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Pastimes : The Big Picture - Economics and Investing
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To: Arik T.G. who wrote (408)11/6/1997 6:12:00 AM
From: Crabbe  Read Replies (2) of 686
 
While Sid may have different differences, the major differences IMHO are:

In 1929 the country had just completed electrification of the factories that started in the 1870's and gave the US a 10%/year growth rate for 40 years. In 1997 we are not at the end of the computer revolution, in fact we are at the very beginings. Computers will give equal or better productivity increases than the electric motor did.

The US Economy is much better understood and managed today, safety nets are in place that will mitigate many major problems.

The Government and Industry both understand much better the factors that drive the economy, and steps to moderate the economy are constantly taken now.

Todays meassures of productivity are flawed and show much lower productivity than is actually occurring (in 1929 the government didn't even measure productivity I think). I.E. it takes much less time and labor to produce a computer today than it did 10 years ago, the cost is lower in inflated dollars let alone real dollars, and the power has increased by factors of 100's. That is productivity increase whether it shows on the bottom line of a company or not, and it is reflected in the richness of this country and our lives.

I could go on but the point is that in 1929 the economy had reached the end of a huge expansion in productivity, today we stand at the begining of an even bigger expansion in productivity. As such higher P/E ratios are justified today.

Investors not understanding why and that the market reflects this talked themselves into a debacle last week. Now that Oct is past and the 10 year anniversary of the 1987 crash is history, the market can forget those jitters and begin a new move upwards. We can believe this and prepare for greater prosperity or we can worry ourselves into our financial graves.

Rod

Dream a little
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