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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (68773)	9/8/2007 8:36:30 PM
From: RealMuLan	Respond to of 116555

The Short View: A future bubble By John Authers, Investment Editor ft.com Published: September 4 2007 18:28 \| Last updated: September 6 2007 02:27 Three months ago, two analysts issued notes warning of a risk of a sell-off in the stock market. They were proved right. This week, both published notes saying it is now time to buy. Teun Draaisma, European equity strategist at Morgan Stanley, and Chris Watling, of Longview Economics, hedge their calls with concern about risks in the very short term. Both used models of market sentiment to make their initial selling calls in June, and now draw parallels with the fallout from the Russian crisis of 1998. This blog gives more quote of the article: ftalphaville.ft.com Authers examines the combined views of Draaisma and Watling, that sentiment is ready for a big switchback, valuations are reasonable, and global economic fundamentals appear in decent shape. For Draaisma, he says, it is time to “think big”: we could be at the beginning of a “stock mania” - a final leg of a bull market in which retail investors at last dive in in a big way, companies make big capital expenditures, multiples expand and big strategic mergers take place. He points out that it was only after the 1998 correction that the final phase of the 1990s bull market was unleashed. The bounce back from the low of the current correction is bigger than any previous bounce within a correction - implying that the market goes up from here. “Of course, it will end in tears,” he says, but if we get through the current crisis there will be much money to be made. Mr Watling, however, warns that “renewed risk aversion cannot be ruled out”. In 1998, equities fell more than 10 per cent after the Russian default, moved sideways and then fell another 10 per cent after the LTCM collapse. Distress in the money markets shows many fear just such an event. Watling also warns that the risks of a US recession have risen, and that the Fed may refuse to cut rates. In sum, says Authers: If the market gets through its 1998-style crisis, with (as in 1998) the aid of easy money from the Fed, then both agree a 1999-style binge might well result. Investors can worry about the consequences later.