Jacob, the statement 'the world is rational' is more than just debatable imo <ggg>.
i never said i'm looking for 6 p/e's although i wouldn't rule it out at all.
<<What you're missing is that there is a kernal of truth in the "New Era" euphoria. There is a general upsurge in productivity.>>
Really? as far as i can discern, the so-called 'productivity miracle' is an overhyped quirk of statistical manipulation. the overall growth in productivity is almost entirely due to only one sector of the economy, namely computer manufacturing. it only represents about 2-3% of GDP, but accounts for some 85% of productivity gains. how come the box-making sector produces such astonishing numbers? it's a feature that only exists in the BSL of the U.S. (no other country in the world has yet incorporated this little piece of statistical ingenuity in it's methodology). it's called hedonic pricing. in essence, it serves to inflate both productivity and GDP statistics and deflate inflation statistics. now, if it only distorted things by a small margin, there would be no problem. but the actual numbers are in fact distorted by a factor of 10.
sort of brings the whole 'new era' edifice down in one fell swoop. i refer you to the studies of Dr. Robert Gordon on the subject...if you need links, please ask William Manger, i'm sure he'll gladly provide them.
you really believe 30% earnings growth per year is NOT unreasonable? apparently you haven't yet looked too closely into the various accounting shenanigans that make it APPEAR as if such earnings growth existed NOW for the firms concerned. without going into too much detail here, but everything from stock buybacks to stock options schemes, transfers from pension fund surpluses and pooled interest accounting are highly suspect practices as they stand. they all serve to artificially inflate eps figures and are typical outgrowths of an investment mania. the latest twist in this game is the U.S. version of zaitechu, commented upon on this thread several times already.
admittedly the past decade (the disinflation boom in the K-wave) has given rise to extraordinary profitability of big corporations . to extrapolate this trend into the future is sheer folly. i don't know if you're acquainted with Warren Buffets Forbes article where this phenomenon has been discussed in depth. he showed that we are currently at the historic extreme of the profit cycle, which occurs with cyclical regularity. the next cycle after this one will be one of LOWER corporate earnings growth. it has already crested. the U.S. government reports that economy-wide, corporate profits grew by only 3% over the last year. that's less than GDP growth (naturally, since GDP growth is inflated by the aforementioned hedonic pricing lie about PC's).
if you think that corporate profit growth can indeed bear no relation to actual GDP growth forever, you are sorely mistaken imo.
the effects of the internet on the economy and future corporate profitability are one of the most overhyped and imo misunderstood features of the whole new era propaganda dished out by Wall Street.
as i have mentioned before, the internet is a leveler of profit margins. the existing companies in the field prove that day in day out. what's more, the 'new' economy (the existence of which i do not deny) is now in the process of transforming and partly replacing the old one. this is a process that will last for another 1-2 decades and will be a painful consolidation that will be very good for the economy in the long run, but likely very bad for stock prices in the next 15 years or so.
that's what's meant by 'secular' bear market. a bear that's not over in two months time, but takes years, perhaps even decades to complete.
not even the popular demographic argument holds up under close scrutiny btw. i'll post some information on this over the weekend if you like.
i am well aware that the current stock market mania may not yet be over...but a new record high in consumer confidence coupled with the highest investor expectations w/regards to future stock market returns EVER say we are very close to that point.
i repeat, the world is NOT rational. and least of all is the stock market.
regards,
hb |
