To whom...,
Stock market overvaluation suggests a question that's very interesting to Marxists: When has a market overvalued a good? Within it's own terms, there's no upper limit on the price that the forces of supply and demand can imply in any particular market. The limit on the price of a good has to do with a measure of its value outside the supply and demand for it as such.
For example, the upper limit on the price of palladium probably has to do with the price of platinum. Some nut might willing to pay $50,000 an ounce for palladium (a vast over-valuation). It would be either because he desires a quality of palladium that no other element on earth can provide or because he is speculating that the price will go up regardless of the actual utility of palladium. For that kind of nut there is no upper limit on the price he will pay (except his supply of money and speculative markets can attract a lot of money). Palladium or the profit from speculating on the palladium market is all that can satisfy him. For the industrial user there is platinum as a substitute. Although it may be expensive to go through the process of substituting platinum for palladium catalysts, at some point it becomes economically reasonable. If we theorize some industry that can only use palladium, that industry would be scrapped and/or replaced by a completely different technology.
Stocks are a little different because their value is almost entirely speculative (particularly since the practice of paying dividends has lost significant economic meaning). Speculation undervalued stocks in the 60's and 70's. That meant that 80's buyers had to find a way to value stocks outside the terms of the stock market. They did this, I think, through leveraged buyouts. The (preponderantly) speculative value of stocks failed and so their value as ownership was cashed in. People were able to find the money to buy huge conglomerates and either run them for the profit they generated or sell them piecemeal to people who wanted to run the pieces for profit. That meant they didn't have to wait for boards to approve higher dividends or for the market price of their stock to rise. They simply entitled themselves to the free cash the company generated by buying it outright. They went outside the terms of the stock market to find the value of the company.
90's speculation has overvalued stocks. Rakesh suggests that speculators will not be hard to find even at these prices and that seems clear. Bubbles attract money like nothing else. The question is how stocks will hit their upper value limit. The lower limit was found when corporations got cheap enough people could buy them outright. The upper limit is harder to find. It's not like a commodity market where the industrial value of a good can be eclipsed by its price. Overabundance is even hard to manufacture. At $800 an ounce the world supply of gold would start to rise sharply as otherwise uneconomic mines came on line. The prospect for an over-supply of stock is limited. People need not buy new issues. One stock is not a substitute for another. If desirable companies turn off the buy-back spigot that leaves the market still growing slowly.
I think that means an external shock will be necessary. For example, the real estate market might collapse in areas that have benefited from profits in speculation. Losses in another arena would quickly dry up the willingness of speculators to buy new shares and encourage them to sell. Of course the Japanese bubble didn't burst until downtown Tokyo had a theoretical value equal to something like the entire state of California. I'm curious what other outside pressures people think may change the minds of stock speculators.
The tragedy of the stock market is that it sucks up so much cash although stocks are almost pure speculation - money for nothing. They represent ownership, true, but mainly they represent money and while there may be an industrial substitute for palladium but there is no industrial substitute for money. When markets fail credit dries up because rich people get hurt. Since we all depend on rich people for the credit that primes the economy everybody gets hurt unless we can find a substitute source of credit. In the mean time we're letting rich idiot children drive the bus.
peace,
boddhi