The Dow could rally much higher from current levels. Japan’s boom-bust cycle and current sentiment levels suggest prices could rise. | Source: AP Photo/Richard Drew
By CCN: Unpopular opinion – the Dow could rally higher from here and possibly much further than anyone expects. Just about every expert and their cohort are calling for the market to implode. Maybe it’s time to consider the alternative scenario?
As the longest bull market in U.S. history continues its relentless run, that old cliché seems more relevant than ever: “The market can stay irrational a lot longer than you can stay solvent.”
A Blast From the Past: Boom and Bust in Japan
There is a poster child for all this stock market madness, and it comes in the form of the Japanese asset bubble of the late 1980s. In only three years, the Nikkei 225, Japan’s benchmark financial index, tripled to 39,000. By 1989, the Nikkei accounted for a staggering one-third of the world’s stock market capitalization.
At the time, Japanese corporates created their own form of financial engineering known as “zaitech,” which allowed them to record speculative gains as income on their balance sheets. Asset prices quickly doubled and then doubled again.
At the height of the mania, the Japanese Imperial Palace was supposedly worth more than all the real estate in California. Today, U.S. corporates are heading down that same slippery slope, primarily with record share buybacks to juice their own stocks.
One could argue: “True story but aren’t you just further making the bear case?” Well,