Beware a happiness bubble in 2012
Posted
Sep 18 2009, 04:39 AM
by
Jon Markman
Rating:
If you're an out-of-work behavioral finance specialist, I have a project for you: Figure out why there's a three-year cycle of optimism and pessimism among investors.
ISI Group analysts pointed out in a note to clients this week that investors in the past decade and a half have been getting overly happy and overly gloomy every three years. I never thought about it before, but it seems to be true enough.
Back in 1997, investors grew gloomy and global markets tanked amid the Asian currency crisis. But three years later, in 2000, investors became overly sunny about the Internet revolution and the market topped.
Three years after that, in 2003, investors were too bearish again after terror attacks, Enron's collapse and a three year decline in stocks, and the market hit bottom. Three years after that, in 2006, investors got too bullish again amid hopes about globalization, China, a housing boom and economic Goldilocks scenarios -- and the real estate market topped out.
Then three years later on, in early 2009, investors got too downcast amid the credit panic, housing bust and government intrusion in the market, and pushed the market down hard.
So ISI issues this bold forecast: Beware becoming overly bullish three years from now amid a big market rally in 2012. Mark your calendars.
