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Strategies & Market Trends : The Millennium Crash -- Ignore unavailable to you. Want to Upgrade?

To: Roads End who wrote (5621)	9/12/2003 3:09:38 PM
From: Arik T.G.	Read Replies (3) \| Respond to of 5676

The widely held opinion is that there was a bubble, it burst, and we're now trying to recover. IMO the bubble has not burst yet! 1. Overshooting back - It was one of the biggest bubbles on record, greater then 1929 and 1980 Japan by all objective indicators (market cap to GDP, participation of households, etc.), so paying the price means overshooting below the very LT market averages of P/E and Price/Book. We haven't even gotten close to the mean. 2. Lost wealth - Currently the combined market cap of the 2041 NYSE and 3351 NASDAQ stocks is $17 Trillion, down less then 30% from the max 24 Trillion or so three years ago. Previous bubbles had caused at least two thirds loss, and at this magnitude of bubble no less then 75% loss. 3. Volume - IMO the strongest single indicator to the bursting of bubbles is the eventual loss of interest in the stock market, indicated best by volume. The stock market is a mechanism taking wealth from the many and concentrating it in the hands of the few. A bubble is rare and a kind of magic - seemingly it puts money in the hands of everybody. At the end, of course, money gets even more concentrated. There are indicators that show that at LT bottoms stocks are extremely concentrated and at LT tops they are extremely spread - widely held. Hey - this is no secret -the act of spreading inflated stocks from the few to the many is called distribution. Overblown stocks are getting distributed and the money paid for them is flowing the opposite direction - getting concentrated. So until the most strenuous deflation is applied to stocks, squeezing every bit of hot air, and every single weak hand, out of them, and they are measured and pass as cheap by the most strict methods, the bubble cannot be gone. 4. Time - Look at recent examples. Tokyo took 13 years from the top to recent low (IMO probably THE low). Gold took 19 years from top to bottom. Only 1929 was a sharp correction taking less then 3 years to bottom. Is anything different this time ? I think two things - One is this was (is) the biggest bubble yet, that IMHO may have symboled the hibris of the twilight of the American empire. Time will tell about that, and after all the South Sea bubble came many decades before the twilight of the British empire. Two is Alan Greenspan. Usually there is at least a two generations gap between bubbles in the same market. The old generation that was burnt by the previous bubble burst has to retire from power before a new bubble can emerge. AG lived in the Great Depression. I think the Man is now the last person in power from that generation. So far he did everything right. He has only three tools he can use - Money supply, ST rates and talking the markets up or down. IMO he used all three in the optimal way (his "Irrartion Exuberance" speech was in December 1996, he raised and raised rates until equities topped, and waited till the top was evidently established before sharply lowering them, recently he's been pumping money like there's no tomorrow). But is doing right is enough ? I think not. The price has to be paid, Yin and Yang equilibrium was violated, and an overshoot is inevitable during the correction. All AG can achieve is a smaller overshoot. He will achieve that, meaning that everything could have been worse without him, but the bubble burst is IMO a deterministic chain of events, and the best influence one could have is quell the peak amplitude of events. ATG