>I am chiming in with some thoughts on the incredibly overvalued U.S. stock
>market. From the Sydney Morning Herald, New York correspondent Brian Hale,
>on Tuesday 28 after the Monday 27 downwards dip:
>
>"..but Wall Street's best-known bulls, like Prudential's Mr. Ralph Acampora
>and Gruntal's Mr. Joe Battipaglia, were out front once more, exhorting
>investors to 'give the market a few days' and stay with the faith. Mr.
>Battipaglia said: 'Market valuations are justified because they are not
>anticipating better times...we're in better times.' "
>
>The last statement is very interesting, because it shows that either
>Battipaglia is a deliberate liar, or that he has no understanding of stock
>price dynamics. The first alternative is possibly true, but let us for
>argument's sake take his "logic" seriously. He says that stock values can
>remain stably at P/E ratios *far* above (is it 25-30 now?) what corresponds
>to reasonable returns on a financial investment *even* when the market
>does not any more anticipate further appreciation. But the only factor that
>can support stock prices far above sustainable P/E ratios is
>*expectations* of
>further appreciation. When such expectations gradually evaporate, the
>overvalued stock is like the cartoon figures running of a cliff, standing in
>thin air, and when they look down and discover the fact, then they fall.
Battipaglia is one of the most fervent bulls around. And he's (perhaps unconsciously) right about how stock market valuations work - for all the talk of anticipating the future, they're really reflections of present conditions - plus/minus a few weeks, if you're a long-term investor, or a few minutes, if you're a short-termer. Along those lines, CNBC's amiable fratboy stocks editor, Joe Kernan, said the other days that traders were taking "long-term profits" after a 2-3 day runup in Internet stock prices.
Doug