Mike, i have to tell you that your views of the macro-economic issues concerning the '20's the '70's and now are a little bit overly simplistic. that's not to say that i entirely dismiss your arguments, only i have studied the macro-economic environments and stock market environments of the periods concerned and when looking at today's market and macro-economic backdrop, i have to say that while one has to acknowledge a whole host of positive developments, from the end of the cold war, to the big leap in technological progress to the expansion of international trade, there are also the classic signs of an economic and stock market bubble discernible, and that has me very concerned.
my criticism of the rosy state of affairs is mainly directed at the Federal Reserve, which has employed a way too lax monetary policy in recent years, thus allowing a great many imbalances in the economy to build up. without going into details now, which are probably well-known anyway, i can not for the life of me fathom that there won't be some sort of adjustment in the not-too-distant future. the economy has become dependent on the bull market and an ever increasing rate of credit expansion, and it would be naive to assume that there's a free lunch out there somewhere waiting to be consumed.
i also take issue with the presumed productivity miracle. economy-wide there are no way near the productivity increases discernible that the statistics seem to suggest are there. this is due to the fact that a vastly disproportionate gain in productivity has taken place in the manufacture of tech hardware. technology overall however, accounts for just slightly more than 5% of the U.S. GDP, and while it's importance is growing, it is not reflective of the economy overall.
i know full well that the current asset bubble has been so uniquely persistent that the recent past is simply extrapolated into the future by most people, but the history of past market manias shows that the bigger the advance, the bigger and more durable the bear that ultimately follows in it's wake.
so the question is, have historic examples and the known laws of economics indeed been superceded by a 'new era' that guarantees a continuation of the current happy state of affairs?
let me put it this way: five years of extra-ordinary advances in the stock market are not statistically viable proof that this is the case, especially in view of the money supply growing at rates far surpassing the needs of the economy in the past decade.
of course, it is entirely possible that the bubble inflates even more before it finally breaks, but i believe it is important to be aware of the fact that it IS indeed a bubble...and the bigger it gets, the more dangerous it becomes.
regards,
hb |
