Again, Terrence, I take issue with your contention that we are about to embark on a period of 'despair and dislocation' equivalent to "at least twice that which occurred in '29". (your msg #617).
You cite the end of 1949 as the start of a major bull market. I agree. It ran from DJ200 at end of '49 to DJ1000 at end of '65. Not until the end of '82 did the Dow permanently penetrate 1000. But there were only two recession periods ('70 & '74) in which the Dow fell below 700 for periods of some months. In other words, there were only a few months in a period of 17 years where the market corrected more than 30% -- definitely a drop in the bucket compared to '29-'33.
From '82 into '99, we are in another major bull market. The bull's length is comparable now to the '49-'65 period, so maybe we could argue that the bull is about to end. But what succeeds the bull? If I follow history, as you argue we should, then why would I expect a '29-type crash instead of a '65-'82 period of (non-growth) stability with a few short corrections?
1999 is NOT 1929! In an earlier message I gave factors that differentiate the two stock markets. I won't repeat all of them. However, the crash of '29 is commonly regarded as having been caused by a snowballing of margin calls. One could buy stock on 90% margin and obviously too many people did that. In 1999, the maximum margin is 50%. The SEC closely watches margin statistics and can raise the requirements if speculation appears rampant. Further the FRB continuously reviews interest rates and can dampen or loosen the stock market on that basis. Neither of these monitoring mechanisms existed in 1929.
To infer a crash twice as severe as in 1929 on the bases of "market-value vs. GDP, to market book- value, to price-dividend ratio, to, even, price-earnings ratio" without considering margin requirements, interest rate restraints, long-term incentives of IRA investments, etc. is to integrate only a small part of the big picture.
It is true that we should not expect the rising Dow averages to expand forever. But neither is it reasonable to expect it to end in a '2 times 1929' cataclysm. Basing one's 1999 investment decisions on a 1929 panic outlook will not enhance one's financial security. |
