Fair Value wrote:
To put things in perspective, the market is about 3,000 points off of its record high of about 3 years ago (actually 37 1/2 months ago).
Compare the economic picture today 11/30/10 vs 10/9/07 when the market peaked.
* Unemployment is 9.5% today vs 4.8% then.
*The deficit is well over a $1 trillion higher
*
We had a huge crisis in the financial system and although a collapse was averted and the worst is behind, confidence in the financial system is nowhere near where it was 3 years ago.
* Consumer sentiment (take whichever index you'd like) is way below where it was three years ago.
* Corporate earnings still have not recovered to where they were three years ago.
* Home prices are 20%+ lower than they were three years ago.
* Corporate and consumer delevereging was just beginning in late 2007
While the economy is clearly on the mend and the worst is behind us, we are a far cry from where we were 3 years ago. Why you would expect the market to be any higher (its already within 25% of its peak) is beyond me....
BECAUSE...the market is forward-looking. BECAUSE...we have corrected lots of things that were really bad (giving loans to unqualified borrowers for example). BECAUSE...the saving and spending habits of Americans has changed. BECAUSE...NEW homeowners who bought at a bargain will have extra spending money. BECAUSE...unemployment, while still high, has dropped from its high and is predicted to continue to drop. BECAUSE...after 3 years we have had SOME inflation and there are more people and citizens here than then. BECAUSE...companies are starting to grow their businesses again and many have said they plan to hire lots of workers in 2011. BECAUSE...there is a crazy amount of money in gold that will NOT be there forever. BECAUSE...the best time for the market is when people think things are too grim for it to get better.