Dow will grow to 20,000 - and then disaster?

Brett Arends, columnist and analyst of Market Watch, reflects on the unprecedented "bubble", which is now inflated in the US market, and gives a very gloomy predictions regarding how the situation will develop further. According to him, most of today's analysts see the situation in the short-term benefits of which will come very serious negative consequences.

"Dow Jones Industrial Average soars to 20 000. Around Wall Street heard toasts and greetings, as the economy recovers, unemployment is becoming smaller, wave of mergers covers Wall Street. Large companies are betting on the continuing explosion of the economy. Bears and joined them defeated, humiliated, insulted and sent to landfill civilization. Private investors who strongly fear of lagging behind, investing in stocks.

And then it all
inevitably will decline. After all, the economy
recovers, unemployment becomes
fewer, and after it goes and wages
pay. The Fed will increase interest rates,
to stop inflation. Wherein
companies will have to cut prices,
to gain market share in the brutal
competition. Revenues will fall. shares
will slide down, and then a deafening
collapse: we are waiting for the third memory
"Rainy day" this generation.

Implausible?
From what?

this wild
script - one of those that have arisen in
my head after reading the last
an official letter from Jeremy Granthema,
Legends of the stock management. In his
recent quarterly letter
founder of the asset management company
predicts that the stock market boom (or,
to put it frankly, bladder) will
continue to swell, thanks
infusion of easy Fed money. Climb
the economy will continue, and
Wall Street - bonanza megapredlozheny.
Granthem think before the end of the boom
It remained at about 14% increase in S P
500 (this corresponds to DJIA
approximately in the region of 20 000).

I bet
this increase will destroy all the remaining
"Bears", leaving only a horse
"Bulls" of the stock market. And who dares
be "bear" these days, when the Dow
above 17,000, and green lights shimmer
on every screen?

Yet Granthem
warns that in the long
term investors waiting for quite
terrible prognosis. his company
predicts that earnings and stock prices
fall sharply in real terms
Compared with today's record
levels - and the higher the share flies
Now, the more they will fall in the future.
Of course, to predict the future with
great accuracy - it is impossible, but
there are certain markers that
They say that not everything is in order. there is
some good indicators that have
excellent track record and which
effectively perform their tasks here
more than a century. And almost every one of these
indicators downright mouthpiece with his mouth
shouting that the US stock
the market is extremely overrated.
And those who are investing in so
valued to market - sooner or later
responsible for the consequences.

Last week
I said that our financial
consultants have calculated that we are
in the third-largest stock bubble
the market in US history (after
1999 and 1929). I immediately wrote a whole
a crowd of people with a question: "So what? Why
you can not just relax and
learn to love "bull" market? ". And I
I would like to. But this is impossible. This is history
not about how hard it is to be a "bear" in
America or a pessimist. This is - just
a reasoning man who
He knows the math and history.

Calculations were
based on the economic indicators,
We called "coefficient
Tobin ". This attitude
the market value of the company's shares to their
the book value. In other words,
it is calculated as the ratio of the market
the company's value to the replacement cost
the company's equity. If
the market value of the assets is equal to
the book value of the coefficient
It will be equal to 1. If it is greater than 1, then the market
book value is higher, and vice versa.
So, it is now a very Tobin
is great - it is more than ever
It was (excluding 1929 and 1999). It means,
that US stocks today or
overvalued or very overpriced, or
just wildly overpriced.

For example, according to
Fed, shares of US corporations
Now there are about 125% of GDP -
compared to the average value of the entire
65% (since 1945). This evaluation measure
at the time suggested Warren Buffett
as a good indicator of
how expensive the stock at the moment
market. From 1945 to 1995, before the start of a major
bubble on Wall Street, US stocks
estimated at about half of GDP.

It's just
two indicators, but many others too
talk about the terrible overpriced
Contemporary American market.

So, black
times - not far off. "

Brett
Arends, translation - Z_Zemfira.