Stock Market Blast-off

Stock Market Blast-off

Thu, 08/23/2007 - 10:48 — moneysage

Explosive bull move is now underway, in our assessment. All of the stars are in classic alignment for awesome bull run, we believe. Key factors are the following:
(1) Intense and widespread fear;
(2) Pervasive pessimism about equities;
(3) Major financial crisis;
(4) Onset of major monetary accommodation cycle, following long period of overtight FED policy
(5) Deep, deep pools of liquidity abroad, waiting to buy, counting the minutes to lift-off (hey folks, lift-off has already BEGUN)
(6) UNDERVALUATION of many of the most liquid, "safest" mega-cap stocks, as well as of a broad swath of smaller stocks.
(7)Continuation of Chindia boom.

Like all explosive moves up, this one will be perceived by the unknowing herd as "coming out of the blue." It will be regarded by many as transient, likely to be followed by renewed decline. All the economic news is bad, many prognosticators are gloomy. Fear, always popular among opinionmakers since it is so eminently exploitable, and thus SELLS MORE NEWSPAPERS, is dense.

The key, of course, is that the market is, above all else, a DISCOUNTING MECHANISM. The market looks 9-12 months in the future. At this juncture, the market is starting to really like what it sees over the horizon.
What does it "see?" Much lower interest rates, inflation abatement to insignificant levels, solid profitability of many enterprises, expansion of price/earnings ratios -- invariably a function of lower interest rates and lower inflation.
All the bad news the media has been trumpeting has been priced into the market, and then some. (Assuming the FED behaves with a modicum of sense going forward, which is our assumption).

The explosiveness of the rally will be intensified by the fact that prospective foreign buyers are sitting on an unprecedented mountain of liquidity. Real estate -- at least here -- is in a serious bear market, with fear of much worse to come pervasive among sophisticated potential buyers. Stocks are now the only game in town, just as real estate was the only game in town when the FED's last rate-tightening cycle succeeded in puncturing the equity bubble in early 2000.

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