Pierre; On the surface your analysis looks reasonably sound,
but roll back the covers and you find.
(1) The major indexes are always enhanced over time, to give
people the impression the market is doing better than it really
does, after all they want to sell stocks, and make it look as
enticing as they can. Momentum stocks are pulled into the indexes
while under performers are dropped out. None of the stocks that
go belly up and get de-listed are subtracted from the wonderful looking performance of the indexes.
(2) You say 5000, NO BIG DEAL..let me tell you before you ever
get there that kind of drop will have people making a run on stocks, and it will explode worse than a run on any bank, just how many
people do you think can get out of the market before it melts
down. Below 8000 and you can go into melt down stage pal, 7600
is max unless you think a Three Mile Island type melt down
is nothing. Don't forget the SEC damm near threw away the
the stop triggers, when they let that 10, 20, 30 go into
effect. That was a very extreme and stupid move on their part.
(3) If you want to surmise on how John Q public has been making
out in the market , Take ALL the equity mutual funds and get the
aggregate gain, to form a mean average. You will find it is not
nearly as rosy as the indexes would have you believe.
(4) You say , Investors cannot expect a 20% or 30% return from equity year after year when the economy grows at less than 5% during the same period of time. Well to start with that has nothing
to do with what many of them do expect. On top of it very few
of them 10% maybe have made close to that, so a lot of them are
not so thrilled as you might think.
(5) A drop to the 5000 level would not give but a handful of
people the 7% annual gain you figured, and you might get a rough idea of the new participation in the market since that time frame by looking at the volume. My guess is over 50% would suffer huge losses,
and the fine budget surplus would reverse so fast that the
government could get right back were it was not so long ago,
" when there was real fear that we would not be able to service
our national debt and Bush with his trickle down economics,
had to damm near shut down the government.
(6) Don't even think about a drop to the 5000 level, if it starts
headed there it won't stop , not before the 3000 level, if there.
Pension funds will be gone, insurance companies broke, and
we may be asking Russia to lend us money. You have never seen a
melt down once it really starts, there is now damm near no way to
stop it. If you read up on the inside stories about the 87
crash, while people make little of it now, there was total
panic behind the scenes, and you had much better seasoned fund
managers then than now. Just because it didn't completely melt down that time , doesn't mean it wasn't very very close to it.
Jim |
