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Sunday, April 17, 2011

Super Boom - 500% increase in stock prices

Barry Ritholtz comments on plausibility of Jeff Hirsch's Super Boom: Why the Dow Jones Will Hit 38,820 and How You Can Profit From It | The Big Picture. As Barry mentions, it is plausible. However, timing the bottom still remains a challenge.

I believe there were trends ready to take over during episodes Jeff points to. There was the automobile boom, suburban boom and consumer products boom, the internet and computing boom etc. The problem is, as of now, I do not see any sector ready to create the growth momentum required for 500% increase in stock prices. I was looking at alternative energy among other things, but it doesn't seem to be a big contender as yet.

For a sector to be an able contender to create (not simply augment or drive) growth momentum it needs a few qualities. It needs to be a mass employer at a value-chain level. It needs to create productivity gains in existing economic engine while creating ancillary products and services that are growth engines in their own right. The first past will help finance investments in the technology while the second will create exponential gains in the sector both in terms of adoption and profitability.

Alternative energy cannot, as yet, be a mass employer. Though it can create energy independence and help the economic engine. To be specific, I think the sector has the potential to become a top trend creator in 10 years time. Another sector in its infancy could be water management and treatment. In my view, healthcare services or healthcare delivery services as industry fellows call it, may be a reasonable bet. I do not have much conviction in the idea as yet, but it ticks off some important boxes. It can be a mass employer, it will help improve productivity of economic engine (by keeping labour employable), it is a critical need so funding should not be an issue. The missing link is the exponential take-off. Unless people come up with innovation, I do not see exponential take-off materializing easily.

In all probability, the identification of trend should take at least couple of years. Till such time I do not see the beginning of the 500% trend. However, I am convinced that once such a trend is in place, we will see a period of sustained growth as the trend propagates through the global economy and benefits begin to stabilize. I am not sure if the percentage 500% is relevant but a sustained growth is always welcome. So let us hope for a quick revival!

My book "Subverting Capitalism & Democracy" is available on Amazon and Kindle