On Sat, 11 Oct 1997, Thomas Lunde wrote:
>
> All these people depend on promoting confidence. They sit on telephones
> talking to other players like themselves, generating the same kind of false
> enthusiasm for the flavour of the day or they go on talk shows and
> dramatically predict their opinion of the current state of the market.
> Well, what I've said so far is not very profound and reflects a contrary
> viewpoint.
>
> I guess what I would really like to know is how come the market has proven
> so resilient when it is so often shamelessly promoted for profit for a few
> and losses for many?
Of course nobody really knows. My guess is that inflation has
been kept at bay because productivity is not getting passed along in
wages but is going to keep prices constant in the face of worldwide
competition. Margins are slimming and so there is the continuing worry
of earnings.
Perhaps more important is the surge of mutual fund money keeping
stock prices high. This could turn out to be a sad turn of events. Sort
of like a land boom that goes bust. Boomers are worried about their
futures...governments seem to be saying 'you are on your own.' So every
availble personal surplus goes to mutual funds (who play against each
other) thereby driving up (or maintianing) stock prices. Market players
see stocks rise and feel they were right to get in early, latecomers
afraid of being left behind are now throwing money into the market. What
will cause the bubble to burst? Probably an exogenous event: mideast
sparks that threaten oil prices, sudden demise of Greenspan. Or, it could
take some time. Consider a decade or so from now as people begin to
convert mutual funds to cash for their 'golden years.' All of a sudden
markets are no longer rising but are falling. Seeing this boomers rush to
convert their mutual funds so they too can enjoy their 'golden years.'
Busts are made of this.
arthur cordell
