Interesting discussion.
I'm a little reluctant to sign on to MMV's specific predictions (e.g., 70-80% drop in CSCO), but I don't think he's completely nuts :-). Gary, you eloquently expressed two different things:
the sell-off might be a bit deeper...call it 7000 for argument's sake....a 30% delcine...which probably translates into a 40% shave for Cisco.... call it $70/share. Do you think we'll see buyers there? You betcha!!
You may be entirely right about this. (As of today, I predict I'd be buying more CSCO at $70.) But here's why it might not be so:
The economy and stock market are booming because growth is high and inflation is low. Inflation is low because wage growth is being kept in check, but the economy is booming because consumers are spending anyway. Why are they spending anyway? Because they feel affluent even though their wages are not rising, because their stocks and 401(k)'s are doing so well. This is a wonderful circle. Here's how the circle could turn vicious: earnings growth drops, the stock market pulls back, consumer confidence decreases, consumer spending declines, earnings drop some more ....
More concisely, I think you really hit the nail on the head when you said:
This always happens.... at least for the past 10 years.
Bingo. History is full of things that happened for 10 (or 12) years, and then stopped.
Shankland's First Law of Investing: History always repeats itself, except when it doesn't. |
