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Pastimes : Ask Mohan about the Market
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To: Cynic 2005 who wrote (8739)11/20/1997 6:12:00 PM
From: Bearded One  Read Replies (1) of 18056
 
Fundamentally, the problem Asia has is that they're realizing that they're not as rich as they thought they were. The fundamental bear view is that the same is true here in America. So, when will the American people realize that they're not as rich as they think they are?

It used to be that the stock market was a leading indicator. But that assumes some intelligence on the part of the money in the stock market. Since more people are now in the stock market, one has to assume that the intelligence of the market has decreased. That's simply regression towards the mean, and no insult on anyone. I claim that the stock market is now a trailing indicator of the economy. Or, at least, the lead time has gone way down. That means the bad news has to hit us directly before the market goes down, rather than vice versa.

Given that theory, for Americans to realize that they're not as well off as they think, we have to look at the classic problems that directly affect people:
1) Inflation
2) Unemployment (deflation)
3) Interest rates.

So when will these things hit us? There seems to be an implicit argument going around that inflation and deflation cancel each other out. Of course, anyone who remembers the Ford-Carter stagflation years knows that's bunk. But when will these things hit? That's the question. Because I think that the public will just keep buying and buying and buying until they've run out of money due to one of these three items.
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