The paradox of the share market

Global share prices fell by almost 10 per cent over January[1]. This is even as commodity prices have been falling. Rationally one could expect that as input costs fall, cost of production and prices must consequentially fall, making it a stimulus for  consumer demand.  An increased demand from consumers  should have seen equity prices rising.  

However, in the recent instance, equity prices have fallen. This is even as economies strive to rebalance-  away from the resources sector towards non-resource sectors; away from mining and manufacturing to service sectors.

Growth in the services sector, should be welcomed as long as growth is labour-intensive; but the ability of the sector  to bring about voluminous employment  changes look bleak.  Given the technological intervention in the sector, a rise in employment is not a concomitant to growth. This unemployment bulge should lower labour costs and enhance competitiveness and encourage businesses to employ more labour. Goods-related production ought to go up .

All this does not seem to happen.   What moves markets today are sentiments rather than economic fundamentals.   

Central banks have limits. 


This blog recommends no investment. All views are without any risk or responsibility. 

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[1] Reserve Bank of Australia,