asx200 at 3500 in 5 years

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    Cannot say I agree with this but.............................


    Associate Professor Steve Keen, School of Economics & Finance, University of Western Sydney

    Steve Keen, Associate Professor at the School of Economics & Finance, University of Western Sydney sees the S&P/ASX 200 on a long-term downward spiral, maintaining that the "gravy days for traders is over".

    He takes his point of reference by comparing asset prices to consumer prices. Dividing the share index by the CPI he explains "you’re effectively getting the real valuation of shares by deflating the index by the CPI".

    In 1987 the All Ordinaries deflated by the CPI reached a peak of 27.1…a few days later it was down to 13.5. At the end of last year we peaked at 43…and we’re currently at 32.

    "If you do that for the US market you get a truly horrifying view of what is likely to happen to American shares. When you do it for Australia you still get a pretty worrying view," he says.

    Referring to the past ten years or so as the biggest asset bubble in world financial history, Keen says that the implication for the US stockmarket is a 75% fall and for the Australian stockmarket a 50% fall.

    The culprit is "the level of leverage we have got caught up in". According to Keen, debt caused asset prices to reach the levels that they are today and will continue to be the main driver of the stockmarket.

    His projection for the level of the S&P/ASX 200 is 5000 in 12 months, 4000 in two years and 3500 in five years.
 
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