evildictaitor said:
Rd_Falcon said:
*snip*
I'm not saying we "need to" anything - most of the market bouyancy over 1980s capital investment isn't due to any more "real" money in the markets - it's mostly tied up in the value of property and in an overvaluation of stocks and commodities. Consequently there's little reason why the markets shouldn't in principle be able to go to 1980s levels before hitting a capital-line bottom, where the value of the market is propped up by the real value of the economy.

I try to take my assessment of the markets from a several-week long rolling average rather than based on the intra-day trading price on the stock markets, but even if you do look at the markets you may see that the financials are rallying after a whole pack-of-cards of important people are throwing US-GDP-sized sums of money at them in order to get them out of a financial rutt, there are signs the credit crisis is starting to hit the real-economy. While I suspect it's a massive overplay by the markets, BP (as in the oil and energy giant) lost nearly 40% of it's share value in the last 24 hours, and the only good reason as to why would be that big players in the energy sector are going to have to live with the fact that during a recession we use less energy. In the housing market, there's just under 98% fewer homes being sold than in 2006, and all developed countries with sensible GDPs are now entering recession, including France and Switzerland (the US and UK have hit recession in mid August /early September).

So while you may be seeing things to be optimistic about on the intra-day market trading, a more long term view might be to say that economic slowdown is a given, and that 2009 will almost certainly be a net recession for the US and the UK. This being said, if the credit-crunch has told me one thing, it's that everyday there is news that just 24 hours ago would have been ridiculous to even contemplate - so in one sense, nobody knows. The downside of that is that banks don't like risk, and they charge more when risk is involved. This coupled with the high cost of the London Inter-bank trading rate (LIBTR) and the expectation (not the likelihood - the expectation) that other banks will fail soon means that we certainly haven't seen everything that the crunch is going to throw our way.

May I ask what it was in the 80's that makes it the capital-line bottom?  I honestly don't know what the markets were like back then because I am only 20 years old, so I have only actually seen the last several years of trading to base my limited knowledge on, so I would appreciate it if you could point me to some information to find out more about this.  Right now, I am basing my thought on the bottom being higher than what it was for the 87 crash on the GDP being exponentially higher than it was back then.  Wouldn't the bottom be around where the markets were at the bottom of the 2000-2003 decline? 

I day trade, which may help explain why I am so focused on the intraday charts, so I greatly appreciate your longer term perspective.  As you mentioned, it has taken the big players tossing a substantial amount of money at the financials to prop them up here.  The key part though is whether this will be able to change the psychological perspective of the markets just enough to slow the bloodshed. 

As for  the global nature of this situation, I honestly think that is what has kept the US market from crashing all at once.  By everyone going through this together, we fall as a group.  When the US market closes red, Asia opens down, and then their decline goes over to Europe, and then back to the US.  So it is kind of a vicious cycle, but no one will fall more than the next.  This is not counting for the smaller or undeveloped exchanges that we have seen being halted.    This is just a theory that I have, so if you have any thoughts on this I would be very interested to hear them.

I absolutely agree that there will be a slow down well into the future.  It took 7+ years to create this, so I can only imagine that it will take years to begin a new uptrend.  I think we are done seeing the major banks colapse, but until the credit markets open up again, some regional banks may fall yet.  I read an article today that said the federal government may insure the interbank loans to try to help this problem, but I haven't seen anything official yet.