I think you are right -- and this is very dangerous. The hot IPO market means that new companies can obtain huge amounts of capital from selling watered stock. It sounds like Bubble Time in London. I passed up an opportunity for 100 shares in an IPO when I realized that I didn't understand what the company was intended to do. If the net bubble collapses first, it will be impossible for the Fed really to clamp down with out causing a genuine collapse. If inflation (prices of goods) continues to build, then a serious attempt to use monetary policy to stop it may start the collapse of the bubble. A real shake out in the 'nuts and then the techs could lead to a major collapse reflected in a sharp decline in consumer goods (especially tech goods). This could be world wide. Once the box makers, semis, and digital phones collapse the game is up for 3 years or so.
It is interesting that many brokers are imposing higher margin requirements on volatile stocks, especially 'nuts. This is quite responsible, since it runs off day traders and other speculators. Waterhouse even refuses to execute orders on many volatile stocks. Many brokers are restricting day traders who engage in even one front-running trade. I think the Board should really stomp on excess margin use, especially for high beta stocks. I think brokers should be forbidden to accept credit cards checks and checks drawn on home equity accounts (illegal margin).
I would like to slow down the stock market boom without killing off the car, consumer durables, and house markets. I don't know how to do it without new legislation, and I don't think there is much chance of that. The Fed can control margin and most bank credit, but the hawks don't like this kind of close control.
I guess we're doomed one way or another, unless we are very lucky indeed. As an individual investor I find it difficult to restrain my greed. The odds look so good, that its hard for me not to take a chance. I have been incredibly lucky so far, especially in my recent pessimism. I think there are millions of people who feel the same way.
Someone stop us before we hurt ourselves. |
