The bully economy is amazingly strong
Look at the stock market and leveraged buyouts for evidence
Tobias puts this into perspective....
"THE PRICE OF STOCKS
The market is at record highs (sort of), and this is good. But in a world where most companies pay out little in the way of dividends – reinvesting their profits and/or using them to buy in their own shares – you’d sort of expect highs sooner or later. Even a 5% savings account will hit new highs every year.
Basically, as you know, the market got ridiculously overvalued in the late Nineties, peaking in early 2000, and has taken the last six years to catch up with itself.
But it’s not as caught up as it may appear.
Yes, the Dow has fully recovered – in dollars. But in euros, it is still only three-fourths what it was in 2000 – because back then a dollar bought 1.03 euros, whereas today it buys only about .78 of a euro. So to an Italian or a German or a Swede (do the Swedes use euros? I’m on the train, and I can’t remember), the Dow is about 25% lower today than it was six years ago. To a Canadian (I know they don’t use euros), same thing. In 2000, one of our dollars was worth $1.46 of theirs. Today, $1.12.
When the Dow peaked in March of 2000, it took roughly four ounces of gold (at $290 an ounce) to buy one unit of the Dow at 1175 or so. Today, with gold roughly double, a unit of the Dow is worth just two ounces.
And that’s the Dow.
The S&P 500 hit 1527 on March 23, 2000. Last night, it closed at 1353, or about 11% lower (or, in gold terms, less than half its value six years ago).
The NASDAQ hit 5048 on March 10, 2000. Last night, it closed at 2306, down 54% six years later in dollar terms, down 65% against the euro, down 77% versus having kept gold in a chest in the shed. (Who would think to look in a chest in the shed? That’s where I keep all mine.)
That the market is still not back to where it was in 2000 is good if you are a buyer, and good if you are no fan of overvalued markets (fearing the consequences when they return to earth).
The author of Dow 36,000, at which I poked a little fun when it was published seven years ago, still has a while left to wait.
And if the housing slump turns into a vicious cycle – dampening consumer spending, causing recession, dampening home prices and spending further, even as it sends the budget deficit sky-higher – it might be a long wait."
andrewtobias.com
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