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A Top or a long running bull ?


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#1 nimblebear

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Posted 15 February 2007 - 03:51 PM

I'd go for the latter simply based upon the global liquidity available and the noticeable inflation in many products, services, and commodities. You could make a strong case that many stocks are lagging on a dollar relative value basis, and are simply playing catch up, even with so-called strong earnings. People need a place for their money to keep up with inflation, and stocks are a convenient place for most. Easier than buying gold or real estate, or commodities directly. So you either go for the momentum or earnings, or both. If you closely examine the CPI, you can realize how little it has to do with true inflation, as the items you most frequently purchase and really need are going up considerably. A good barometer for inflation is healthcare and cost of college education, just two minor significant chunks of money you could face in your lifetime, especially with kids and spouse and all. A large number of people are simply priced out of both of these services. Only 30% of adult Americans have a 4 year degree. Absolutely shocking for a so-called advanced developed and democratic society. We could go on and on about healthcare. Companies that can afford it and people that can afford the premiums likely pay 20-30% more per year than they do for a mortgage, if you total it up. Thats also if you are reasonably healthy. So are a large number of stocks overvalued ? Maybe. Maybe not. P/E's "seem" high on a historical basis for the SNP 500. But there are 8000 or more other stocks. In a high inflation environment it could be argued many of these stocks could be undervalued. Huh ? I thought inflation was bad for stocks ! Well it is if the stocks you own and your total portfolio, isn't producing enough to cover the high costs of all the items you need to buy. And it is if your salary doesn't also keep pace with these needs as well. A so called poverty level is something around $20-30K per year. I don't know too many families (w/1-3 kids)that earn under $ 70K that are doing "well." You can get by, but then you don't likely live in a major metropolitan area, and drive 2 cars worth more than $15k a piece. And you certainly aren't able to save enough with that salary to afford college for your kids, and also have a retirement egg that can keep you above poverty level. So really, many people need stocks to go up considerably just to keep up. I'm not saying stocks go up just because people need them to. I am saying that a large enough pool of people (i.e. boomers) along with the general populace, need to put their money somewhere to get a return and if a company has profits, or earnings, then people perceive it to have value, and they act on those perceptions. On a relative basis, compared with other stocks, or items of appreciating value, they buy the ones they think will win. So from a broad perspective looking at the amount of liquidity that is out there, it seems the market could keep going much much higher, until someone drys the liquidity up. No one wants to do that, at least noone in power, because who would want to be the one to wipe out a generation of appreciation ?
OTIS.

#2 fib_1618

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Posted 15 February 2007 - 04:11 PM

So from a broad perspective looking at the amount of liquidity that is out there, it seems the market could keep going much much higher, until someone drys the liquidity up. No one wants to do that, at least none in power, because who would want to be the one to wipe out a generation of appreciation?

Oh, I don't know...maybe those in power in the year 2000...or 1987...or the 1970's...or 1937...or 1929...or 1919...or 1906...or.....

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