MB,
well, it's clearly an asset bubble, and if you've seen one, you've seen them all. so, the question is, what degree, and when it stops rising, what else is going on that impacts its denouement?
I don't have the numbers in front of me, but we've stepped a qualitative jump above 1929 in various equity market valuations such as price / dividend, market cap to GDP, and P/E. We're also well above any historical trend you want to draw (unless you want to draw the curve from 10/8/98 on the NDX, for example ... hehe, maybe that's my mistake!). So, it's a parabolic rise, a blow-off top of some sort, of a magnitude which may be considerably greater than 1929. There's precedent for this, e.g., 1720 South Sea Bubble. Maybe Japan in 1989.
If 1994 - 1998 is a parabolic top on the greatest bull market in US history, then October 8 and still ticking is a blow-off like we've never seen before. Again, still a bubble, same old story, just new degree, if you buy the working hypothesis. It's also occurring in the context of worrisome fundamentals (did I put that judiciously enough?). A whole bunch of other stuff, too. Economy dependent on way-above trend stock market gains. Rocket fuel from the Fed, not just interest rates, of course. Deflation. Real deflation. Declining earnings. You know the story.
So, if my hypothesis is correct, and this is just a plain old asset bubble, like we've seen before, but it's a degree greater than we've seen before, greater than 1929, for example, does that have implications? Consequences, better put?
Now, I'm not trying to claim there's a deterministic cause and effect between the size of an asset bubble and the backend consequences (e.g., crash? economic impact?), and deriving from that, well, if this is a bigger bubble than 1929, then there will be a crash, and there will be a depression, and they will be bigger and worse than post-1929. I just don't know. I'd say there's about a 10% chance (pulling a number out of the air) we're already in the early stages of a global deflationary depression, which could be less severe, as severe, or more severe than the 1930s, but I just don't know. I can also imagine a variety of other scenarios, even the bullish scenario of a Harry Dent.
But my gut tells me there's a good chance we've bought the farm on this, and there's going to be some tough sledding pretty soon.
Oh, btw, did I mention I'm not sure all the computers are going to work just right in a few months? No kidding. <ng> this time for real.
Peter |
