It’s a very good point. Since 2000 there has been a flood in liquidity that has resulted in boosting home prices, commodity prices, etc. However, the reason this hasn’t made CPI blow through the roof is because of the cheap products that we get from China. The flip side of these cheap products is the higher trade deficit and hence the downward push on dollar or cash savers. However, the same money generated by japanese/chinese exports is re-invested into US equity, US treasuries and the circle continues. However, this imbalance cannot continue forever. I think the ultimate loser is going to be dollar (it already is and has lost 35% against euro).
But despite worries of economists about these imbalances since the beginning of 2004, stock market in general has done well and folks who have sat on their hands have lost great investment opportunities in the US and abroad. I don’t see these imbalances causing global markets in a week. Until, I start to see real signs of economic recession and the market reaction to that, I believe we should stay with the rally (especially with corporates reporting 15% earnings growth).
