Tommaso,
Before were "facts", now JMHO. Seems, the rich (those who buy $100,000 min CDs as cash) are at least maintaining their cash/equity position about constant, as opposed to lesser folks who've been piling up into equities. As market goes up, say, 30% and one maintains, e.g, 5% cash +35% bond position (40% total fixed income), one has to sell off about 10% of the increased equity position to be transferred into cash/bonds in order to maintain constant asset allocation, which many institutions and rich individuals do.
This has two consequences: (i) roughly 5% of market cap gets sold (assuming asset allocators have 1/2 of total market cap), which results in periodic "corrections", and (ii) when stock market cap is much larger than total of bonds outstanding (which is the case now), bonds get bid up no matter what.
As stock market cap increases faster than GDP, at some point this asset reallocation results in selling of more equities than suckers can buy - then stocks stop going up. If, once stocks have stopped going up, speculators start to sell too - then the Myth may occur. That's the basic general theory which is correct, but has little short-term predictive power.
FWIIW |
