January 17, 2006
From the "no-one should put any stock in my views, much less pay attention to them" department: Last year I noted that I was looking for a substantial market correction in the foreseeable future. I still am. The country runs on consumer spending (70% of the economy) and consumers spent more than they saved last year (first time since the depression). Christmas sales were good because people spent their savings. Real estate values are leveling (consumers use real estate value to underwrite spending), oil and gas prices are high and holding, bankrutcy laws are tougher, interest rates inverted (short are higher than long), and the fourth quarter growth of last year (less than 3%) dropped below the average for the past 10 quarters, China and India are coming one line as formidible competitors. Not to mention the existence of several hundred religious zealots with resources and who are attempting to figure out how to injure the citizens of a major American city. All this adds up to trouble.
Roger Babson predicted a downturn in 1927 and repeated his view for two years before he was proved correct in 1927 (then they named a business school after him). Incentives in our economy cause market participants to resist drops in stock value until the last gasp of hype rings hollow and harsh reality is undeniable; then and only then do we get new equilibrium values and it often comes in a rush.
TrackBack URL for this entry:
Listed below are links to weblogs that reference Market Forecast:
On aggregate, consumers spent more than they received in income in 2005; this was the remarkable occurence, not the fact that they spent more than they saved. [saving + spending = income, in 2005 saving was negative, because spending exceeded income]
I agree the market is slowing (I'd look for GDP growth declining to around 3% to 3 1/4% for '06), but I don't see any market collapses on the horizon.
Posted by: Sean | Jan 17, 2006 9:14:17 PM