bullish or bearish for the rest of 2007?

We are currently in a so-called commodity boom. It has many names, but thats the overall boom. Some other names given to it is the mining boom, resources boom, nickel & silver boom. Its looking pretty bullish at the moment, with the ASX 200 and All Ordinaries(AORD) soaring into new heights never reached before, uncharted territory.

For those new investors, a bull run is when a stockmarket is all excited and is pushing prices up through the roof. It usually occurs during a time when investors are all excited about a new prospect, and they tend to be overenthusiastic about the current market condition, driving share prices to irrational levels.

There was once when a stock had a PE ratio of 500! A P/E ratio is the price of the share to earnings per share ratio. Assuming that the earnings stay the same every year, it would take 5 centuries alone to justify the PE ratio! Not all of us can afford to live that long...

On the other hand, a bearish market is when everyone is suddenly pessimistic about share prices and their prospects. It usually starts off with a huge sell-out in the share price causing a big decline. While bull markets slowly rise over months or years, bear markets tend to come unexpectedly. During the 1987 crash, most blue chips lost 80% of their market value over a course of a few days! All those gains throughout the years wiped out by a single crash. Of course the stockmarket rebounded and went into higher levels than before.

One of the reasons causing the current boom is Superannuation money which is continually being poured into the sharemarket because it is compulsory for companies to give super to their employees through a super fund organisation, who in turn puts the money in the sharemarket for investment. Millions of dollars every year is being added to the sharemarket, and demand for shares ever increases, which in turn drives prices up.

Another reason is the awaking of sleeping giants China and India. Both combine equals to great world demand for commodities as both countries experience double digit growth rates and skyscrapers "suddenly" appearing throughout the cities, for example Shanghai. Just ten years ago you couldn't even see a single one of them.

Up until now since the last bear market in 2000-2002, much profit has been made by millions of people as their enthusiasm continues to grow and more fortunes are made. But a recent dip in the market has caused many to be aware of the possibilities of a looming bear market sometime soon. Right now, investors are precautious and are on guard to any slight change in the market.

Personally, I don't think any bear market is going to come soon. Usually they come when the least of people expect it. Currently, everyone is on guard and is unlikely bear markets would come when the world expects it. It will come though, it is inevitable. What goes up must come down. Till then, we should all invest in safe stocks and try to avoid the hottest industry. I will update more on that the next time.

Finally, what happens when Kaufman(the noted economist) forecasts higher interest rates and the Federal Reserve chairman slips while playing bowling and injures his back?


Both combine and the sharemarket drops 15%.