Sometimes simplicity trumps the lengthiest argument. We found an interesting chart comparing the last two years vs. the two years preceding the 1987 crash, Major difference? In 1987 the market had run up 80% in 2 years. This time we've run up 18%. Not the end all argument, but point taken. Click the chart to enlarge.
While there are certainly similarities between now and then (falling bond market and weaker dollar), there is one glaring difference between now and 1987 which makes a similar crash unlikely. The market’s run up to now has been modest when compared to the gains leading up to the crash.
What about the run in riskier assets.... Might be interesting to compare that data against 1987... While I doubt an overall crash is likely, a continued correction in risky assets may well be in the cards given their spectacular run and the market's seeming amnesia about risk.
Posted by: Brad | May 25, 2006 at 04:12 PM
I've noticed a divergence in the increase in gold and the decrease in the value of gold stocks - meaning that the usual move to defensive stocks isn't occuring. People are leaving the stock market all together.
But they're not going to bonds as you aptly point out. Where that leaves us, I'm not sure. Correction? Most likely. Crash? I'd be hard pressed to find somewhere for the money to go. It's hard to read this market, all I know is something is brewing for the next few months.
Posted by: Phil | May 25, 2006 at 08:29 PM