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Pastimes : All Clowns Must Be Destroyed -- Ignore unavailable to you. Want to Upgrade?

To: BGR who wrote (13200)	2/27/2000 10:48:00 PM
From: Oblomov	Read Replies (1) \| Respond to of 42523

BGR, Remember, I'm one of the poor indexers too, at least in part of my portfolio. -g- Again, I don't blame indexing for the narrowing. My claim is merely that it exacerbates it. In my example, the company which had the largest market cap at the beginning (A) ended up with the second largest at the end (after C). Of course, indexing by itself could not have caused this to occur. But the index funds tend to reinforce whatever trend is in place (up or down) for a given component. This is not to say that this is negative, merely that it is a feature of the market. Regarding the narrowing: The stock market is a means for companies to get capital. A narrowing in the market means that it is more expensive for most companies to get capital and expand their businesses. What happens when the set of depressed, stagnating companies is the majority of the economy, and the jobs lost in the "old economy" are not being compensated enough by the rate at which "new economy" jobs are being created? I don't like the new/old dichotomy because there is, simply, one economy made up of interdependent sectors. The success of the "new economy" presupposes continued consumer demand. Where do all of these consumers work? The retirement of the public debt is by no means a done deal. I would certainly like to see it happen, but I am skeptical that it will be accomplished. The assumptions used by both the CBO and the Treasury department are rather optimistic, to say the least. If we experience a slowdown at some point in the future, this would certainly mean that the government would return to its deficit spending ways. The modern conceit is that the good times will last forever. If the good times will indeed never be interrupted by a normal and healthy recession, they I agree that the behavior of the public and public corporations is entirely rational. After all, if a bad economy ends up punishing the debt-ridden individuals and corporations, I'm sure that our rulers will figure out a way to blame it all on those who stayed debt-free and liquid (quite unamerican). The theory of rational expectations is part of neo-Classical economics, which is not exactly "traditional" economics. I would call it a central tenet of mainstream economics. The problem with mainstream economics is that it presupposes that the human race thinks like economists. If only that were true... -g-