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Is this what a stock market bubble looks like?

By
Real Estate Broker/Owner

I know this post may get some negative feedback from people telling me that I don't know what I'm talking about; and those people will be right, because I don't know what I'm talking about, I don't know much about p/e ratios and market technicals, but "hockey stick" shaped charts grab my attention.

A little piece of information caught my eye today when I was watching Fox News and our three little ankle biters were playing with their new train table that Santa got for them while my wife was out redeeming a well deserved pedicure that her grateful husband got her.

The little piece of information was a little blurb that ran across the bottom of the television screen that the Dow Jones was still up, despite our recent crash, nearly 400% since the stock market crash in October of 1987.  It was the type of headline, to me, that should have been in bright red and had "Breaking News" precede it.

So here I am digging through data to see if this "little bit of news" that Fox News shared, had any currency, and sure enough it did.  On October 19 of 1987, the day of the crash, the Dow closed at 1,738.  And here we are today, 21 years later, and the Dow is sitting on 8,515.  The Dow is still up 6,777 points, or 389%, in 21 years. 

And the last time our country has seen this type of bull run in the stock market?  It was in the 15 or so years that lead up to the stock market crash in October of 1929. 

And if these numbers alone may not catch your attention, the accompanying charts from Wikipedia probably will.

One of two things would have caused this type of run up in the market.  First, our economy is simply that much better than the rest of the world's, including Japan (which actually produces stuff), as the Japan's Nikkei 225 Index is down approximately 67% over these same 21 years (source: Yahoo Finance), or, we are sitting on the biggest credit bubble of an economy that we will ever see in our generation.  Here is a link to the Nikkei data.

And here is a chart from Wikipedia for Japan's Nikkei...

The point is, I have no idea where the economy, stock market, and real estate market are going to be in next several years; maybe not a depression, but certainly some significant corrections.  I have been seeing a lot of these "hockey sticks" lately, including: real estate values, homeownership rates, credit market debt to gdp ratios, the derivatives market, and now the stock market.  When economic indicators have more hockey sticks than the Phoenix Coyotes, we could have a problem on our hands.

 

Comments (2)

Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

The best thing to do is to always hold a diversified portfolio of investment vehicles to finance one's retirement years.

"Little ankle biters" caught me totally off guard -- LOL.

Best wishes for health, happiness, peace, and prosperity in 2009.

Dec 27, 2008 10:18 AM
Mark MacKenzie
Phoenix, AZ

Jim:  I agree about being diversified - and based on these charts, I think it needs to be more than mutual funds. :)

Dec 27, 2008 11:57 PM