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Pastimes : Clown-Free Zone... sorry, no clowns allowed

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To: Mark Adams who wrote (107739)	6/8/2001 5:51:58 PM
From: pater tenebrarum	Read Replies (2) of 436258

well, have you recently looked at the balance sheets of the GSEs? they have expanded about 5 to 6 times faster than the economy for the past 6 years,among other things due to frequent refi booms (in which more and more home equity is taken out, in spite of rocketing house prices in recent years). the main point the critics of the boom's excesses are making is simply that debt in the economy (specifically private sector debt) has been (and still is) growing at a MUCH faster rate than anything else...that can't be denied, as no statistical 'prettification' of the raw numbers is possible. the size of the debt is what it is. in 2000 every dollar of GDP growth (which is overstated, due to hedonic indexing...in fact overstated by astonishingly large amounts) was bought with 4.55 dollars in ADDITIONAL debt. and this factor has grown year after year recently...i.e. it costs ever more in terms of new debt to achieve another dollar in GDP growth. it is this mismatch that is the problem, as the ability to service this growing debt burden is perforce shrinking. a word regarding the S&P index, and the effect of cap weighting on the aggregate p/e: what is he trying to say? the 50 largest components companies of the S&P which are the components that skew the aggregate p/e upwards, also represent 90% of the S&P's capitalization. iow, they ARE the S&P, the 450 remaining companies are the 'also rans'. it doesn't matter if their p/e's are reasonable or not - their contribution to the market's total capitalization is negligible. besides, he hasn't 'learned' anything 'belatedly' in '98 or whenever. we have been (and still are in many respects) in the biggest outbreak of stock market mass hysteria in mankind's history...combined with an unrelenting money printing orgy. THAT is what accounts for the most overvalued stock market ever...what else is there to know about it? again, a spurious argument is put forward to detract from the fact that we are looking at yet another set of data that is CONSISTENT OVER TIME, and thus the current aggregate p/e and dividend yield CAN be compared to their historic means, and the conclusion that 'the market' is overvalued is legitimate.

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