Time for a market correction
Posted by adesigar on October 24, 2006
No question about it. The Dow and S&P have been going straight up for months. Not even a single triple digit down day.
- The Housing market is crashing – The market doesn’t care.
- Inflation is at the high end of the Feds comfort zone – Fed who? says Mr Market
- North Korea has nukes – Market shrugs it off.
- OPEC cuts oil production – So what says the market.
- Iran/Nigeria/Venezuela problems could spike oil prices – We got reserves.
- Amaranth collapse – Did something happen? Buy Buy Buy.
- Too much money chasing too few investment opportunities – Private Equity buying anything they can for an LBO
- High flying stocks and companies based on eyeball count are back. – Myspace, Facebook, YouTube and anything that’s Web 2.0
- Momentum funds are back – Lets chase the market, what a brilliant idea. NOT
- Mutual Fund Mondays are back – Retail investors chasing mutual funds that have already outperformed.
AND finally
- Frequent use of the scariest words in the investing: “This times its different because….” – Yea right, its different because people want to fool themselves into believing its different
So does that seem like a Goldilocks scenario? To me it seems like a Deja vu from 2000. A lot of people (who seem to live in a Toy story world) are convinced the markets are heading “to infinity and beyond”. Ok I’m exaggerating, but at the very least we need a 5% (600 points) correction to remove froth from the markets. An 8-10% correction would be better IMO.
Mr Market said
The economy is strong and corporate balance sheets are in aggregate stronger than they have been in the past few years. Maybe the market is decline, maybe it’ll continue to go up. What I find more disturbing is the fact that every small time value investor wants to call a market crash. I’ve been hearing this noise for years now.
Dr. Market said
Don’t worry, you won’t be hearing that noise much more. Within months, the noise will become moans emminating from “big-time investors” like you.
You’ve been hearing about a correction for years because the market has been overvalued for well over a decade now. P/E ratios are historically out of line. Baby boomers have fed the market, hoping to make money for retirement, but instead made a monstrous Ponzi scheme. As long as the market grows, everything’s fine. But once it stops, all hell will break loose. How could an investor like you, Mr. Market, ignore the fundamentals? It’s like a mathematician getting the addition wrong. The author of the article can do addition. You should be ashamed of yourself that you can’t.
Everlast said
What are your thoughts now? I hear about market corrections all the time too. Just hard to know when…