Quote:
Originally Posted by Potty
Bear with me here, as I am fairly young and new to economics/investing debates, but what I don't understand is that so many "MoneyGuy"s are predicting the stock market rebound based on its history when US economic fundamentals are very different than they were during the times you are using as comparisons.
Massive trade deficits, a service-based economy, massive consumer debt, low savings rates, budget deficits about to reach new heights with the increasing amount of corporate bailouts don't make historic stock market rebounds a very good comparable IMO.
Betting on the market to bounce back because it always has when the underlying numbers are horrible is pretty risky, no?
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I would tend to agree. His arguement is very anecdotal, I would actually totally ignore his 'spring loaded' comment as there is little basis other than the history of market returns from different eras that experienced a different set and degree of economic difficulties. However that being said a lot of what you read about total economic collapse is really just overreaction by a world that hasn't really experienced even a small taste of bad economic times in 20 years. The experts and worker bees of today's financial world were just begining their careers in the late 80s early 90s and the experts that went through the last serious recession (1980-81) are either passed on or retired. Fear of unknown has driven down equity prices. The matter for debate is rather how much has the real intrinsic value of stocks plummeted. If it's only 30% then we're due for a 20% increase to shape up as fear subsides and the markets start reflecting fundamental values again. MoneyGuy is totally right that there will be a subsiding fear bounce up. It's really a question of how mispriced on the downside equities are. Holding equities now waiting for the surge exposes you to the risk that the underlying fundamentals continue to erode and the bounce up gets diminished down to zero.