Rarebird, I would agree with you that the current bubble is somewhat on the "excessive side", particularly in the I-nuts segments. However, I would not worry too much about the total valuation of the market going to three times its old median, the total valuation of the stock market should creep up, for the simple reason that more and more of the economy is being included in the market. At the beginning of the century, 90% of all Americans were "self employed" (mostly farmers, small trade people and "artisans"), today I believe that only 4% of the population is self employed. If you take into account that now most of us are working for public companies and then most did not, you would see that on the average a greater ratio might be justified. The stock markets values that part of the economy which is publicly held and today that part is much greater than it has ever been.
As for Mr. Yen's comment it actually floors me, I am surprised that a person leading the Japanese financial infrastructure is blind to the impact of liquidity on financial assets valuation, particularly that it is his country that is planning to "let free" all those trillions of dollars laying waste in their postal system.
The combination of a budget surplus in the US and the flooding of international markets with excess liquidity in Japan almost assures that any decline in the US stock market over the near term horizon will be nothing more than a usual bear market. I do not see any "depression" or huge recession in the cards with such overhang of liquidity weighing over the financial markets.
As for AG, he is still maintaining a very strict monetary policy, relative to existing inflation trends, and I believe that he is leaving himself ample room to ease and ease drastically, in the event that a financial accident were to occur. So far, his two weapons (words and interest rates) have worked wonders, won't you say?
Zeev |
