What's New On Dr. Ed's Econet
Date:
Sun, 14 Mar 1999 20:36:46 -0500
From:
Ed Yardeni <yardeni@yardeni.com>
To:
econews-recipients@yardeni.com, Y2Kreporter-recipients@yardeni.com
COMMENT: My favorite stock market model shows that stocks are currently 29%
overvalued. And that's using consensus earnings forecasts showing gains of
15% in 1999 and again in 2000. These are unrealistically high, in my
opinion. The market is priced for perfection and perpetual prosperity. When
the crowd believes that nothing can go wrong that's when things usually go
wrong. This is not to say that good things aren't happening. Asia has hit
bottom, for now. Japan is slowly restructuring, and the Nikkei is
responding positively. OPEC's promised output cuts are lifting stock prices
in the energy sector. US growth is booming, while inflation remains near
zero. Look for the market to move to 11,000 in an early summer rally. Then,
during the late summer and fall, look for possible trouble in disappointing
earnings, increasing and spreading Y2K concerns, perhaps another Chinese
devaluation, more bad economic news from Japan, a growth recession in
Europe, a recession in most of Latin America, and another round of
deflation in the commodity pits. A bear market could unfold if enough goes
wrong later this year. I'm not rooting for this scenario...just covering
your back while you are getting rich in the stock market.
Y2K: I was recently mentioned in an LA Times story on Y2K as follows:
"Edward Yardeni, chief economist for the investment banking firm Deutsche
Bank Securities Inc. and one of the most persistent drumbeaters on the Y2K
issue, recently revised his estimate for a long global recession due to the
glitch, from a 70% chance to 45%. "I've toned down the message partly
because progress has been made," Yardeni said. "I would be happy to back
off entirely." I still see a 70% chance of a global recession. Previously,
I've written that it could be as bad as the 1973/74 downturn. In my Feb.
22, 1999 Y2K REPORTER, I listed five possible Y2K outlooks, which include
three recession scenarios and probabilities: 25% for a mild recession, 40%
for a bad one, and 5% for a depression. The probability-weighted average is
a 3% drop in real GDP lasting about 12 months--a bad recession. Of course,
I would be more than happy to turn less pessimistic--and I will do so--if I
believe the available data warrants such a change. My aim last year was to
raise awareness and alarm to stimulate greater efforts to fix the problem.
This year my goal is to promote contingency planning to minimize Y2K
disruptions. I tend to agree with my friend Peter de Jager, who believes
that doomsday will be avoided, and Peter deserves a great deal of credit
for his efforts. Nevertheless, I doubt a serious recession will be avoided.
|
