Zeev's Turnips Patch-No Politics (ZEEV)

[Bullwinkle]

Where Were You in October 1987?


http://www.smartmoney.com/trendspotting/index.cfm?story=20030729

The similarities go beyond the Wall Street scandals and Mideast tensions that dogged the market then, as now. They go beyond the speculative stampede into the riskiest stocks. They go straight to the record current-account deficit, exacerbated by heavy federal borrowing.

The difference is that the 1987 current-account deficit of $160 billion amounted to 3.3% of the gross domestic product, while the $510 billion deficit in the 12 months to March 2003 represented 4.8% of the past year's GDP. The deficit is now up to 5%, and rising.

In 1987, the imbalance hurt the dollar and bonds, causing the 10-year Treasury yield to rise three percentage points in the six months preceding the Wall Street crash. This time around, the 10-year yield has climbed a bit more than a percentage point over the last month. But because interest rates are lower now, the magnitude of the rise has been almost as great, and in a much shorter period of time.

Higher bond yields aren't a problem merely because they're choking off the refinancing frenzy. They're also diminishing the relative attraction of stocks, effectively lowering acceptable price/earnings ratios.



Sorry for posting another 1987 vs 2003 comparison article, I guess I just find the implications too compelling to be ignored.