Hyman
Jordan Hayes wrote:
>
> Trond Andresen wrote:
>
> > My bet is that there will be a major crash (euphemistically:
> > "correcion") within a year.
>
> Can you define (a simple percentage will do) what you would accept
> as a 'crash' ...? Let's try something simple: do you think the
> DJIA will see 6,000 before it sees 12,000? Don't forget that a DJIA
> 6,000 is just taking us back to November '96, barely a year and a
> half ago. The "crash" of '29-33 took nearly thirty years to erase.
>
> > I think we should stick to his actual words as referred in the SMH:
> >
> > >Market valuations are justified because they are not
> > >anticipating better times...we're in better times.
> >
> > He says NOT ANTICIPATING better times.
> >
> > My native language is not English. With that reservation, I
> > understand this to mean that further serious appreciation of
> > stock prices are not to be expected.
>
> I don't think he means this. I think he means that the justification
> for the current levels does not come from people hoping for better
> times; his claim appears to be that the 'better times' one might
> hope for in some other scenario have actually happened. So the risk
> that we don't actually attain those hopes is not in the equation; in
> a sense, we're already there. I think this is what Doug said earlier.
>
> > If this is a correct interpretation on my behalf, he must mean
> > that today's prices are flattening out, but will stay stably high,
> > so that the public should not withdraw from stocks in the fear
> > that they will lose money.
>
> Again, as he is a feverent bull, I'd believe his outlook is for the
> market to move higher. In fact, DJIA 10,000 seems easily attained by
> the middle of summer.
>
> > When prices flatten out, the only factor remaining to support the
> > price level of stocks, is the earnings, which at this P/E level
> > are obviously to low in relation to prices.
>
> I'm sure many would argue with you on this point; in particular,
> the issues of supply and demand are still at play even if the
> momentum appears to stabilize.
>
> -----
>
> Getting back to the political aspect of this, I believe that at least
> part of this bull market has been engineered to incent workers to
> take part in "owning" the responsibility for their retirement. The
> tax code changes since the mid-80's and simultaneous Fed policies
> of lowering interest rates and unemployment have led to both a
> decrease in collective labor power (who wants to strike if it means
> taking time out from participating in the 401k plan?) and a radical
> increase in the demand half of the equation in the equity markets.
> Add to this the fact that total supply of stock is down (due to
> M&A activity, principally, but fueled by stock buy-backs and to
> a smaller extent employee stock option exercise), and you've got
> a "magic" environment where, without a viable alternative, there's
> no 'good' reason to see the markets go down.
>
> These actions have helped to alter the "normal" behavior of stock
> prices; the day after a big crash, everyone wakes up with a new
> slice of retirement savings that has to be invested. Will they
> suddenly stop investing it? The cash has to go somewhere. Many
> of these people believe that buying mutual funds is now their
> civic duty.
>
> >> I think this statement gives you away as someone who thinks that
> >> there is structural support for a "reasonable" return on a stock.
> >
> > Of course it is. Why do you think the market is so much more
> > nervous now than a couple of years ago?
>
> Nervous? I'm not sure where you see it from, but I'd say it's
> downright giddy. Perhaps scarilly so. Ordinary folks *loving* the
> idea of a dip in the market, seeing it as a buying opportunity.
>
> This is not the sign of a nervous market.
>
> > Because everyone knows deep down inside that there are
> > some sort of "fundamentals" (or call it what you like) that by
> > today are outrageously violated. Do you deny this?
>
> Do I deny that it's true, or do I deny that people think this?
>
> Well, now that you ask, yes I do deny that there is any kind of
> fundamental support for stock prices. The price to earnings ratio
> is downright hilarious. 57 for MSFT? What could these people
> possibly be hoping for? I saw a funny interview with John Reed
> where he compared Citicorp to Microsoft. He said that he formed
> CCI's global commercial banking division in the same year that
> Bill Gates formed Microsoft. In the years since, CCI has been
> more profitable than MSFT in every year (this is about to change),
> but MSFT's P/E was three times CCI's. Why is that? Reed said "I
> gotta get me an Internet browser!" ...
>
> Here's another thing I believe: people are naturally long. They
> get up in the morning and hope for the best, they see success as
> something to be attained and up as the direction to head in. It's
> probably the reason so many people buy stock hoping it will go
> up rather than sell it hoping it will go down.
>
> So I guess I deny both.
>
> > Why should an investor buy stock at a price which gives a risky
> > return on his investment at the puny magnitude of -say- 3%, when
> > he can buy risk-free gvt. bonds or even deposit his money in the
> > bank at higher rate of return?
>
> I'm not sure if this is a setup, but in the last two years the
> average equity fund in the US returned well over 20%; show me a
> govt. bond that pays 20% (ok, Mexico doesn't count - I mean one
> with little currency risk) and I'm sure I'll be interested. In
> fact, find me a *corporate* bond that pays that much, and I'll
> be interested.
>
> > Any stock is overvalued when the P/E is so high that the risk
> > premium + gvt. security return rates are higher than the return
> > rate on the stock.
>
> That's a nice heuristic, but so far you're dead wrong. I mean, if
> you have a good way to evalute "risk premium" in this market, you're
> wasting your time at University. Another thing that needs to be
> taken into account is sector rotation; the market is so incredibly
> liquid that sector rotation is possible even among individuals. So
> who cares if yesterday's stock is overvalued? Switch to today's
> high flier and win some more.
>
> > Concerning the stock market, I could just as well go to the
> > Sydney Casino and play black jack.
>
> Keeping your own proclivities out of the equation for a minute, why
> are you so sure that we're going to see a crash? And were you as
> convinced at this time last year? What about the year before that,
> as we soared past the "unreasonable" 5000 mark?
>
> Finally: if you're so sure, why aren't you buying puts?