Keith said, As for FW list, I hope it will be continuing.
Arthur replies, For a thousand years...... -----Original Message----- From: Keith Hudson [mailto:[EMAIL PROTECTED]] Sent: Wednesday, October 09, 2002 2:56 AM To: Karen Watters Cole Cc: [EMAIL PROTECTED] Subject: Another 2-10 years of recession? (was: KBN News Updates Karen, Thanks for your News Updates. I'd never heard of Mark Zandi, Chief Economist of Economy.com before and I don't know what his track record has been. But when he writes: <<<< The economy's near term prospects have taken a decided turn for the worse. As recently as this past spring, the recovery appeared on track to evolve into a sustained expansion. This sanguine outlook has been since derailed, however, and it now appears the recovery will at best struggle for some time and could very well fall back into recession. >>>> M'mm . . . there was *never* any chance of recovery in the spring! The purge had only just started! He, like most other public economists, continues to use prissy language -- "could very fell fall back". I wonder what this guy was saying about 18 months ago when Steve Kurtz and I on this List were forecasting the continuation of the recession that was then starting? At that time, 9 out of 10 economic forecasters were optimistic. Now then, Harry Pollard doesn't think that Price/Earnings ratios of shares signify. I do. I think they're an important indicator that savings are either not happening or that they're going to the wrong places (non-productive government bonds or in the mattress). Steve Kurtz is (unless I'm mistaken) a "chartist". I'm not. Nevertheless, I think one can gain a lot of insight by looking at a graph of P/E ratios over the very long term. Looking at a graph of P/E ratios since 1881, the astonishing fact is that there have been only five clear peaks in th whole of this period (in each case, P/E ratios were above 20 -- over 30 in 1929, over 40 in 2000). Three of those peaks (1901, 1936, 1965) subsided slowly (averaging 12 years), one (1929) subsided rapidly (within 3 years) -- with our present one (2000) subsiding rapidly so far. The significiant thing about *all* the peaks is that once they start to decline then, whether they're slow to decline or not, they don't stop until they hit rock bottom (at P/E ratios of between 5 and 8 -- which give sustainable 15-20% dividends even in a non-growth economy). On this basis, American equities are still roughly twice as high as they will be sooner or later. Whether the slide in share prices will continue at the same rapid rate as in the last couple of years, or whether it will slow down (as has happened twice before since 1881 -- the slides averaging about 8 years) is impossible to know. But, once again, the graph is definite on one point. Share price slides don't stop at intermediate points -- or not for very long anyway -- before continuing to the bottom. There is still so much bad news from America, Japan and Europe and in every sector of their economies -- retailing, banking, insurance, manufacturing -- that the purging still has, at least, a couple of years to go in my opinion. Then, I think, another couple of years will be needed before the average investor starts to trust Wall Street again. If all this becomes so, what other forecasts could be made of four/five years' time? Almost certainly, Bush won't have been elected for a second term. The European Union will probably be breaking up by then and re-establishing national currencies (and inflated ones, too, in order to stimulate national economies). Japan might possibly -- just possibly -- have reformed its banks and thus beginning to recover overall. A number of countries (probably Latin American) will have dollarised their currencies out of sheer desparation. China's lead in biogenetics and nanotechnology might then be so considerable that its economy will then be poised to overtake America's. As for FW list, I hope it will be continuing. Keith Hudson ---------------------------------------------------------------------------- ------------ Keith Hudson, General Editor, Handlo Music, http://www.handlo.com 6 Upper Camden Place, Bath BA1 5HX, England Tel: +44 1225 312622; Fax: +44 1225 447727; mailto:[EMAIL PROTECTED] ________________________________________________________________________
