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Year 2000 Economics
by
Daniel
[Note: this was written in June 1999]
Several months ago the Fed's valuation model indicated US stocks were 30% overvalued. A couple weeks ago they were 40% overvalued. As of June 23, (according to Ed Yardeni--who has a similar model) they are 44.5% overvalued! Click here to see Yardeni's chart (PDF required).
This is the recipe for ultimate disaster. A disaster that will soon play itself out beginning late this summer and into this fall.
If the Dow is this much overvalued at the current 10,700, this means a crash of 44.5%, or 4700 points, would put it at Dow 6000. This would simply be normal valuation. To the public, investors and the economy this would be a total calamity.
I repeat very strongly... WE ARE AT THE TOP.
Predicting "only" a 30 or 40% crash due to y2k doesn't make sense, therefore I continue with the extreme-sounding but logical prediction that a crash of 40%-ish will occur by the end of this fall...and this will be just the beginning. It may not likely be a one day crash like 1987 and 1929, but a drawn-out precipitous decline over several days or even weeks. It will rebound temporarily--a "sucker's rally"--then as we enter the 2000's it will continue into record free-fall as y2k destroys all hope, confidence and business/commerce.
From peak to trough, which I believe will happen by 2003-2004--possibly 2002, the market will lose no less than 80% of it current value. However, 90-95% as we saw from 1929-1933 seems more appropriate. This means a low of Dow 600 to (optimistically) 2,400. I would only begin buying back into stocks at this point...unless calling shorts and puts.
While I generally tend to avoid making precise predictions, here is a chart below that reflects and shows the parallels between 1929, 1987 and 1999 and show roughly what I expect. The pieces of the puzzle are coming together. The wise already know it. The foolish will continue to stay blind and therefore suffer for it.
Home Page:
Year 2000 Economics
by
Daniel
