TA: FWIW... Allow me to add a few comments to your hypothesis. First, let's not forget that we are still extremely highly taxed -- over 40% (fed, Soc. Sec., state, local, sales) of family income. So it's not as if we all have had this recent windfall (especially thanks to Bubba's retroactive 1993 tax increase on the top brackets plus all the messing around with AMT, etc.) from "lower" taxes.
But the really big deal is what has happened to taxes on capital -- from the Steiger Amendment in 1979 to today where LT capital gains tax is down to 20%. This has been the most dramatic shift in tax policy over the past 20 years (from marginal rates up around 50% to now 20% and even some more favorable rates for venture investments [post 1993]).
Couple this with the great Demographic Shift of Baby Boomers leaving their "prime spending years" and entering their "prime earning years" with huge incentives to "save" [read: invest] for kid's college and retirement --> unprecedented stock market boom.
Also, at the same time, thanks to the more consistent monetary policies begun under the Reagan administration and the incentives to industry as a result of "trickle down" supply-side economics, American industry got competitive again vis-a-vis the rest of the world, particularly in high tech and services (remember when the Clintons were slamming the Republicans because we were turning into a "service economy" -- I'm sure they want to take credit for services like AOL and the internet today) and even in some very basic industries (Chrysler is probably the most efficient auto manufacturer in the world -- they certainly generate the most profit per car among the world's leading mass producers).
As long as that 401K money keeps rolling in, and as long as Alan Greenspan and the Feds can continue to provide a stable monetary environment despite the ups and downs of South America and the Far East meltdown, and as long as Bubba feels compelled to co-opt GOP investment friendly policies, I think this market will continue to have great recuperative powers. Yes, there will be corrections -- a major one is long overdue. And yes, internet valuations have to be rationalized (i.e., compressed) at some point. But equities will remain the vehicle for building wealth for all Americans (think of what truly privatizing Social Security the right way would do for future generations of Americans).
When the Baby Boom starts retiring in droves (2013 and on), then we'll see the market face some major challenges -- all that money coming out of the market. But even there, that money will be withdrawn over a long period of time, so that might even be absorbed. Keep smiling and keep investing for the long haul. And keep believing in the "shining city on a hill!"
Just MHO. |
