many market bulls may be saying that although the immediate future could hold more gains and even higher highs for the S&P 500 there are good reasons for us to be concerned for the longer term.
RtS, there are always reasons to be concerned for the longer term. Anyone who has been through a vicious bear market seeks out and finds reasons to be concerned because it is not unlike putting your hand on a hot burner--you don't want to experience that horrible, helpless sinking feeling again. But as Jacob wrote, you don't give a time frame for this possible meltdown. That alone certainly makes it possible--anything is possible. There are many possible catalysts for it, in addition to ones that Jacob mentioned:
--The EU could implode;
--the Asian countries that have been a good deal of the engine of growth for many countries as they build out their infrastructure and economies could easily make missteps, and get ravaged by inflation or by commodity shortages as their internal demand builds;
--the Fed might miscalculate by not soaking up excess liquidity in time to avoid inflation or might decide to tighten too soon, prematurely cutting off the recovery as happened in '37-38;
--the absurd amounts of debt that banks have allowed themselves to take on in pursuit of ever greater profit and have been permitted to take on by certain governments (I am thinking here particularly of Ireland and Great Britain, both of which encouraged banks from other countries to set up subsidiaries in order to avoid their own countries' relatively restrictive lending regulations, got a temporary boom and now are suffering the predictable hangover with austerity measures that are far from popular) could easily lead to another credit crunch;
--the fact that we are facing potentially enormous imbalances as globalization leads to change that is just too fast for people and countries to adapt to, especially developed countries that have vested interests and populations employed in careers that are disappearing either due to technological advances or due to competition from low cost labor in developing countries, leading to massive dislocation and continuing unemployment or underemployment and lower standards of living and to social unrest. Retraining middle aged people who have been employed in a field for 20-30 years is not an easy task, and many of these jobs will simply move to other places, something that modern technology, communication and transportation facilitates. Furthermore, the elites who have money and and power are vested in the status quo, and even if they see the need for change in the abstract, may well not be fully motivated to make necessary changes--after all, some perhaps even many of them may well reason, "individual responsibility" trumps everything else--"What can you do, people are just too [lazy, inflexible, dumb, irresponsible, not far-sighted enough, unlucky--add whatever word you choose here; rationalization of the status quo is pretty easy for educated people to do, especially if they deem themselves "winners"].
And of course, on top of all that, there is the possibility of an environmental disaster. Or even multiple environmental disasters, ranging from climate change to critical resource depletion.
All that said--for now, the Asian countries are doing pretty well, the recovery in the US at least looks like it is building and the employment situation is getting better, the EU could conceivably muddle through as they have done so far, either temporizing and gradually over time healing their debt problems or they could possibly cut off some of its weaker countries without completely imploding (although some of those banking subsidiaries are now problematic, and could still infect some of the more important economies with another credit crisis). There is still a steep wall of worry to climb, caution is warranted, but so is at least some optimism. Usually it takes more than one interest rate hike to cut off a recovery--in fact, usually takes about 3--and we haven't even had the first one yet. Although there will undoubtedly be some corrections over the next year--one possibly even starting right after this earnings season is completed, to judge from the initial reactions to excellent reports so far--I still think that barring an EU implosion or a sudden inflationary flare up, we will on balance have a decent year in the market, up mid single digits when all is said and done.
JM[very]HO. |
