- Joined
- 2 February 2006
- Posts
- 14,009
- Reactions
- 2,901
wayneL said:
Hope this very long link makes it, one error and it's doomed: http://personalfinance.iii.co.uk/ar...0005&link=tips0005_Sellwelleverything_259_100
wayneL said:We're having a nice little bear party on the US indexes too.
professor_frink said:markets are similar to 87 crash reports sunday times
http://www.timesonline.co.uk/article/0,,2095-2189601,00.html
nizar said:Ahead of the Curve
86-ing the '87 Theory
By Donald Luskin Published: May 26, 2006
THE S&P 500 HAS lost 3.9% since the high...
Nick Radge said:Every time the US lifts interest rates to 6% the market drops and has done so without failure. Rates hit 6% earlier this month.
nizar said:Ahead of the Curve
86-ing the '87 Theory
By Donald Luskin Published: May 26, 2006
THE S&P 500 HAS lost 3.9% since the high achieved on May 5. And already the bears who have gotten it wrong ever since the bottom in October 2002 have proclaimed "I told you so."
That's right. A measly 3.9% drop ”” following a 70.6% gain from the 2002 bottom. Couldn't it just be an orderly correction? No! The bears are calling it the precursor of a global recession and some are even warning that it will lead to a stock market crash like the one in 1987.
The bears claim that all the conditions are right for a crash. Rising interest rates. Rising inflation. Falling dollar. Rising trade deficit. Brand new Federal Reserve chairman. All these things, they say, are just the same today as they were in 1987, before the biggest stock-market crash of all time. The bears are saying it's a case of "ominous parallels."
I'll admit that there are some similarities between now and 1987. But the bears aren't telling you about the differences ”” and in this case, the differences make all the difference.
For those of you too young to know about 1987 (or too old to remember), let me tell you the most important thing about it. On Monday, Oct. 19, the S&P 500 fell a stomach-curdling 20.5% in a single, horrific day.
That's one for the history books, to be sure. But the history books tend to ignore the environment in which the crash occurred. The crash was a reaction to a sudden and unjustified speculative run-up in stock prices. You can't understand the crash unless you understand the run-up that preceded it.
In 1986, the forward earnings consensus for the S&P 500 fell by 3.5% ”” yet the S&P 500 itself grew 14.6%.
By Aug. 25, 1987, the high-water mark of that year, S&P 500 forward earnings had picked up strongly, rising 12.5% year-to-date. But stocks returned an astonishing 39% over the same period of less than eight months.
Stocks got way out ahead of fundamentals. Compare that with today.
Remember how I started out saying that the S&P 500 had gained 70.6% from the October 2002 bottom? It's taken 42 months to do that ”” and over that period, forward earnings have grown by 62.5%. In this bull market, stocks have grown pretty proportionately to earnings.
In other words, stocks in 1987 were riding for a fall because they weren't supported by earnings growth. Today, stocks are on firm footing.
Another big difference between 1987 and today is the bond market, which has an important impact on stock valuations. Stocks and bonds have to compete for investors' dollars. So when bond yields rise, all else equal, stocks become less valuable because their earnings and dividends become relatively unattractive.
In 1987, bond yields soared. By the day of the crash in October, yields had risen 300 basis points year-to-date. Considering that stocks had risen more than three times as much as forward earnings, this move in interest rates left stocks very nearly as overvalued as they were at the very top of the "bubble" market in 1999 and 2000.
Yes, bond yields have risen this year, too. And that's the cornerstone of the bear case that we're heading for a crash.
But put away your crash helmet. Yields have only risen about 100 basis points from the lows of last year. And even at that, the 10-year Treasury yield is still a low 5%, compared with more than 10% the day of the crash in 1987.
With bond yields as low as they still are today, and earnings having grown so much, stocks now are quite undervalued by historical norms. Barring some unforeseen catastrophe like a massive terrorist attack, a stock-market crash from these levels is simply not possible. I'm still bullish, friends.
What about all the other "ominous parallels"? Frankly, I don't see what all the fuss is about. Other than the stock-market crash, whatever else was going on in 1987 must not have been that bad, because economic growth that year ”” and for the two years following ”” was very strong.
Annualized quarterly real gross domestic product growth in 1987 averaged 4.5%. The market crash in the fourth quarter seems to have had even less impact on subsequent economic performance than Hurricanes Katrina and Rita have had recently. Quarterly annualized growth in 1988 averaged 3.7%. Over the nine quarters following 1987, growth averaged a respectable 3.3%.
If a crash is out of the question, and if we can look forward to that kind of growth, then my question for the bears is this: Wouldn't it be a good thing if today really was like 1987?
http://www.smartmoney.com/aheadofthecurve/index.cfm?story=20060526
nizar said:The US is still some way off 6%
It rose its rates earlier this month to 4.75% and another possibly on the cards for June and then maybe stop?
What do u mean by the market drops?
YOu mean it begins the start of a bear market?
michael_selway said:2007 or 2008 latest (after Beijing Olympics) thats when the crash will occur, All Ords Terminal Value 6000+, will drop to 4000+ over a few months. DOW Terminal Value 12000+ drop to 10000+ over a few months. Commodity prices will also crash, especially metals. Oil and Uranium may fall but not crash
Then a very slow rise to stable from there for a 1-2 yrs at least
thx
MS
kennas said:It was in todays stars for Taurus in the Fin, Ageo.
Ageo said:oh how did i miss it!
That explains it thow as im a skorpio
bullmarket said:I've consulted my tea-leaves and crystal ball and they again don't agreeso I went and asked my gut and it says that XJO will probably settle somewhere in the 4800-5000 range in the forseeable future, which is what my gut posted a few weeks ago.
cheers
bullmarket
nizar said:IMO... data to be released later this week will be key to the FED making their decision to lift rates or keep them the same, and it will be key to figuring out if this correction has come to an end or not... if the data comes out good ie. indicating that the FED may not lift rates (eg. economy is slowing), and DOW/s&p500 reaction is good, than possibly correction for us is over, as dollar would decline and gold up also...
but if the other way around, then this correction still has a while to go...
Ageo said:I hope this correction continues as this hasnt brought prices down enough.
Ageo said:Did Jesus tell you that?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?