X,
I thought the Fed was actively raising rates up until the crash, as it was in '87. '29-'33 was a panic that became an extreme liquidity crisis that quicker action might have averted.
You do raise one point that I've thought a lot about: has something fundamentally changed that has permanently altered stock values? This economy and Fed deserve a premium, but that won't last forever. Has productivity entered a new era? I'm sure that will change at some point too. The only possible thing I can think of is 401(k) plans and the notion that we are all now responsible for our own retirement; that is the one genuinely new wrinkle in the equation. But the problem is that that money is managed by hair-trigger idiots, so that could vanish in a second too. I don't buy all the new era thinking, but going along for the ride has led to some pretty nice gains, so I do buy the notion that you should never fight the trend or the Fed. As I said before, though, it's going to take a dramatic shift in the economy to bring this market down, and I don't see that on the horizon. My own guess (and it's just that) is that we will get a substantial decline at some point -- after we go to 10,000. Maybe Y2K will turn out to be the Armageddon that some predict. Who knows? I frankly think that interest rates and inflation are the primary drivers of bull markets and that earnings come second, so for now at least, we are pretty safe, IMHO. Markets do not fall simply because they are overvalued; there has to be an impetus.
Paul |
