To: Benkea who wrote (23148 ) 8/16/1999 7:02:00 PM From: pater tenebrarum Read Replies (1) | Respond to
Benkea, i agree that p/e's are probably understated due to accounting shenanigans like the relegation of ESOP's to the realm of footnotes...but note that the logical, reasonable argument that this market is way overvalued could have been and has been made every other year since the market really took off. my argument is simply that there is no way anymore to explain the market's moves in a rational manner and that therefore only a mass-psychological,or TA, approach works. and even TA is meeting up with certain limitations as the advance becomes ever more narrow - we all know that the a/d line divergence is not healthy, but it is no help at all with regards to timing the end of the mania. there is no shortage of rationalizations on Wall Street to try and explain the most absurd things, witness the 'valuation models' analysts have devised to get a handle on the i-nut sub-mania. however the truth is much more simple - investors have learned that stocks are the place to be and that any hiccup will be countered by the Fed opening the monetary floodgates; stocks have therefore come to be perceived as a virtually riskless asset, and as long as this faith remains unshaken the mania lives on. your point on foreign capital flowing the other way is well taken and one i have raised myself in the past. ordinarily one would expect some kind of fallout to occur because of this, but note that foreign money flows have been negative only in bonds, certainly not in stocks. and the Fed's most recent coupon passes suggest that the easy money spigot has not yet truly been turned off to such an extent as to disturb the mania. i admit it is all unhealthy and will come to a screeching halt one of these days, but probably not yet.
