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Strategies & Market Trends : The Thread II -- Ignore unavailable to you. Want to Upgrade?

To: Mao II who wrote (2628)	6/24/2001 1:52:27 PM
From: SirRealist	Read Replies (1) \| Respond to of 9026

Im curious what bubbles you are using for your historical guides. Assuming that factors in the last half of the century might be different from the first half, due to economic reforms post Depression, the rise of OPEC, the decimation of Communism, etc., I looked at a few world market declines from bubbles in the past 30 years first. Japan's Nikkei, which declined 46% between 90-92, Italy's 45% decline 74-77, and the UK's decline of 70% in 73-74. Aware that big differences in business and politics exist between us and them, with the UK's system closest to our own, I wondered if 70% might be our own bottom point. If so, 1540 would be our bottom. But the ultimate and overriding factor with all these comparisons was the fact that no boom cycle this century paralleled Nasdy in the 90s. The closest was the Roaring 20s right here. And that was an 86 point correction over 4 years. I already came up with my own 85% correction from my current NASDy charts before I calculated the Depression crash percentage, btw. It's worth noting that our boom side this time exceeds the boom time then, so no existing time has ever mirrired an upside of this magnitude... we are in uncharted territory. I also found it interesting how the bubble grew so large and what some may conclude caused the boom/crash cycle. A professor Vernon Smith and his associates did some computer models that supported this theory: stock booms followed by sudden crashes are more likely when a market becomes dominated by inexperienced traders. Specifically, they tested the theory that a stock price is determined by investors' expectations of what dividend a share will pay going forward. Their findings: inexperienced traders tend to lose sight of such basic determinants of value, speculate on price trends, and quite often created a boom followed by a crash. (Smith, Vernon and others (1988). "Bubbles, Crashes and Endogenous Expectations in Experimental Spot Asset Markets," Econometrica, 1988.) Other studies indicate the boom side was sustained at first by a large increase in corporate earnings and stable energy prices... and later by the constancy of baby boomer retirement monies flowing into mutual funds. But those conclusions were drawn back in 95, before the real bubble had occurred. Volume charts indicate shares traded went from 1.8 billion daily (early 95) to 5 billion, 4 years later... while NASDy tripled (800 to 2400... a 1600 pt rise). This corresponds with the rise of the Internet, and the advent of a daytrading boom. But in the next 15 months, it more than doubled, to 5132... a 2700 pt rise in less than 1/3 the time. And volume doubled in that time, from 5 billion to 10 billion. Volume didn't peak though till late last Fall, at 12 billion. It's too simplistic to blame it on inexperienced investors alone, though. Certainly, internet hysteria drove it, and daily traders were the first to perceive the benefits of broadband, going forward. This fuelled inexperienced management teams to build out a system beyond the actual demand from the consumers and to build up excessive inventories as they tried to outdo competitors, and by the end, inexperienced analysts and fund managers had bought into the speculation as well. Inexperience was a major factor, but it ran through the ranks of all participants: traders, corporate & fund management, and industry analysts. And the oil price escalation in the past 18 months helped cap it. If this prediction bears out (oh, I said the bear word), NASDy would return to a hair below it's 1995 level at the bottom, with a smaller group of well-seasoned traders, mgt teams and analysts. The market could easily grow at a more sustainable pace, corresponding more closely to broadband Internet demand. In the longer term, the growth of China as an economic force can't be ignored. And, as baby boomers retire, the health care, pharmaceutical and biotech companies can be projected as high demand areas. Yet all of this boils down to more of the same: my best guess is speculative and time alone holds the answer sheet.