Steve, once again I agree with you, and was using the real estate example not as a financial analogy to the stock market, but to a psycho-social parallel, in which individuals were caught by surprise by the sudden high valuations, but those valuations pretty much held. But enough about real estate, as you pointed out it is a poor analogy.
Concerning your boomer money point, I very much agree and have said the same thing myself. As far as a 20-25% correction, well, we had one last October and interestingly the people who got scared and sold tended to be the institutions rather than the average investor. It will happen again, although I certainly don't know when. But one thing I don't subscribe to, is that the internet sector will have a particular catalytic effect on the next drop. After all, most investors in the internuts (I don't consider AOL one) know they are investing in a highly volatile issue and are willing to take that risk. I don't think the average ma and pa investor planning for retirement is pouring money into Amazon or any of the others.
Would a 25% correction hurt? Sure. Would it create a panic? I doubt it. Would it create fantastic buying oppotunities? You bet. I actually got out of the market at the last correction and was looking for a 6500 bottom. Little did I know that AG was going to manipulate it and cut rates. Now he is worried that he overmanipulated the market, and is trying to jawbone it down. I say let the market decide, and if it is overbought it will correct when it is good and ready to do so. But I suspect it is not as overbought as people think. What we are seeing, and I know you realize this, is a divergence between the big and small caps. The small caps have been in a recession for a long time now. As long as the boomer money flows into index funds, this distortion will continue.
Good investing... |
