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Opinion

It’s darkest just before the dawn

It's just one piece of bad news after another for markets at the moment. Falling stocks of oil in the US and the Arab-Israel nightmare are keeping oil prices well above Opec's stated target of $28 per barrel. Major US corporations announce each day earnings results that disappoint investors. The dot com and hi-tech sector takes a huge pounding.


To cap it all, the latest US inflation Figures show a disturbing pick-up. And that's what will really frighten markets: a combination of slowing economic growth in the US, worse-than-expected corporate profits and rising inflation.


But I remain optimistic. I reckon we are reaching the final bout of selling in equity markets. Why do I come to that conclusion? There are three possible scenarios on inflation. Sure, if inflation worms its way into final prices, including capital and labour, we shall have a bear market.


Then all the sensible investor should want to own is cash.


But if cost increases are absorbed by a shift in relative prices, but not through a rise in general inflation, things would be better for investors. profits would suffer as input prices rose, but output prices didn't.





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