It has become apparent that the last bull run was caused by the over-spending of American consumers which increased the demands over all world. Read the report of Dr. Peter Morici of the University of Maryland, wherein he said that at about 5% of GDP, the huge current account deficit indicates Americans continue to consume much more than they produce, and borrow too much from the rest of the world.
Now voices are raising about for changing the overspending habits of American. Julian Robertson has emphatically stated in his recent interview with CNBC “that the United States is just getting into the recession,” and that the poor economy will last as long as 10 to 15 years“.
He further added that “I don’t mean to imply that this is going to last quite as long as what’s been happening in Japan, but when they went into their decline in 1990, almost 20 years ago, their people were loaded with savings—but [Americans are] all broke,” he said. “…If we leave out the home in the calculations, I’d say that 80-85 percent of Americans are broke. So they have to cut back on their spending.”
In one of the article at Kiplinger, Erin Burt clearely expressed the requirement of savings by the Americans.
“Yet somewhere in the past few years, we — along with Uncle Sam — have lost sight of that. We’ve fallen victim not only to keeping up with the Joneses, but also to keeping up with our own fantasies. Credit came easy, and we thrived on money we didn’t have. We could afford bigger houses, exotic vacations and huge TVs. As our whims ran wild, so did our debt. Live within our means? How archaic. If you can afford the minimum payment, why bother getting out of debt?
And as for savings, you have plenty of time to make up for it later, right? In the mid-1970s, American consumers saved about 9% of their after-tax income. Today, that figure hovers around zero, according to the Bureau of Economic Analysis. After all, you may have rationalized, why bother saving for tomorrow when you can have what you want today?
Welcome back to reality. Living within your means isn’t old fashioned — it’s smart and relevant, perhaps more today than ever. Debt isn’t a way of life — it’s bondage. Saving isn’t a drag — it’s rewarding, not to mention a great comfort in tumultuous times. These are eternal truths that stand in any economy.”
The Indian stock market also ran the tallest with the increase about 500% during 2003-2007 , as NIFTY went to 1000 points to above 6000 points by that time. It is clear that bull run ,with such intensity, is unlikely in future as the engine, US economy, is falling apart in pieces.
In future equity will still give highest retun comapre to other investment avenues in long term, but do not expect the return what you ,perhaps, have had during this rally.