good old American optimism

Rakesh Bhandari bhandari at phoenix.Princeton.EDU
Mon Apr 3 13:41:47 PDT 2000

> >I think Schiller does not pay sufficient attention to the objective
> >strenghtening of the US relative position after the end of the Cold War.
> >Schiller seems to think it's all a matter of subjective triumphalism.
> I agree that Shiller overdoes the subjective, but as he points out,
> the last several years' surge in stock prices is all the result of
> higher valuations. The great profitability surge was 1982-96. To
> justify today's valuations, profits would have to grow at rates far
> in excess of GDP for a long time. Do you think that's going to happen?

Doug, I haven't read Schiller's book. Was only going by reviews/discussion in NYT, FT and elsewhere. Just to argue the other side (where's jordan when you need him?): I don't think the American stock market is overvalued (though wow there's a lot of room for relative movements of NASDAQ, Dow Jones, etc). There is a shortage in supply of stocks due to buy backs (though NASDAQ will be flooded by insiders cashing in--is that what happened today?), gains tend to be wanted in the form of capital appreciation instead of dividends for tax purposes, and strengthened American relative position means that US companies are best positioned to fall softest as global average profit rate falls. That means investors will pay premium for the shrinking supply of US equities that are most likely to fall least in terms of the rate of the return they can offer. And low tax rates on capital gains only further whets the rentiers' appetites. Yours, Rakesh

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