ChrisJP, while I said a bottom is near, I didnt say where or when that would be. I am not so foolish as to try to call an absolute market bottom, rather I will let the market tell me. The only thing I know is that we are closer to a bottom than a top, and the TIME cover indicates as much.
These comments from this weekend's Barrons may interest you
<<Marc Faber, in his latest Gloom, Boom & Doom Report, supplies the likely answer.
Marc stresses that there are two distinct types of booms: The first is consumption-powered, the other "an asset bubble or new-technology-driven capital-spending" kind -- which, you doubtless recognize, is the boom we all, until recently, so greatly enjoyed. A consumption boom typically ends because, well, consumers tire of consuming. In countering the recession that follows, Marc comments, tax cuts and rate cuts can be effective, once inventories are liquidated, in rekindling growth.
The asset bubble or new-technology boom, however, is a whole different animal, and so are the causes of its demise. The main culprit is a surfeit of capital investment that inevitably leads to oversupply and glut. Margins and profits suffer, returns to the folks spending all that dough fail to meet expectations and asset values crumble. "Even zero interest rates," Marc ventures, "may not help."
Compounding the woe is that an asset bubble or capital-spending boom is financed largely by long-term borrowings at fixed rates. During the bust, the interest costs on the long-term debt assumed to finance capital investment do not decline; indeed, in real terms, they become more onerous, the sorry stuff of rising defaults and bankruptcies.
Bubbles and investment manias, Marc says, always mark the terminal phase of a business expansion, although mistaken for its start. They are followed invariably by "deflationary busts, sharply declining equity prices, a weakening currency and a downward spiral in the economy.">> |
