>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).
"Over" and "under" are kind of subjective, but every valuation measure known is at record levels: P/E, price/dividend, market cap/GDP, and my favorite, the S&P divided by the average hourly wage.
>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.
Firms simply cannot continue buying back stocks at the necessary rate to justify today's valuations. The abstract of the Fed paper I posted here the other day makes that point. Firms are now borrowing to sustain their buyback programs. Something's gotta give at some point, though if I knew when, I wouldn't be here.
Doug