Bubbles and Solutions
Here is a quick recap/overview of some recent price/cost bubbles and solutions:
Bubble: Dot.com Stock Prices
Problem: NASDAQ reaches a frothy 5132.52 on 03/10/2000 (1971 = 100.00)
Solution: NASDAQ reaches a low of 1108.49 on 10/10/2002 (current = 1457.27)
Bubble: US Residential Real Estate Prices
Problem: S&P/Case-Shiller Index reaches a high of 189.93 in Q2 2006 (Q1 2000 = 100.0)
Solution: S&P/Case-Shiller Index falls to 139.14 in Q4 2008 (appears to be still dropping)
Bubble: US Stock Prices
Problem: Dow Jones Industrial Ave reaches all time high of 14164.53 on 10/09/2007
Solution: Dow Jones Industrial Ave closes at 7278.38 on 03/20/2009
Bubble: Crude Oil Prices
Problem: Barrel Price of Crude reaches an all time high of over $145.00 in July 2008
Solution: Barrel Price of Crude closes at $52.07 on March 20, 2009
Please note that these indexes are market based. In other words, there is a fairly unregulated, government free market at work determining price levels, with the exception of the oil cartel’s attempts to control supply. In many cases, the market influence is global. The prices and the costs reflect market factors such as speculation, manipulation, politicians yapping, bureaucrats fretting and supply and demand. Usually the time period to adjust speculative bubbles is measured in months. It pretty much works.
On Thursday, March 26, TheFundamentals will look at some other price and cost indexes where factors other than market influences impact price movements and the resulting impact upon price/cost bubble adjustment.
2 comments:
When a govt. worker retires on full pension in Illinois, he/she receives 85% of their last 5 years avg. pay. Also included are colas, health isn, partially funded by taxpayers.
The pension fund is woefully underfunded, so The Mighty Quinn proposes a massive income tax hike on the rest of us to pay for our "public servants" to have the kind of pension the rest of us can only dream about.
I'm learning to speak the language of the future: BAAAAAAH
I am uncertain what theFundamentalists point is with regard to these solutions. The length of time it took for prices to correct and the dislocation that occurred as a result of these corrections would seem to call for closer regulation. The fact that it takes 2 years of misery to correct overheated markets is not a good thing. Does theFundamentalist disagree?
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