THERE is too much capital in the world. And that means that those who own the capital - investors - are in for some unhappy times.
That thesis may sound inherently unlikely, but it explains a lot. Those with capital find they must pay high prices for investments that are likely to produce only a little income. The relative importance of things other than capital, like commodities and cheap labor, has grown.
Evidence of the capital glut can be seen in interest rates. Market rates are low, and even when central banks set out to raise short-term rates, longer-term rates are slow to move. Little additional yield is available to those who buy very risky bonds. For the same reason, stock prices are high. Profit disappointments may not cause the stock market to plunge, since the capital will have to go somewhere. But the return on the underlying investments is likely to be below what investors have expected.
http://www.nytimes.com/2005/03/25/business/25norris.htmlThis probably explains Iraq, Haiti and Venezuela. And we'll watch which direction things go in the former Soviet republics.
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