A Pretty Feeble "Rebound"
After living through one market meltdown (in which I had prime seat at the table), I don't think it is possible to predict whether yesterday's collapse is a harbinger of doom or just a sharp reminder that markets don't always go up. Despite what they'll tell you now, almost no one predicted the 2000-2002 debacle; on the contrary, for the first 6 months of the downturn, the majority of folks (including yours truly), thought the sell-off was just another in a long series of "corrections" that the market had experienced almost every year in the latter half of the 90s. It wasn't until late 2002, when even the S&P had been cut in half, that it was widely agreed that this was it--the big one. (And that agreement, of course, was a hint that it was a wonderful time to buy).
So the bottom line about all this musing about "what yesterday's sell-off means" is "no one knows." That said, using cyclically adjusted valuation measures (those that take into account today's record-high profit margins--see Grantham below), the market is still significantly overvalued, and that condition will probably correct itself eventually. I'm also not sure why today's 50-point rally has triggered relieved headlines about a "rebound." If yesterday's panic really was just a momentary flinch after Shanghai and we really are off to the races again, one might have expected to see a bit more universal enthusiasm.
China was spying on the US using IBM laptops. That was the hiden catalyst.
Posted by:abitare | March 01, 2007 at 09:42 PM
Mark Faber calling for a greater correction.
He has great insight to the emerging markets.
He called this one:
http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vxqdusi9pmRA.asf
Posted by:abitare | March 01, 2007 at 09:46 PM