Exactly. In boom times the stock market creates wealth, which creates spending, which creates earnings, which creates rising stock prices, and so forth. But people forget sometimes that the cycle can work in reverse, too. That is why AG gets so concerned when the stock market goes up faster than the economy justifies. Some people may think he's the grinch and just wants to spoil his fun, but periodic small corrections are healthy for the economy. An out of control bull market followed by a crash most certainly is not.
Similarly the internet stocks are currently working in this loop mode. Growing companies create IPOs which bring dollars to the sector, which are spent on software, hardware, and infrastructure within the sector, which create more growing companies, etc. But again this cycle can reverse. Shrinking companies lead to reduced spending, leading to more shrinking companies, layoffs, etc. Which is why the internut bubble could suddenly pop. Therefore growth that gets out of hand can be a bad thing, and sometimes it is best to let a little air out of the bubble from time to time rather than letting it get so big it bursts.
Carl |
