Sep

9

Now as we start thinking about a test of 1575-1600 highs in the SP being possible, we can ask ourselves is there any difference between the run up from 97-2000 and 04-2007?

Have we actually got any sound reasoning to say that the aftermath of these run ups won't play out again, or to argue that the declines to create these monster rallies were unjustified in the first place and 100% run ups over three years in both these previous periods should be looked at in that context?

Internet run/ Housing run/ QE run? What is, or is going to, hold this together?

Even if growth somehow took hold, how much re-adjustment may need to take shape?

Just to finish with a definition of Ponzi Scheme.

"A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation. The Ponzi scheme usually entices new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent. Perpetuation of the high returns requires an ever-increasing flow of money from new investors to keep the scheme going."


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2 Comments so far

  1. Craig Bowles on September 11, 2012 1:27 pm

    The PMIs declining and stocks rising seems to have more people scratching their head. Below 50 may be of interest to economists but normally stocks are near the low by then. Our current mftg PMI has fallen since Mar11’s 61.4 to the current 49.6 low. With stocks hitting new highs, you have to wonder about the dislocation.

    In the mid-1990s, industrial material prices turned down but earnings kept rising. Stocks rose for a few years only to find out that some of our largest companies were reporting fraudulant earnings. Earnings were revised lower but stock prices couldn’t be revised. Next, the 2008 recession first showed up in the coincident index dropping but GDP remaining strong. A few years later saw sharp downward revisions in GDP for that period showed the reality.

    This is the third time in a row that we’ve been late in a recovery and odd occurances begin taking place. It’d be funny if it were just a friend we enjoyed catching in lies but capitalism can’t function amid such systemic fraud.

  2. Craig Bowles on September 11, 2012 1:39 pm

    One other difference in the current environoment and previous decades is the declining influence of Fed actions on our economy. Geoffrey Moore wrote a paper in the late 1980s or early 1990s about how a less capital intensive service economy would be less affected by Fed policy. This acts as a positive in an uptrend but makes it very hard to reverse a downtrend.

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