As a keen observer of economic, social and financial trends, I think we are moving toward one of the most fascinating period in economic history. It will also be a time during which most investors will end up with huge losses.
Mark Faber -- AmeInfo.com
March 15, 2007 -- Let me explain. The shares of most sub-prime lenders already peaked out in late 2004. Throughout 2006, it became increasingly evident that conditions in the housing market were deteriorating. But investors kept on buying these stocks because the P/Es were low and analysts continued to recommend them, and because the Fed kept on telling investors that the worst in the housing market was over!
But consider the following. The news is always favorable near market tops or when a sector is about to peak out. Most analysts will also be most bullish about the prospect of a sector right at the very top of the market -- remember high tech stocks in 2000?
Also, near stock market tops the price-to-earnings ratio is frequently low because the problem lies less with the 'price' than with the 'earnings.' In 1929, the U.S. stock market sold for less than 14-times earnings. But then earnings collapsed and stocks plunged 90 precent.
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