In case you forgot that Wall Street is a two-way street, last week’s nearly 5% sell-off will have reminded you. A number of readers have been asking whether this is the start of a bear market. Our answer is an emphatic NO.
Of course, we may see some further selling in the short-term. The market could fall another 2% to 5% or so, but a real bear market – the kind in which stocks continue falling for over a year – is highly unlikely. No major bear market has ever taken place alongside strong economic growth, and that’s what we have today.
At the same time, today’s economic growth, if anything, may be too strong. In fact, overly strong growth is one of the factors that caused last week’s vicious setback. Let me explain …
THE NEW STOCK MARKET
The major factors behind the market today can be summed up in three letters: DIG. These stand for Debt, Inflation, and Growth.
Right now, the worldwide economy is growing at the fastest rate we can remember -- over 5% a year. What’s more, according to the IMF, it will maintain this heady rate until 2008 at the earliest. Since 1980, the developed countries have not seen even one year of 5% growth. For the world as a whole to grow this fast for two consecutive years is unprecedented.Read more...
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