Your post is excellent, thanks for taking the time to provide your thoughts.
You mentioned a "change in sentiment on the part of the panicking foreigners," which will lead to significant reduction of capital moving into the US market. You also stated your opinion that the stock market is overvalued.
Let me develop a scenario for the period beginning mid-1998 based on the assumption that your opinions are correct:
1. In a few months, foreign capital ceases flowing into US equities, which are overvalued. This results in stagnation or decline of US markets.
2. By this time, the developing countries' economies are beginning to stabilize or hit bottom. The developing countries' stock markets are undervalued due to panic selling that is currently ongoing.
3. Because of the global slowdown, interest rates will be very low. People will have the choice of either putting money into hard assets like gold, real estate, etc. in a deflationary environment (not too attractive), putting money into bonds at very low interest rates (not too attractive), putting money into an overvalued and stagnating US market (not too attractive), or putting money into developing countries' stock markets at historic low prices.
4. Money will begin flowing into the developing countries' stock markets. Over the subsequent years, developing countries' stocks will go through a sustained increase in valuation levels.
What do you think?
Best wishes,
I2 |
