Reasons why the bull mar ket will keep going albeit with bumps through the turn of the century:
We’re only beginning to see the wealth engine that comes from global markets. With even communists practicing capitalism “the removal of alternative economic models” as they say in school capital is a fast-moving commodity that flows to places with the best market incentives, especially the United States.
For example, Chile has 18 companies listed on the Big Board today compared with none in 1990.
Government macroeconomic policy is less selfdestructive, at least in the short term. The deficit is down; taxes are being reduced a bit and Washington’s overall demands on the productive private sector are growing less than in the 1980s and early 1990s. That lowers the cost of capital.
Average folks now play the market, and to a large extent control it. With 60 million direct and 120 million indirect U.S. market participants, there’s a huge and growing investment pool flowing into stocks. That will probably only increase as the baby boomers inherit their parents’ wealth. Not only that, but more companies are encouraging stock ownership by employees. This ownership role teaches capitalism, and sophisticated investors are less likely to panic in a downturn or support anti-market political programs.
Technology will continue to be a money machine that has given the companies of Silicon Valley a larger market value than the American auto industry ($452 billion vs. $113 billion). In the stock market itself, electronic trading is revolutionizing the mechanisms by which securities are priced and bought.
Deregulated and “converging” industries like telecommunications, utilities and banking will see massive consolidation, innovation and entrepreneurship, freeing capital for investment.
Reasons why it won’t: The entitlement bomb goes off sooner rather than later, and Washington’s $15 trillion worth of promises can only be paid for by draconian tax increases.
The consequences of our increasing polarization, tribalism and sense of entitlement begin to be felt.
Bad regulatory and tax decisions, and a revival of competitors like Japan, draws investment overseas.
A market-shaking international crisis explodes: Iraq vs. the United States, China vs. Taiwan, North Korea vs. everybody.
A speculative bubble grows beyond the Fed’s ability to draw it down without a recession. Can Fed Chairman Alan Greenspan and his successors pull off more soft landings?
That we don’t know yet.
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