Friday, May 02, 2008

Equity markets as the solution to the problem

Bears say that because house prices are declining and savings rate in US is 0, consumer spending will take a hit. That argument is wrong.

For there are two big sources of wealth - homes and stocks. Each is worth about $20trillion. That is where most Americans have put their wealth. So if stocks go up, they take away some of the pain from declining home prices. The wildcard is commodity prices.

Fed has eased a lot since Sep. Whether it is more or less, only time will tell. There is always the possibility now that it has eased more than was necessary and so stocks will rocket from here. I think Dow at 15K, Sensex at 25K before the year ends is now a very distinct possibility.

1 comment:


The stock market is being bailed out.