A little more on the market
Posted by Charles II on October 9, 2009
Barry Ritholtz thinks that the market will not correct… yet. He says typically it happens at 17 months (which would be August of next year), that people are not yet overly complacent.
My guess is that events are closer than they may appear to Ritholtz. First, a failure of FHA or other major event could provide a catalyst. So could a strengthening of the dollar, which many are predicting as a short-term move. Second, the rebound has been much stronger and faster than historical rebounds, probably because of all the money dumped into the financial sector. That suggests that its overshoot will happen sooner…. and so the reaction to it.
I view markets as mostly valuation driven, and valuation as mostly news driven. That’s why the events in Honduras, especially if they were to inspire copycat coups, are potentially such a big deal. The right imagines that its policies are good for growth and that socialism automatically reduces productivity. While the record on socialism is mixed, the record on right-wing economics is not: if you want to wreck a productive economy, put a right-winger in charge. You’ll end up with massive debt (Reagan/Bush/Bush) or widespread social suffering (Thatcher) or corruption and stagnation (Pinochet). So, if you replace a right-wing government with a socialist, things will probably get better, but if you replace a socialist with a genuine democracy, things will also get better. IMO, of course.
One interesting statistic is that cash on the sidelines has fallen to historically-normal levels. According to the American Association of Individual Investors cited by Liz Ann Sonders, it was at 11% in 1998 during the stock craze, rose to a maximum of 45% during the panic in March of this year, and has fallen to 25%.
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