The price action's very similar to '87. Huge stealth rallies that immediately disintegrate, ect. And certainly the fundamental likes of rising commodity prices, sluggish dollar, Mid-East unrest are in place. A few MAJOR differences as well though. In '87 credit markets were in a free-fall and P/E's were through the roof. Quite the opposite now, eh? Obviously in '87 the winners were those who shifted assets from equities to fixed income prior to October. Many did. The benefits of that strategy are less clear now. IMO the likelihood of a 1987 crash is beyond zero. Many reasons. Some would cite circuit breakers, ect. but I think the real reason is the market just isn't intrinsically over valued enough to shave a quick 20% off of prices. I do think there's a significant chance of an Oct/97 or Oct/98 type WASHOUT where the Dow is down 600 in a day and perhaps that winds up being a buying opportunity. I'm cognizant that sentiment is very bearish and that should give bulls some hope. My work shows shows importance in last weeks NDX low of 1446. I need to see those lows penetrated before I'm going to get out of my mind negative.
I think the there is no doubt that we are headed for a credit contraction. And I think Ben Bernake knows it. I think that is the number one reason he hasnt dropped the hammer on interest rates and made larger increases than the market has expected. Our markets may not seem overvalued, but that doesnt mean they cant go down much further than anyone expects. I think the nasdaq will hit 1000 sometime in the next 5 years. Helicopter Ben is going to get his chance to implement all the radical ideas he has floating around in his head. The real question is how do our foreign creditors respond.
out of curiosity...why do they call him helicopter ben?...is it b/c he likes to print money and throw it out a helicopter? am i correct in my assumptions?
Yes, a year or two ago some people were worried about deflation. Ben said not to worry, the Fed would drop money out of helicopters to avoid it.
I somewhat disagree. The inversion of the yield curve seems evidence enough of the tremendous liquidity in fixed income markets. In fact I see the systemic risk to institutional investors, i.e. pension funds and insurance companies as coming from rates too low! It's awfully hard to pay benefits and claims with "reserves" that are only growing by 5% a year. As far as a more restrictive policy going forward. It's not warranted. The fed knows that consumers are maxed out. It doesn't take rate hikes to slow spending. Higher prices on energy, insurance, property taxes, ect. are the equivalent brake on the economy of several more rate hikes. Fed policy is impotent in controlling upward pressure on many items. Do you think OPEC cares what the Fed Funds rate is? The only thing the Fed can do is squash consumer borrowing and wage increases. With RE, stocks, and consumer spending all showing signs of sluggishness, there's little impetus for a mega-restrictive policy.
I really hope things turn out of ok, but the US has a problem with asset bubbles and once they head south it tends to take the whole economy with it. What picks up the slack from real estate? And who is own the hook for the bad credit that has been extended? It wil lbe interesting to see if the rest of the world can grow without the american consumer. In fact I think it would be a watershed event.
We're going down but we ain't crashing in the down 10%+ in a few days sense on the S&P. If we were at 20+ PEs then yeah maybe a crash, but from 14-15 PE and a market controled by hedge funds - no way are we crashing. May was probably the worst of it we didn't even get a 2% down day - funny as hell. I do recall creating a thread titled 2006 in which I predicted taking out the 2005 highs and lows. Here's my long term prediction: We head towards a 10 PE which would be around S&P 950-1000 sometime next year or in 2008. Then a huge bull market that takes out the highs around 2010. As I recall: 29 correction - takes about 25 years to hit new highs. 60s correction - takes about 15 years to hit new highs 2000 correction - (my prediction) takes about 10 years to hit new highs. Reasoning: Don't have the exact number of years to new highs but each major bear market losses are wiped out faster than the last because the economy is getting more innovative and productive than ever as time goes on.