When asked to try and find a link between the years 1929, 2000 and 2007, most people will zero in on the economy, specifically the frightening rise in the debt margin. Each of the three cases saw investors attempt to take advantage of the rising stock market by leveraging highly, unable to see the resounding stock market crash that followed.
One would think they would see it coming a second time round, or maybe that is hoping for too much. After all $384 billion dollars was the margin debt as of April this year, greater than the $381 billion dollar margin experienced in 2007 by at least 29%.
The fact that the stock market is continuing to rise in contrast with the prevailingly terrible economic conditions, one would be right to wonder if things were heading down the same path. Now does that mean that we are heading for another cliff, that the bubble is going to burst tomorrow or the day after?
Well, a more moderate answer would be to say that everyone has a very good reason to worry, even though most are not. History has proven that each time margin debt exceeds 2.25% of GDP a crash is at hand.
In a way it makes sense why so many seem unconcerned. Many a professional have rather simplistically concluded that the high leveraging of investors is a good thing and that, along with high margin debt are signs of healing and increased confidence among investors.
A few others are skeptical, specifically because of the whole ‘2.25% of GDP’ omen that the economic world has fallen under. These, unlike the latter, choose to believe that history will indeed repeat itself and when the stock market and the economy eventually catch up to each other and people lose money in large amounts, their pessimism will be justified.
Of course the question is whether these few dissenting voices and their important message will be heeded by the masses. While the likes of Alan M. Newman a renown investor, will take the odd minute to make their opinion on such important matters known, a large part of the population are unlikely to pay much attention, most choosing to consume their economic nourishment from mainstream media which almost seems intent on dispelling any notions that there might be a bubble ready to burst.
There is a reason why columns such as Forbes’ “Why stocks are on solid footing and this is no bubble” are not nearly as rare a sight as most professional economist wish they would be.
There is business week’s “Prognostications: It’s not a stock bubble’, Market watch’s “Is a stock bubble coming? No, say economists” and so on and so forth; whether this is merely a diverging yet professional and unbiased opinion or an uncouth attempt at spreading to the masses the sort of message they want to hear and hope for, the world will just have to sit back and wait.
With so many voices shouting diverging messages on either side, it might come down to you, the common man to stop, listen, think and decide, are were heading towards the next big crash? Is it time to make changes to tax payment plan and prepare to weather a storm or should the masses celebrate overcoming the crisis?
About Me :
Sophie Samuel is a blogger from London in UK. She loves to write articles on Technology, Finance, Health, Travel and Finance. As if now she is doing research on Tax and gathering information about Tax Payment plan.