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The road to riches

We investors are nightwalkers in a dream world, where success is not predicting what economies will do next, but what the markets will dream they will do. So in trying to predict where markets will be by the end of 1998, a realistic starting-point would be to say: we don't know. But, at least, we can outline the critical variables that will make you richer or poorer over the next year or two.

The biggest variable is world growth. What's good for people is bad for the capitalist running dogs. The stronger growth is, the weaker will be financial assets. So the last thing financial markets need is a synchronized, strong world economy. But this year and much of 1998 will deliver just that.

Implicit in this is that I don't think inflation is dead. Stronger growth will bring it out. Global productivity is already falling. Capacity utilization is tightening. And so are labour markets, with US and Japanese labour costs on the up. Service sector inflation is already becoming a problem in some economies.

Sure, inbuilt consumer pricing power will limit price rises. I expect only an extra 1% on consumer inflation over the next year or so.

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