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HD 363.95-1.9%11:29 AM EST
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To: Chip Anderson who wrote (622)5/6/1999 1:03:00 AM
From: Toby Zidle   of 1169
 
Thanks, Chip. ValueLine just sent out the same DJ semi-log chart to subscribers -- a very interesting chart, especially if you see how resistant the DJ 1000 mark was for fifteen years. And some people claim technical analysis is meaningless. <g>

Actually, you can't base an analogy of 1999 to 1929 on the simple premise of "expensive" stocks, as measured by P/E. You could add supporting factors like degree of 'speculation' and consumer debt to make a stronger argument. But you also have compensating low interest rates and FRB oversight, etc. Also the extremely low margin trade rates of 1929 are not in today's big picture. The best arguments I've seen for continued stock market growth include population/age demographics plus the inflow to mutual funds plus the tax incentives of building up IRA accounts.

If high P/E's and "overexuberant" DJ values were to scare you out of the market, you'd have exited at Dow 4000 in 1994. And being out of the market for the last five years in anticipation of a crash would have been just as financially debilitating as a crash itself.

One reason a market correction is self-terminating is that people can look back to the Black October days on 1987 and even to the October 8, 1998 explosive selloff (see any stock chart for this) and want to shoot themselves for not buying at those times. Selloffs are now seen as buying opportunities, deeply ingrained in the investing psychology of today. That was not the case in '29.

Simply put, today's high P/E do not make 1999 equivalent to 1929.
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