Keith, What happens in the stock market has little effect on the economy, though the economy will have an affect on the stock market.
The stocks which soared with no apparent interest in earnings were acting like collectibles. (With collectibles, the sale price is everything and the income is unimportant - which is just as well for there usually isn't any.) In the collectible market, the easily observable characteristic is unwillingness to sell. (Of course when the market crashes along with everything else, collectors may change their minds.) I should remind you, in passing, that the land market is a collectible market - and there's the rub. Harry ---------------------------------------------------------- Keith wrote: >A week or two ago Sally asked FW whether we are likely to be going into a >recession. I replied that it is likely basing my argument on the >still-too-high price/earnings ratios on equity shares. I still stand by >that but here's another angle on it: > >This morning I've been reading the views of Brian Reading (highly reputed >over here) of Lombard Street Research who reckons that the present downturn >will not be like a "U" or a "W" (the only variants that most economists >have talked about so far) but more like bungee-jumping. > >In other words, the share values which have bounced off the "bottom" >recently will fall once again in the near future -- and go further >downwards -- then bounce up a bit, and then fall again -- a little further >still -- and so on with (thankfully!) decreasing bounces until the economy >rests for a long period at depression/recession levels while an awful lot >of businesses shake out their excesses and inefficiencies of the 90s. > >And then Hamish McRae, economic editor of The Independent, writes of the >ineptitude of Greenspan's present policy of driving down the Fed's interest >rates all through this year totalling 6% so far and now at a 40-year low. >In "normal" times, this low level of interest rate would have prompted new >investment months ago -- but nothing has happened even though, taking >inflation into account, money borrowed by big business from banks is almost >costless. (Banks, howeever, are most unwilling to lend anything at all at >these interest rates to small and medium businesses.) Nor is anything >likely to happen until a "demand black hole" is filled. > >The demand black hole cannot be filled quickly because American consumers >already have credit card debts on average amounting to about 120% of their >annual disposable incomes. It might be imagined that, interest rates being >so low, consumers could polish off their debts quickly at almost no cost. >But the cost of money, while almost free to big business, will not be free >to consumers. The lending agencies have to pay for administration and, of >course, profits. > >It would not be so bad if it was just America that is suffering. But it is >not only the biggest economy in the world, but also the second (Japan) and >the third (Germany) which are suffering with static or declining economies. >The fourth (UK) is just about holding its own at present with about 1.5% >growth but even here the average consumer has credit card debts of 105% of >annual disposable income and unemployment is now growing for the first time >in more than a decade. Nemesis can't be far off. > >In truth, although governments are supposed to be the "true" originators of >money, interest rates and so on, they are really quite inept at controlling >the system. They've tried all ways in the course of the last century since >they nationalised the previous gold-based currencies -- with one major, and >several minor, recessions so far. They tinker about with taxation, crude >monetarism and exchange-rate changes, they chase after one theory after >another, and they still don't know what they're doing, whatever >"authoritative" announcements they make at the latest manifestation of >their wisdom. Perhaps the coming recession will actually bring about the >dawn of real currencies -- that is, those that are, at all times, >guaranteed by being based on real value (whether gold, platinum, mineral >resources, basic foodstuffs doesn't really matter so long as it's tangible >stuff that people really value). Outside the constant interference of >governments with their latest fads, the value of currencies, interest >rates, and exchange rates would steady out with only the smallest wobbles >on which speculators could arbitrage (and usefully so, not destructively as >now). > >(The last two paragraphs are my own comments, not McRae's.) > >Keith Hudson ****************************** Harry Pollard Henry George School of LA Box 655 Tujunga CA 91042 Tel: (818) 352-4141 Fax: (818) 353-2242 *******************************
