Victor, I did not say 30% to 40%, I said 16% to 17.5% which is less than last year's relapse, and all the factors you cite were present last year as well. The difference is that last year about 20% of the world economies were in or going into a recession, and right now it is getting closer to 40% and even Europe is slowly sliding into recession (Germany just had a negative growth quarter). The reason I do not expect a very deep retrenchment in the very near future is the same element you cite, excess liquidity. In the next 12 months there will be, IMHO, some $500 billions looking for investment home (consisting of about $300 billions of interest on US national debt and $200 billions or so of depostalization). A decline of the magnitude I am talking about will not bring stocks to the Fed's model of fair value, and I think it will be some time before the pendulum will swing back to "undervaluation", but I think that eventually it will. Somehow, it always does.
Few of the factors that could contribute to such retrenchment may include the current strengthening of oil which could finally lead to a bottom in commodities pricing, the fact that the US is running budget surpluses (this means that the government is taking money out of the economy and when that goes too far, recessions ensue), the fact that once investors psychology changes it goes to extreme and few more.
Zeev |
