stox

[Brad De Long]

>Brad De Long wrote:
>
>>If earnings are a constant share of household incomes, then all he is
>>saying is that price/earnings ratios shouldn't go up any more.
>>
>>At least he didn't say that they had to go down immediately...
>
>No, he didn't. He said: "Other things equal, this condition will
>involve equity discount factors high enough to bring the rise in
>asset values into line with that of household incomes, thereby
>stemming the impetus to consumption relative to income that has come
>from rising wealth. This does not necessarily imply a decline in
>asset values--although that, of course, can happen at any time for
>any number of reasons--but rather that these values will increase no
>faster than household incomes." The "not necessarily" is a nice
>touch, since it's hard to think of a historical precedent for a
>market this highly valued - with participants conditioned to expect
>20% annual returns - floating gently back to earth. Or simply slowing
>to a 6% or so annual growth rate.
>
>Doug

It depends on whether they're trend chasers who buy when prices rise 
and sell when prices fall, or if they're just gonzo optimists...

Brad DeLong