May 31, 2007
5 worries on Wall Street
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Wall Street bears are still growling. They dispute the claim that the record-setting stock market is less vulnerable to a serious downdraft than it was in March 2000. Five things that worry them:
1: The U.S. economy will implode from mounting debt. So says Peter Schiff, author of Crash Proof and dubbed Dr. Doom by CNBC. "We have developed an economy based on consumer debt and borrowing — not saving. That type of economy can't survive.
2: The falling dollar devalues returns. Stocks may be at record highs, but the value of the profits from the rally are worth less given the sharp drop in the dollar against foreign currencies, Schiff adds. "It means nothing because we are measuring it in a currency that is falling in value."
3: The bull is aging. The bull market that began in October 2002 is already 1½ years longer than the median bull life span over the past 75 years, notes James Stack, editor of InvesTech Research newsletter. No bull lives forever.
4: Other bubbles pose risks. The ongoing fallout from the U.S. housing bust and the potential fallout if the bubble-like Chinese stock market bursts could have serious financial reverberations at home, Stack says. "Bottom line, we see a lot of risk," Stack warns.
5: The consensus could be wrong. Investors are too complacent, behavioral finance expert Woody Dorsey says. His proprietary sentiment indicator points to levels of euphoria found at other market tops. "Financial culture is anchored in consensus," Dorsey says. "After all, everyone's saying, 'Interest rates are low'; 'Inflation is well contained'; 'The global boom has a long way to go.' "
All that bullish group think worries him.
Says Dorsey: "The Dow has become the new American Idol. Will 'Street Sense' reappear?"
By Adam Shell, USA TODAY