You know, these index funds are I think the devils own creation. If anything is going to cause a 30's style crash, it will be those things.
A whole lot of people have their 401K and other money in mutual funds. They buy these index funds which must, by definition, emulate the index by purchasing the same stocks in the same proportions as the index itself.
So, you have a large amount of money chasing a limited amount of stock. The price of the stocks has to climb, regardless of fundementals or technicals. When the stock price climbs, the index fund makes a large return. They mutual funds say " Hey, look at my performance. And more money comes in, and the thing simply spirals upward. Thats how you get Coke trading at 45 times earnings.
Sooner or later, something will break, and the entire herd will head to the doors at once. Will not be a pretty sight.
Of course, thats my opinion. |
