hb,
I don't buy the excessive debt argument. Can you provide some numbers to support this argument? The numbers I am aware of, say that the biggest debtor of them all, the US Government, has been running surpluses for the first time in a generation, and the ratio of US Government debt to GDP has been falling rapidly, now down to 35% from a high near 60%. And, I remember reading recently that household debt as a percent of household assets is not that bad either. Corporation debt has increased, but so have corporation profits, I believe at a higher rate than the corporate debt increase. So, frankly, I don't see a huge problem here.
I don't buy the Japanese comparison either. The Japanese bubble involved their entire stock market and their real estate market as well. In fact, their real estate bubble, which affected significantly their real economy, was much worse than their stock market bubble. The two bubbles kept feeding each other and the result was insane valuations of real estate, which was the main reason, by far, of the paralysis of the Japanese banks that hobbled their economy for a decade. The US real estate market, other than a few hot spots, can hardly be called a bubble.
Let's make one thing clear: I think there is a bubble, but it is confined to the fashionable high tech and IPO markets. It is a more severe version of the biotech or PC bubbles we had before. The wider stock market is hardly affected by this bubble. If you remove bubble shares from the indices, the rest of the market is actually undervalued relative to long term interest rates, especially if you take into account that long term interest rates are currently near their peak (IMO). I have acted on that belief by selling all my techs last week and moving into areas I consider severely undervalued, primarily utilities. I will keep trading techs a bit, but will not move to them in any significant way until the bubble has burst. |
