To: Vitas who wrote (17060 ) 6/12/1999 11:01:00 PM From: pater tenebrarum Read Replies (2) | Respond to
Vitas, i'm really not so sure about valuations not returning to the norm. historically, they always have done so and have on occasion even dropped below the norm. i agree that valuations per se are not a tool that helps to predict where the market will go next, say over a one-year span. the last few years have shown that valuations can expand further than was thought possible and they may continue to do so for a while yet. still, the last few years are imo an aberration of sorts. they do not prove that valuations will *not* return to the norm. a famous professor of economics (i believe his name was Fisher) said in 1929 "stock prices have reached a permanently high plateau". the assumption that a few years of outsized stock market gains and the resulting overstretched valuations are irreversible is a fallacy. New eras are habitually invoked near market tops; it is not so much whether the top is still ahead of us or already in the past; what is implied by this is that it is near. a more recent academic work suggests that the DOW should actually be at 36,000 rather than where it is now (not at some point in the future, but NOW). a recent WJS column transported this astounding message. trust me, whenever academic circles have started to argue for even higher prices, prices were doomed to soon revisit their historic norms. the bullish argument that the profound changes wrought by technological progress have somehow changed the rules of the game forever would have been just as valid in the past. in fact, many of the industries that are mature now, were once incredible growth industries. and still the market has returned to it's norm over and over again. i would even argue that the fact that the market has exceeded the norm to the upside by such a wide margin implies that it is quite possible that it will do the same to the downside at some point.
