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Strategies & Market Trends : MDA - Market Direction Analysis
SPY 662.72+0.4%4:00 PM EST
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To: Lee Lichterman III who wrote (19262)7/2/1999 9:12:00 PM
From: Benkea  Read Replies (1) of 99985
 
Lee:

"If this is indeed true, then the bubble may never pop and the discussions we have here all the time may be the same discussions that were being made in the 70s about the Dollar when it was unpegged and set loose to rise to power across the globe."

The situation you describe is a bubble economy. It takes money to buy stocks (even when driven on a supply and demand vs. fundamental model). The mania is largely a result of low unemployment (everyone is working and buying stocks) and incredibly low interest rates (which are now trending the other way). The -1.2% savings rate tells you this WILL NOT go on forever. There is only so long you can build a pyramid scheme. If this economy slows down and unemployment rises by even the smallest margin coupled with higher rates (which eat more disposable income), there will cease to be the necessary liquidity to drive this thing. With so many highly leveraged consumers (with easy 125% home equity loans), their debt ratios have got to be stretching any reasonable underwriting guidelines for credit extension. I would not underestimate the HUGE infusion of liquidity brought about by the re-financing at much lower rates of appreciated real estate. However, that positive trend for the market is now finished!

PS. Don't forget that autos are the 2nd largest household expense, over 50% are leased, and that auto leases are not included in gov't consumer debt numbers!
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