...and yet, nobody was able to identify and stop a simple house loan scam in the USA that eventually brought the world to its knees...
Outside of the mainstream financial media, there were probably dozens of analysts who predicted the US Subprime crises.....Elliott Wave International was one. Certainly, none of those were able to stop the destruction though. Governments have injected trillions of stimulus to delay the inevitible, and hence we have seen a sharp bear market rally in virtually all markets across the globe since last March. But, the underlying bearish mood is still there...until the deleveraging is allowed to occur on a sovereign scale, the markets won't bottom. I disagree that the world was brought to its knees.......I think that outcome is still in front of us.
Have we forgotten that in the long run, the essence of economics, business and therefore investing comes down to the simple relationship between...
Supply and Demand
...no more, no less..?
I agree that supply and demand ultimately drives the immediate price of an asset, but I don't believe that either side of this equation can be explained by a purely fundamental argument. When the price of oil peaked at $140, it wasn't demand for oil from the end users. Each barrel of oil is traded, on average, 27 times before it reaches the end user...so it is supply and demand within oil futures contracts that caused the spike, not because China needed the oil for its industrial revolution (or any number of other fundamental reasons for the rise).
Another illustration is the Australian property market, which I believe is in the final stages of a financial mania. Spruikers will argue that the reasons for a median house price so far above the average wage is purely supply and demand, which in the strict sense it is, but the demand is not there for the reasons that they will provide. The demand is driven by social mood, and the desire to build wealth through capital gain, or rental yield. As long as houses are being purchased with this reason in mind, and not for the practical purpose of 30 years of shelter, the demand will 'artificially' drive prices higher. This is a normal bull market cycle, but what is occuring 'down there' at the moment, is a mania as a result of extremely low interest rates, low lending standards, and an extreme of social optimism.
So, if using supply and demand to dictate your investment decisions, one must take into account where the demand is coming from, and the timeframe for your 'out'.....as with $140 oil, the 'decline' in demand may come much sooner than you think.
lmh