Has anyone beside me bothered to read the balance of the Leon Levy
interview that Louis posted yesterday? I don't think there was
anything really revelatory said, but the effect of Levy's comments
in full, as well as Madrick's promptings, might stimulate some
interesting thoughts in someone on the list.
Almost sounds like Levy's cardiologist has given him a new, mellower
perspective on things. Below is another section of the interview.
valis
.................................
J.M.: Economists typically think of capital spending as the main
source of the economy's strength. The more the better.
L.L.: Yes, that's what many said about Japan. I am not sure that
economics has made all that much advance since John Maynard Keynes. I
am not an economist, so I won't push the argument too far. But you
have to know the causal relationship. Capital investment may improve
productivity, but new opportunities may also stimulate capital
investment. So what is causing what? It doesn't mean that if you just
keep investing, productivity will also keep going up.
J.M.: At some point, you're saying, certain kinds of capital
investment simply become the fashionable thing to do and that's how
economies get overextended.
L.L.: If you can raise the money, which you can do these days, someone
will come along with an idea about what to do with it. But it may not
be a very good idea. That's what happened to Japan. But we are not as
overextended as they were, that should be made clear.
J.M.: Let me give the conventional argument here, about which I am
dubious. A lot of analysts point to the degree of high-technology
investment and the computer revolution and say that they will be the
source of new growth and rising productivity.
L.L.: Well, we've had a lot of electronics investment for a long time.
It's probably improving productivity, but it won't raise it by a
quantum leap. And we may now be investing too much in these things. As
I said, some people tell me their computers are too powerful.
J.M.: So, in sum, whatever the trigger, the American economy is
vulnerable to a downturn.
L.L.: Exactly. As I said, I think a recession is getting increasingly
likely.
J.M.: What does that mean for the stock market?
L.L.: It could mean a serious decline. It's already been serious,
remember. Small stocks are way down.
J.M.: How overvalued do you think the stock market is?
L.L.: Well, I've thought it's been overvalued for some time. And it
just kept going up. All markets overshoot. If something's working, you
want to buy more.
J.M.: How do you analyze the value of the market?
L.L.: By the way, I don't think the odds of being right about the
market are remarkably large, though at some times trends are easier to
see than at others. Perhaps this is one of those times.
In evaluating companies in the market, I try to determine what you
would pay to buy the whole company, based on its actual
performance: its products, its sales, its earnings, and its
prospects. Then I compare it to the current market value based on the
stock price: the price of the shares times the number of shares.
Given the way the stock market has been, it's been a long time since
I've been able to find many companies I would want to buy.
J.M.: In some fifty years in the business, do you think this market is
about as exuberant a stock market as any you have ever seen?
L.L.: I don't think any of us really remembers how we felt at
different times of our life about different things. I've noticed
people always think that this time it's the worst. When you're
younger, you are more inclined to believe that the profits you make in
the market are due to your own wit or talent. When you get older,
maybe you get a little wiser and discover that it's exogenous forces
that are making you all that money. ...............................
