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Politics : Ask Michael Burke
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To: PaperChase who wrote (64642)7/15/1999 4:05:00 PM
From: Mike M2  Read Replies (1) of 132070
 
PC, I know it sounds absurd but this is the type of damage that occurs when bubbles burst. This market could decline 50% and still be one of the most overvalued in history. I don't know what the catalyst will be but I'll toss out a few ideas. US Dollar weakness from the trade deficit -there was a time when trade deficits hurt the value of the deficit country's currency. In addition, the trade deficit hurts the profits of US companies. The dollar has received a boost from the carry trade but with the extreme leverage involved it is only a matter of time before another LTCM scale accident which may not be so easy for the Fed to fix. The consumer has record high debt loads and record low negative savings rate -this trend is not sustainable. The global recession/depression will continue to spread. If, however, there was a global recovery ( doubtful IMO) then the foreign money flows into the US would reverse for investing in their home economies. We all now about record high valuation but not as many know about the poor quality of those earnings which overstate the true sustainable earnings power of US companies. The productivity miracle is a mirage due the the gov't use of chained dollar GDP calculation overstating growth if measured in real nominal dollars. What has really fueled the US consumption boom is excesses in credit- at some point balance sheets will be so strained that debt deflation is unavoidable . This touches on a few of my concerns -there are others as well. I have no doubt that a bear market of historic proportions is unavoidable but I cannot guess when it hits. The scope of participation in this mania is unprecedented to whom will they sell? Cash balances as a % of securities outstanding most likely at record low levels. Mike
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