Discussion in 'Economics' started by crgarcia, Aug 11, 2008.
Funds are getting out of commodities, currencies;
They're getting into stocks again?
There are two theories:
1. We are simply in the middle of a standard economic cycle. Financials are starting to power up, technology is just beginning the same and we're on the road to recovery. There is actually some evidence for this based on standard market cycle analysis.
2. We are entering a Lost Decade similar to Japan where the drunken money supply excesses of the 90's will lead to us lying in the gutter for years and years. In Japan's Lost Decade both the real estate and stock market cratered and still for the most part lay there smoldering and in ruins. This link
documents how in Japan
"On Dec. 29 of that year, the Nikkei 225 Index topped out at 38,957.44, before closing at 38,915.87. By the following September, it had nearly been halved - and there was still much more bloodletting to go (despite several subsequent rallies up over the 20,000 threshold, the Nikkei ultimately bottomed at 7,830 in April 2003. It closed yesterday - Wednesday - at 12,760.80, still down 67% from its trading high 19 years ago).
The fallout from that meltdown was incredible. By early 2004, houses were selling at 1/10th their peak value, and commercial real estate was selling for less than 1/100th of its peak-market value. All told, an estimated $20 trillion in stock market and real-estate wealth had been vaporized (although one could easily argue that the peak values werenât real to start with)."
So take your pick: 1 or 2.
I don't think there a perfect analogy with Japan and ourselves: our companies are not "floating in cash" from thriving exports, etc. And, as big as our runup was during the real estate bubble, it does not compare to that of Tokyo and Japan. But, that said, there are many comparisons: we had the Greenspan 90's and Private Equity fueling our excesses.
My two cents is more for 1.5: that we are going to have another five years of anemic and slightly downtrending stock and real estate markets. One key difference between us and Japan: a continued weak dollar will boost our export and manufacturing base.
Btw, if you do a little research you'll find certain US sectors that have been getting some cash. There is one thing that will pull some money into the stock market temporarily: falling oil prices. If the oil bubble bursts, stocks will benefit at least in the short term.
The forex play is switching to a strong USD and a weak EUR. What we are seeing in oil, gold, etc. is the effect of said rotation.
I'm not going to say Bernanke was 100% right, but people need to give him more credit for working with the other heads of various central banks. This whole move was orchestrated 12 months ago.
Take a look at a 10 year chart of the S&P 500. The stock market already had a "lost decade".
True, but new highs made during the dotcom bubble were clearly unsustainable in the long run.
Yes, the link pointed that out as well. Unfortunately, there is still more pain to go imo and so a Decade is probably just a nice round number...