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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (2403)11/19/2003 1:12:28 PM
From: ild  Read Replies (3) of 110194
 
He predicts that a crisis will eventually result from the enormous federal budget deficits and lack of fiscal discipline that are part and parcel of the Bush economic policy. Deficit reduction in the 1990s, Rubin feels, was the "threshold act" that triggered "the sustained, robust recovery of the 1990s."

Today, though, Rubin is quite certain that eventually the huge deficit will push up interest rates on 10-year Treasuries from the current 4.5% to 7.3%. Jot down his arithmetic rule for future use: For every rise in the deficit equal to 1% of gross domestic product, figure that long term interest rates will rise by 0.4%.

There will be more crises coming from unexpected directions as well, Rubin believes, because support for market-based policies and trade liberalization are waning.

The former Treasury secretary's views on the stock market aren't exactly unique. But they're still valuable guideposts. For instance, watch the ratio of total market capitalization to dollar GDP. When it gets far over the average of 50%-- as it did in 2000 when it was a sky-high 181%-- it's time to be wary.

"Even a careful and highly disciplined investor can't see a market bottom any more easily than he can see the top," Rubin writes. In 1973, he bought some stocks he considered cheap. But they lost another 50% of their value by the market bottom in 1974. Listen up readers. Rubin warns that "No one is very good at predicting the direction of the market in the relatively near term." Not even Robert Rubin.

forbes.com
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