In some respects there has never been, in the United States stock market, a bubble as long-lasting, as widespread, and as extreme in many ways as what we have today. In 1969 (and its continuations in 1972) optimism continued to be tempered by a vivid memory of the Great Depression. Tens of millions of people who had been directly affected by that event were still alive then, and even a few who knew earlier panics.
1987 served only to reinforce the current "wisdom" that to go long and stay long in stocks is the only rational investment choice.
What we now have is a bull market that dates from 1982 or, in some respects, from 1974. Almost no one now living has been seriously hurt by a stock market decline.
For this reason (although in terms of dividends, P/Es, and book values stocks are overvalued as never before) we can expect a very protracted bear market with several extreme reversals. I admit to being astonished that the Fed would make that surprise rate cut, and astonished at the immediate euphoria it produced. It's like putting an addict on Methadone. (Which, I understand, is more addictive than heroin.)
Look at SI. Even on threads such as this, there is a residuum of speculative fever, a get-rich-quick syndrome, so that among those who profess to be stock market bears there is a constant attempt to play the run-ups. I don't pretend to be immune from this.
Because the world now largely operates on fiat money, one can never tell when it may be in some major power's interest to inflate its currency, to devalue surreptitiously if not overtly. It's hard to know what is indeed a store of value. I think that a young person, in addition to acquiring as much education and personal discipline as possible, would be well advised to accumulate savings in a variety of forms, including FDIC-insured cash, T-bills, maybe some gold coins, and other sound currencies (I once made a good tax-free gain simply by buying and holding Swiss franc travelers checks, bought from my local bank--spending them for vacation expenses at 35% more than I'd paid).
At some time in the future, common stocks will again be a terrifically good buy, but not now. Wait, wait, wait, and then when everyone else has given up, buy. At P/Es of 7 and yields of 5% or better.
Stocks for the most part now are nothing but speculations. |
