From: Max More (max@maxmore.com)
Date: Fri Oct 22 1999 - 02:46:47 MDT
At 05:09 PM 10/21/99 -0400, Robin wrote:
>
>As Hal nicely pointed out, you really have to believe that the economy
>has changed in fundamental ways to justify current prices. You might
>decide that investors no longer demand a risk premium (the Dow 36K argument),
>or that computers, the collapse of communism, etc. have fundamentally
>changed the economy. Maybe, but do keep in mind all the reasons
>people had to believe in 1929 that the world had fundamentally changed.
>Arguably one of the century's best economists, Irving Fischer, published
>a book in '29 about how the world had changed, and he convinced Yale to
>invest all their endowment in stocks then. Ouch.
I have commented at length in other fora on the comparison to the '20s, but
will not do so at any length here, since the book Dow 100,000: Fact or
Fiction? does a fine job. I will note that the '29 crash and subsequent
depression was not necessary. It was largely induced by the Federal Reserve
which burst what it considered a bubble then allowed the money supply to
contract by a third. If they had not done that, a short term correction may
have occurred, but a depression was not necessary.
You also have to consider that the first crash happened when congress
passed the tariffs that greatly reduced international trade--a major factor
in the declines of the US and European economies. As Kadlec carefully
notes, Dow 100,000 in 20 does depend on the positive effects of
demographics, opening of markets, lowering of tax rates, etc, and could be
derailed by political mismanagement.
Anyway, as you say, maybe the best bet is simply to implement our
respective views in our investment strategies.
Max
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