Trend: There is a flood of global liquidity looking for a place to invest. If it moves into the US equity markets in 2007, it could boost the market prices into another bubble on the upside.
Gary Halbert's Weekly E-Letter (in InvestorsInsight: Forecasts & Trends, 1/9/2007) writes that he has a great deal of respect for, and confidence in, The Bank Credit Analyst. He have been a continuous subscriber to BCA for almost 30 years. Of all the financial/investment publications he has read over the years, BCA has been by far the most accurate in forecasting the economy and the major investment markets in my opinion. This is why he continues to renew my subscription every year (which is not cheap).
Link: InvestorsInsight : Forecasts & Trends
In the world we live in today, almost any forecast has to include some potential wildcards, caveats and risk factors. Typically such wildcards and caveats are on the negative side: terror attacks, new wars, major government defaults, currency crises, financial/banking breakdowns, hedge fund debacles, market meltdowns, etc., etc.
All of these risk factors are a part of our world every day. For most of these risks, the odds are fairly low of them happening, or at least it would seem. Yet each of these risks is factored into market prices and investment valuations on a continual basis, at least as best as possible.
In all of BCA's forecasts, they also include all of the caveats noted above, as they cannot be ruled out. But BCA has always been good about suggesting what they consider to be the "most likely scenario" in case no major negative surprises occur. BCA's most likely scenario is what I have summarized above for 2007 and beyond.
However, BCA subtly makes a point regarding yet another Wild Card that could rear its head in 2007, and this is a point I have seen no other market research group make, at least among those I follow. Read this carefully.
There is currently a flood of global liquidity. Space does not allow me to elaborate at length, but suffice it to say that a combination of windfall oil profits and the excess savings rate in Asia and elsewhere has created a monumental level of global cash looking for a place to invest.
BCA believes there is the potential for a huge influx of this global cash to the US this year, when it is clear we have avoided a recession, and thus there is the real possibility that this potential tidal wave of cash could drive US equity prices into yet another bubble on the upside.
This may or may not happen. BCA is just warning us not to be surprised if it does. If it does, it could mean another potentially huge leg up in the ongoing bull market in US equities. Just something to think about.
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