wbmw,
Overstatement of earnings at some companies (Worldcomm, Enron) is just one of many components of why the market is down. There are much more fundamental reasons that no band-aid (government imposed or otherwise) can fix.
The first problem is that Nasdaq at 5000 was a lunacy, based on any historical measure. There was a study that Ted and I were chuckling about on non-mod thread at about the time Naz was crossing 2500, which analyzed the earnings of the companies in the index, and based on a normal P/E multiples, the index should have been somewhere between 1,000 and 1,500. Since the time of the publication of this study, the economy slowed a bit and we had 9/11. Plus, compound this by the fact that it is not unreasonable for the index to shoot through the fair value and go below, while correcting.
If you look at the charts, especially Nasdaq, if you disregard the 1995 to 2000 years, we are about where we should be. We went on a binge for those 5 years, and not many things that happened were based on reality. But unfortunately, those 5-6 years can't just be disregarded. In my teenage years, when I used to drink a lot, the morning after, I really wished I could disregard what happened the night before, but the hangover and headache ruined the day after. I think the market is now going through a bad case of hangover.
I think this is what AG has been talking about every time he cautioned about the irrational exuberance. In retrospect, he should have slammed the brakes much earlier, right after the Asian currency crises was digested, or even during. It would have been easier to digest a drop back to say 1000 (where we may end up as a worse case scenario) from say 2000 of pre-Asian currency mess, or 1400 bottom than from 5000 Naz.
Joe |
