Kap, "Today we have the autos. Housing, pharmaceuticals and raw materials are next in line."
I have a few thoughts on the doom subject.
Look at historical behavior of, say, S&P500 index.
From 83 to 94, for 11 years, the stock market was
exponentially growing at 12%/year. I would say it
was a good return, but I still have a simple question
unanswered - how it is possible to make money
out of thin air if the GDP was growing only at
2-3%/year. Therefore, even 12% does not seem quite
sustainable, unless the grows was indirectly fueled
by the third-world. On the other hand, the 11 years is
a pretty long term for global feedbacks and adjustments,
so let's optimistically assume that the 12% trend
is a sort of sustainable target for the long-term
markets.
Now, from 94 to 99, the SP500 index was growing
at a staggering 32% - in logarithmic scale the chart is
linear piece-wise. Clearly, this kind of grows cannot
go forever, and the bubble burst. Now we have
a stable 32%/year decline, third year in the row.
How low can it go?
Assuming that the old trend of 12% is a sort of bottom
line and represents some market balance, the stock slump
will likely continue until the current -32% trend meets the
old +12% trend. This will happen somewhere at the
end of 2003, with SP500 at about 750 level, according
to the SP500 chart. I think this gives us a somewhat
reasonable indication when the stock market can start
to recover: 1.5 years to go.
- Ali |
