The last 2 days have seen profit takes. The second day is far worse than the first because the Dow came off by over 100 points. The sell off is said to have been caused by Goldman's report that oil prices are likely to fall by USD10 - 20/bbl after the Middle East crisis stabilises. Also, global demand is slowing down due to the high oil prices.
While it is true that persistently high oil price could see the world enter into an inflationary period, we should remember that this isn't a repeat of 2007. Interest rates then were very high and in the US, the yield curve inverted in June 2006. This time, the core inflation in US is virtually below 1%. Fed funds rate remain at 0.25%.
The developed world could plunge into a stagflation in 2012 or 2013, something that the UK is facing now. That I don't doubt. But Asia and Emerging countries' economic growth is still chugging along. The commodity countries are exporting more of their minerals / resource than ever.
FOr the next 2 decades, there will be tremendous wealth transfer from countries that import commodities to countries that export.
I think this correction will last another 2.5% - 4% for emerging market at most before it comes roaring back. Buy on dips.
