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Some perspectives


Guest kawikaho
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Guest kawikaho

Peter Boockvar, equity strategist at Miller Tabak, points out a lot has changed since the Dow first broke the magical 10,000 barrier in March of 1999.  While most other assets have gained value, the Dow is stuck in the mud.  Worse yet, we're not even close to break even if you factor in the fact the dollar has lost 25% of its value in the last 10 years, based on the Dollar Index.

 

Here's some of Boockvar's other sobering stats comparing today vs. the first time the Dow cracked 10,000:

 

    * Total US debt was $24.6T vs $50.8T today.

    * The CRB commodity index was at 192.40. Today, it stands at 269 

    * Gold was at $280. Now, it's hitting all-time highs above $1,060 per ounce.

    * A barrel of crude oil was $16.44, today it cracked $75

 

Please, this isn't to stir up another gold debate.  It is just some ammo against equity hounds and stock market pundits. 

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What this proves is that the classic economic cycle is in full force.

 

Economic                                      Markets

 

Full Employment                      Stocks peak - risk taking peaks

 

Consumption starts to drop        Stocks start to drop

 

Debate about recession            Stocks reach bottom

 

Layoffs increase dramatically      Bonds rally - stocks stay low

Companies report losses

Credit dries up

Recession for sure

 

Job losses continue                  Commodities start to rebound

Corporate profits rebound          stocks start to rebound

Somewhere in here gov't spending

goes way up.

 

Job losses stop - economic        Commodities continue rallying

recovery in progress                  Stocks continue rebound

 

This is about where we are now!  The exact order may not be the same but the general gist is. 

 

Government and corporate spending on infrastructure is driving commodities very high.  Most money is looking for a place to hide.  Soon sidelined cash will start looking for a place to go that provides better yields than 0.01%.  Government tax revenues will rise lowering the fiscal deficits.  This time around everything has been amplified and extended by the asset crash. 

 

Dumb value investors start selling too early, and complain that there are no more opportunities - Thats us!

 

 

 

 

 

 

 

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The investment world has gone from underpricing risk to overpricing it. This change has not been

minor; the pendulum has covered an extraordinary arc. A few years ago, it would have seemed unthinkable that

yields like today’s could have been obtained on good-grade municipal or corporate bonds even while risk-free

governments offered near-zero returns on short-term bonds and no better than a pittance on long-terms. When the

financial history of this decade is written, it will surely speak of the Internet bubble of the late 1990s and the

housing bubble of the early 2000s. But the U.S. Treasury bond bubble of late 2008 may be regarded as almost

equally extraordinary.

Clinging to cash equivalents or long-term government bonds at present yields is almost certainly a

terrible policy if continued for long. Holders of these instruments, of course, have felt increasingly comfortable –

in fact, almost smug – in following this policy as financial turmoil has mounted. They regard their judgment

confirmed when they hear commentators proclaim “cash is king,” even though that wonderful cash is earning

close to nothing and will surely find its purchasing power eroded over time.

 

Berkshire Hathaway annual letter 2008

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