Well lets see;
The nasdaq has managed to double in value every two years for the last 5, with a bit of a pause in 10/98. Counting the blowoff top that we have seen in the past 5 months the nasdaq went from 700 to a tad over 5000, yikes a 700% increase in 5 years.
From todays close the figure is a shade above 500%, with is excellent.
The dow on the other hand has run from 4200 to 11400 a mere 350 below its all time high. Considering the makeup of the dow, a 270% increase for a average of 50% per year (simple not compounded) ain't too shabby.
The past 5 years have been fantastic from both a investment view as well as the real economy. Of course we know companies haven't enriched shareholders to this degree, rather the growth in equities is a result of continued confidence in the future, eliminating the risk premium and valuing businesses based upon anticipated future cash flows that go out further and further into the future (3-10 year with compounded growth rates of 15-50%). In some cases the DCFM hasn't even been considered (kinda hard when profits are never envisioned), but some hokey multiple of revenue is arrived at (I guess because a limited float KP stock is used to benchmark the sector)
Even the asian crisis which was first feared to be a threat, depressed commodities world wide, assisting keeping inflation in check pouring dollars and confidence into consumers pockets.
The problem is the past repeating itself going forward is priced in the market to the extent investors are shrugging of the feds efforts to slow the economy.
I predict that the nasdaq will see 2700-3000 by this summer and that may not be the bottom.
Currently the dow is on a tear as money flows out of the techs.......the real story will be here and will depend on how our economy settles down, soft or hard.....this will be important as it relates to the dollars strength (or weakness) along with consumer spending and saving rates.
Those who have stuck with the market have been well rewarded, to the extent that a lot of money has been thrown in chasing the winners well above any reasonable analyst's traditional approach to valuation of equities. While a correction in the past has resulted in a buying opportunity, our economy's capacity to growth has rewarded this behavior.
We are now at our best. Earnings, consumer spending, interest rates the life blood of business in a aggreate all have the potential to move in the wrong direction.
I see the dow in the 9500-10500 range comethis summer with the potential to have a downward basis (along with the nasdaq).
We need 1-2 quarters of nil to neg growth in consumer spending, employment to drop and savings rate to go up. We need to have a strong reserve of cash available to invest to make a sustained move and it's not there (household wealth in equities at 61% a record, along with 265 bil margin debit). Given two quarters of flat to neg growth in gdp, I can see the fed moving to a relaxed monitary policy, which will be the next green light for the bulls to run again.
On the other hand.....political pressure could come to pass which could result in a inflationary environment which could go anywhere.......ultimately the toilet.
Mad2 |
