I have seen and personally experienced the stock market bubble (and the subsequent crash) in US from 1998-2000. It was the time when NASDAQ kept on going up! There would be an news item daily on how people are quitting their primary jobs and going full time into day trading! Every one, and I mean every one was trading stocks and talking about it all the time. It seemed like you couldn't go wrong, just pick any stock and it would go up and up and up...everyone (including myself) started believing that we can pick any stock and make money. NASDAQ doubled in those years! US dollar was running very strong against any other currency in the world! Real estate prices were soaring!!
Then as you all know, bubble burst NASDAQ came crashing down. Real estate growth slowed down. US currency started to weaken...etc. etc.
Now 7 years later, now that I am in India, it is deja vu time (all over again) :) for me. Sensex (india's stock index) has doubled in last few years and more than quadrupled in 5-6 years. Real estate prices are soaring. Indian rupee is strongest it has been against US dollar in last 10 years! Just check out the comparison chart between sensex and dow jones! This chart by itself shows why India has been so hot in recent years! You don't need a degree in finance to figure out that the growth at this rate may be a bit too fast!
Real estate prices have ballooned in last few years. Mortgage rates are at whopping 14-15% And people are still buying properties in speculation of making money. Pundits are saying that sensex will continue to rise because of strong india story...blah blah blah...there is a difference in being bullish and total bullshit! :) (hey i came up with this quote just now and I am taking full copy rights on it!)
I have seen it happen in US when everyone was saying that it won't happen...it won't happen. Right now, people are saying that it won't happen here in India. I hope that they are correct and that the history will not repeat itself.
If at all there is a downturn in indian economy, large foreign investors will pull out their money in a jiffy and the common man who has all his fortunes invested in this bullish stock market will crash and burn! I hope it does not happen! I hope history does not repeat itself across continents!
1 comment:
The financial economy often does not mirror the growth in the real economy and this is the difference that fools most people. The difference between the two is explained well by gurus like John C. Bogle (http://en.wikipedia.org/wiki/John_Bogle), now a retired old man. The corrections happen because the financial economy gets ahead of the real economy and sometimes becomes a drag on the real economy. The correction is usually worse than the upswing for the common man as he cannot see it coming as early as the big investors; many lose their live-savings.
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