore CPF).  This would enforce savings and act 
like a tax, but we would get the money back in retirement.

The sooner we get a VAT the better.  Just about every significant modern
economy has a VAT.  The Libs did this country great damage by their 
inept handling of the GST and thereby making such a tax unlikely for the
next decade.  It will come, but what a lost opportunity.  Such a tax 
raises income efficiently from the "black" economy and is virtually 
unavoidable.  Even drug dealers have to eat and buy clothes.  And a VAT 
actually makes it easier for the pollies to sell an increase in the 
level of VAT than to sell a hike on petrol excise for example.

Of course we need the extra revenue to go to debt reduction and cuts in 
the bureaucracy, not more and more handouts to the electorate.  
Unfortunately, the US, UK, Canada, NZ and ourselves have got into a 
mindset where we expect governments to solve all our problems.  So all 
our economies are in trouble to a greater or lesser degree and have been
for 20 years.

Rgds

Bob
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