Jeremy Siegel, whose economic work was one of the key theories used to justify higher stock prices during the bubble, thinks that the market is near capitulation.
The idea is that the market can't bottom until everyone has given up in despair. I'm reminded of a friend who worked at a hedge fund during the last market downturn. "I keep telling them no-no-no!!!" he told me over dinner. "As long as you think the market has capitulated, it hasn't capitulated."
To be fair to Prof. Siegel, Glassman and Hassett didn’t borrow his theory. They misunderstood one teeny, tiny factoid in one of his books. Unfortunately, they couldn’t stop at misunderstanding, and instead had had to drag this factoid through the rich fields of hubris, ignorance and arrogance. Bravely, they arrived at a new book. Dr. Siegel completely disowned any connection to Dow36K.
Here’s an outstanding review of the relevant details.
http://www.crossingwallstreet.com/archives/2006/10/the_dow_hits_a.html
There is a lot of foreign money on the sidelines, particularly in oil-exporting countries, and other countries with sovereign wealth funds (e.g., Singapore). When some of these investors jumped in to re-capitalize financials a few months ago, they were clearly a little early. They also have the dollar to consider: when the dollar looks like it has bottomed, that may be when foreign money starts pouring in, which would get a bull market trend going again. Over the last couple of days, the dollar has gone up versus oil and gold, but it's probably premature to call a bottom on the dollar. Maybe when the Fed starts to raise rates again (perhaps after the elections in November?) big foreign investors will feel comfortable buying up American stocks.
There were a lot of people on Wall Street who wouldn't buy Dow 36,000 who nonetheless used Siegel's theories to justify ridiculous valuations. I am not faulting Professor Siegel for this, mind you; if it hadn't been him, it would have been someone else. Idiots can always find an excuse for gambling.
"Idiots can always find an excuse for gambling."
--MM
but, in your world, it's better when they can do so with your checkbook?