The stock market discounts the future, they say. If so, the rally in the past three months should foretell an economic boom ahead. Don't hold your breath; it isn't coming. Instead, the world is sliding into stagflation. The culprit is the policy response to the global credit crisis. Instead of restructuring, policymakers have been trying to wash away the consequences of the bursting bubble with liquidity. Instead of creating another boom, it will lead to inflation.

In the first quarter of 2009, the US economy contracted by 1.6 per cent, the eurozone's by 2.5 per cent, and Japan's by 4 per cent. The manufacturing export-led economies in the developing world fared worse. The global economy has sunk about 5 per cent and global trade 20 per cent from the peak in the second quarter of 2008. Even though the speed of shrinkage has slowed, the global economy is still likely to be contracting in the second quarter.

A collapse of this magnitude hasn't happened since the 1930s. One would imagine that policymakers and investors would be repenting of their bubble-making behaviour of the past. Yet, attention has shifted from the crisis to the elixir of liquidity. Rather than repent, investors clamour for a new bubble. It seems like Alan Greenspan is still in charge.

The global economy is like a train hanging over a cliff. While the front is in the air, there is enough of it still on the ground to keep the whole thing from falling further. Financial markets are dancing on the roof of the train, and the vibrations could send the train tumbling.

The fuel for the market enthusiasm is liquidity. It has returned to stock markets with a vengeance. The inflow into emerging market funds, according to Morgan Stanley, has totalled US$21 billion in the past 10 weeks, equal to half of the total inflow in giddy 2007. In financial markets, liquidity is akin to a free lunch. It's the tide lifting all the boats. But, this time, the boats are not just stocks but also goods and services. When asset inflation is followed quickly by consumer price index (CPI) inflation, central banks must decrease liquidity. That would crash the asset market party.

Mr Greenspan practised the liquidity sorcery for two decades at the US Federal Reserve without causing inflation. Three special factors brought him this extraordinary luck. First, the IT revolution was making the supply side more efficient. In particular, the labour-intensive service sector that dominates developed economies was retooled, to save labour. This factor kept the wages of white-collar workers down during Mr Greenspan's reign.

Second, the fall of the Berlin Wall unleashed more than 2 billion workers from the developing world into the global trading system. It triggered the rapid relocation of manufacturing activities from high-cost developed economies to low-cost developing ones. As a consequence, global trade grew twice as fast as the global economy, keeping a lid on the prices of tradeable goods and the wages of manufacturing workers in the developed economies.  

Third, the collapse of the Soviet block severely contracted the demand for natural resources like energy. The rapid growth of China and India led to rising demand for such resources, but the Soviet contraction offset this inflationary force. This demand and supply dynamic made the commodity market an unattractive place for financial investment. Commodity prices remained low despite a prolonged global economic boom.  

Today is quite different. IT has been absorbed into production already. Indeed, as it is increasingly becoming a consumption tool - often for killing time at work - it is slowing, not increasing, productivity. The prices of manufactured goods already reflect wages in developing economies. Global trade no longer shifts prices down like before. And the demand for commodities in the ex-Soviet block is increasing, adding to the rising demand from China and India.  

Many argue that inflation couldn't happen in a weak economy. But inflation was a problem in the 1970s during a decade of sluggish growth. The term "stagflation" was coined for that decade. I am afraid the world is entering another decade of stagflation. The only force to keep inflation down is so-called excess capacity in a weak global economy. However, much of the excess capacity, like in the car industry, needs to be eliminated permanently, as future demand will be different from the past. The way out is to restructure both the demand and supply side. But central banks around the world mistakenly see monetary stimulus as the way out.  

As they pump more money into the global economy, commodity prices may respond first. The oil price has risen more than stock markets since March, to US$60 per barrel, even though demand is still declining. The driving force is inflation expectations. Financial investment, rather than the demand for current use, is driving the oil price. Hence, monetary growth is becoming inflation through expectation.  

The current party is likely to be short-lived. Next year, inflation expectations may become apparent. That would lead to expectations of interest rate rises. While central banks will still be reluctant to raise rates, rising bond yields will force them to do so. But they won't raise rates quickly enough to stem the inflation momentum. Stagflation will probably take hold.  

Some argue that inflation should be good for stock and property prices, as it increases sales and profits in nominal terms. History points the other way. In the 1970s, US stocks averaged 1.3 times their book value, versus 1.7 times now.  

Stagflation is bad for stock market valuations. Thus, property prices should rise in tandem with inflation. But, the world has gone through a property bubble during a period of inflation. As CPI inflation picks up, wages will take a long time to catch up with past property inflation. Property prices are likely to fall as inflation rises. At some point, the two will meet, as defined by the historical average ratio of wages to prices. Property prices will fall substantially before they rise.

周末看的一些DVD，统一写点感想。

Australia，其实这片子没什么情节，但是1500只Cow集体奔跑的场面满赞的，片头的Kangaroo好可爱啊，那些群山土地的棕红色，正是我心中Australia的颜色。

Changeling，真不可思议这是个真实的故事，Wiki上记载，Christine Collins于1985年去世，享年94岁，没有找到儿子，Sigh！

the Duchess, Georgiana的一生算个悲剧女人，嫁给Duke成为社交名流，却没有幸福，在男权的统治下对一切都妥协了。KK演的还可以，唯一不足的是，可能由于比较年轻，扮演母亲还是显得牵强。

Fly me to the Moon, 纪念Apollo 11的动画片，情节极其简单，估计观众群是5岁以下儿童，对话不复杂，所以这部电影是用Spanish看的，学了4个周末的Spanish居然可以看电影，太有成就感了。Spanish中，Russia是Rusia，发音Lucia，So beautiful，isn’t it！

the Reader, 一部关于爱的电影，那些Nazi啊，政治啊，在影片中都不太重要。Winslet的老年Hanna演绎的很精彩，Hanna在狱中给Michael寄信，还称呼他Kid，这个细节感动了我！原来爱真的可以跨越很多界线，可以Last life long。

Valkyrie，从头到尾的绿军装和Heil Hitler，太阳刚了，受不了。

Vicky Cristina Barcelona, 相信只有Woody Allen这种和自己继女结婚的人能拍出Vicky Cristina Barcelona这种荒诞爱情，本人对该片严重不支持。

 入俭师(おくり人) ，看入俭师的初衷是为了练Japanese，看到一半才觉得，入俭师是值得一看的。影片描述大提琴演奏家小林大悟由于乐队解散，寻找新工作，无意中成为为死人化妆的入俭师。起初，大悟在工作中闹出不少笑话，最终坦然接受了入俭师的工作。新年后，大悟的父亲去世了。影片结尾，大悟含泪为自己的父亲完成死人装扮，之后他握住怀孕的妻子美香的手，旧的生命逝去了，新的生命却即将来临。