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Will US Have Its Own "Lost Decade" (or two)?
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This Link is located in the Public Channel Housing Bubble and Bear Links.
Posted by ian 1 year 146 days ago (minyanville.com). Views: 78
Tags: credit crisis recession economics housing bubble |
| Related Tags: finance wall street business stocks video politics infesting stock market |
The period from 1990 to 2000 has often been called "Japan's Lost Decade." It's now just a year away from becoming two lost decades. And except for one brief point in 2003, The Japanese stock market is lower than it has been at any time in the last 25 years dating all the way back to 1983.
The important point is that we are still on track for a downside target of 450-600 on the S&P 500.
If we do get to the 450-600 target area, do not expect to see the stock market blasting to new highs for as long as two decades, just as happened in Japan. Indeed, from the current look of things, Japan can still be decades away from new highs.
If this scenario seems far-fetched, please consider a few fundamentals.
S&P 500 Fundamentals
- The period from 2003 to 2008 was the biggest credit bubble in history, not just in the US but worldwide. It's unrealistic to expect the bust to be anything other than the biggest credit bust in history.
- Unemployment is 6.1% and rising. My unemployment target is 8% for 2009 and continuing higher into 2010.Think what rising unemployment will do to foreclosures, defaults on credit cards, bankruptcies, commercial real estate, and corporate earnings.
- Banks and brokerages made immense profits being leveraged 30-1 to 50-1. However, brokerages are now under control of the Fed. Leverage is still unwinding and will be lowered to 10-1 or possibly lower. Reduced leveraged means less risk, but also reduced lower profit opportunity.
- Boomers are heading into retirement, and a portion of their retirement plan (rising home prices) has been wiped out. Another portion of boomer retirement plans are being wiped out in the stock market crash.
- As a result of the above, those boomers will be doing less spending and more savings.
- In my opinion, don't expect retail sales or store profits to come soaring back anytime soon.
- Peak Credit has been reached and a secular shift to frugality and risk aversion has begun.
- Stock markets returning from extreme conditions do not just drop to the trendline: They overshoot it.
- Children who have seen their parents wiped out in bankruptcy or foreclosed on are going to have a completely different attitude towards debt than their reckless parents did. Expect to see more frugality from parents and their children alike.
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