"Rational Exuberance" or WE AIN'T NOTHIN' LIKE JAPAN, BABY.
Persuasive op-ed article in today's WSJ by Wayne Angell, formerly a Federal Reserve governor, now chief economist at Bear Stearns, on why our exuberant equities markets reflect rational behavior.
"Over the past 15 years stock prices in the U.S. have risen at a 15% annual rate. A $1,000 June 1982 investment in stocks, performing on par with the S&P 500, the Nasdaq or the Dow Jones Industrial Average, would have risen to $6,650, $7,200 or $8,150 respectively. Not bad."
"This long bull market didn't just happen. There is a rational explanation. Economic policy has brought the U.S. to a new era--an era of stable money and lower income tax rates that has made our economic expansion faster and longer. Over the past 182 months, we have had only eight months of recession."
"This performance of our economy, and hence of our stock market and tax receipts, can be traced to the benefits that come from a greater reliance on the market economy. Can the bull market continue? Of course it can. Will the Dow reach 10000, and the S&P 500 and Nasdaq indexes 1200 and 2000, by December 1999?"
"My guess is yes. But it depends on the economic policy environment."
The article goes on to state the fight against monetary inflation is key. Angell sees Dow at 10000 by December 1999 if inflation remains @ 2.5%. Conversely sees Dow at 4500 if inflation goes to 5%. If inflation rate moves nearer stable price level at @1.25% Angell sees Dow at 15000 over same period.
Stresses that interest rates need not be raised, it is the market economy with continuous restructuring and innovation that is keeping inflation low. In closing he writes:
"The new era calls for faster growth, rising profits and a windfall of tax receipts. If the Fed would keep its policy actions on course, but drop the false assumption that fast growth causes inflation, we would do even better."
TURN YOUR SCREEN EVERYONE this is a blip. That is all. Greg |
