What does CDO crisis have to do with stocks ?
If anything its GOOD for stocks. Since money will stop flowing into CDO's
OGM I think you are a bit comical here, I mean you showed up right at the top and told us everything about the debt markets, and then you forgot about them like a fish only 6-7 weeks later as if all the problems went away now. Well they didn't and it doesn't appear to be getting quickly better actually...
It is true that the debt markets are slowly getting back to normal, but some of the debt segments are permanently gone now --like sub-primes, and its impact is still effecting the growth basically or the stock market in general. The debt related sell offs basically effected even the highest quality issues in the stock market since July...
The bond market is exponentially bigger than the stock market, saying that the money will flow into the stocks immediately is simply too optimistic. It is usually the excess liquidity via buybacks or stock based financing (secondary IPOs etc) that will go into the stocks directly and the money has to be still created in the bond market first...
So, I think the growth might sustain to keep the indices where they are until the credit growth rate improves again, however I really do not think the stocks will be able to rally much without the bonds. This only happens under the exceptional conditions that we can discuss more like an inflationary blow off, but I don't think we are in one of those hyperinflationary periods right now or a few months more, especially while the central banks are trying to push billions just to save the markets from collapsing only a few weeks ago...
- kisa
Hehe... I took the contrarian position, when the noise became deafening When the situation was only developing it was one thing. Now its another thing. Now we know how it developed, and the surprizes for the time being will be to the upside. As you pointed out debt markets are slowly coming back to normal.
I'm not saying something will happen immidiately. I'm just saying that CDO's were a huge sponge for liquidity, and now money has to find new places to go. And quite a lot of it will go into stocks, that happen to be trading at valuations not seen in years.
If you beleive that we were at the bottom of the 4.5 year cycle, we have quite a bit of time here, so no need for anything to happen immidiately