'Recovery' looks more like illusion
The Thai stock market peaked at the 1,700 level in 1994, two and a half years before the 1997 financial crisis. The SET index hit bottom at 207 at the height of the crisis in 1998 before starting to recover. After 19 years, the SET index has yet to climb back to its pre-crisis level. In between, the Thai economy has gone through painful restructuring. Phatra Securities has just issued a report suggesting that the SET index could reach 1,700 by the end of this year, a rise of 10-15 per cent from current levels. The SET index closed at 1560.98 yesterday.Japan's stock market hit a record high of 38,957 in 1989 before the bubbles burst. Time has gone by - 23 years - yet the Japanese market is still trading at the 11,000 level, a third of its all-time-high mark. The Japanese authorities have tried to jumpstart the economy through aggressive fiscal and monetary stimuli. Japan has ended up with a 230-per cent - more than US$12 trillion - ratio of national debt to gross domestic product. The Abe government is re-embarking on a fiscal and monetary policy to combat deflation. The near-term target for the stock market is 13,000.
The Dow Jones Industrial Average peaked at 14,164.5 on October 9, 2007 before the US economy collapsed in 2008. Both the federal government and the US Federal Reserve have mounted aggressive stimulus programmes to pull the economy out of the crisis. When President Obama took office in his first term in 2009, US national debt stood at $10 trillion. As a result of fiscal stimulus, US government debt now has climbed to more than $16 trillion, equivalent to 103 per cent of GDP.
At the same time, the US Fed has committed to open-ended money printing by buying up both the mortgage-backed securities and the US Treasuries and keeping interest rates at slightly above 0 per cent.
It has taken the US three and a half years for the stock market to set a new record high. This week the Dow Jones Industrial Average breached its October 9, 2007 level. The performance of the US stock market has raised questions about the greatest market bubbles of all time. The following is from ITM Trading Inc (www.facebook.com/ITMTrading/posts):
Dow Jones Industrial Average: Then, 14164.5; Now, 14164.5.
Regular Gas Price: Then, $2.75; Now, $3.73.
GDP Growth: Then +2.5 per cent; Now, +1.6 per cent.
Americans Unemployed (in the Labour Force): Then, 6.7 million; Now, 13.2 million.
Americans On Food Stamps: Then, 26.9 million; Now, 47.69 million.
Size of Fed's Balance Sheet: Then, $0.89 trillion; Now, $3.01 trillion.
US Debt as a Percentage of GDP: Then, ~38 per cent; Now, 74.2 per cent.
US Deficit (LTM): Then, $97 billion; Now, $975.6 billion.
Total US Debt Oustanding: Then, $9.008 trillion; Now, $16.43 trillion.
US Household Debt: Then, $13.5 trillion; Now, 12.87 trillion.
Labour Force Particpation Rate: Then, 65.8 per cent; Now 63.6 per cent.
Consumer Confidence: Then, 99.5; Now, 69.6.
S&P Rating of the US: Then, AAA; Now AA+.
Ten-Year Treasury Yield: Then, 4.64 per cent; Now, 1.89 per cent.
EUR/USD: Then, 1.4145; Now, 1.3050.
Gold: Then, $748; Now $1,583.
NYSE Average LTM Volume (Per Day): Then, 1.3 billion shares; Now, 545 million shares
It has taken the Thai SET index almost 20 years to recover to its pre-crisis, record-high level. Japan's stock market, after the bubbles went burst in 1990, is trading at a third of its value after more than 22 years. But it is taking the US stock market only three years to climb back to its record-high level although statistics show that US fundamentals remain very weak.
The US stock market recovery can only be attributed to one man: Ben Bernanke, the US Federal Reserve chairman, who is committed to ultra-monetary easing to prop up the US economy and financial markets. In doing so, we are witnessing US stock market bubbles unseen in history.