I say 5-10 bear market going forward. Clearly, we have
had a super bull....
True
clearly, it's over.
Really.... so you're a time traveler? How do you know?
Here's a great piece that perhaps will put things in perspective.
www0.mercurycenter.com
Don't be too quick
with warnings of
doom
BY GEORGE F. WILL
REGARDING the economy, this is a time --
like, come to think about it, all other times,
regarding everything -- to remember this:
``There are knowns, known unknowns, and
unknown unknowns.'' That axiom (whose
author is unknown) is pertinent to the problem
of understanding the economy's trajectory, or
at least not misunderstanding it too harmfully.
America has just been draped with the journalistic equivalent of black
crepe -- stories about the dreadful Christmas shopping season. But the
season, although disappointing when measured against expectations,
was slightly better than last year's, which was the best Christmas in a
decade.
Amid anxiety about a coming recession, unemployment has crept up
one-tenth of 1 percent to . . . 4 percent, a full percentage point below
what was, until recently, defined as full employment. The Nasdaq has
just had its worst year in its 29-year history . . . and is still 16 percent
above where it was two years ago. In America, misery is relative.
Unless you think the economy can, should and will grow at 5 percent
forever, it is odd to regret evidence that the economy is on a glide path
to 2.5 percent to 3.5 percent growth next year. And for the
president-elect, the slowdown is serendipitous, given his advocacy of
an across-the-board tax cut. He can now advocate the cut as a
stimulative, counter-cyclical measure as well as a conservative
response to a substantial surplus.
Stock market volatility is not serendipitous for George W. Bush, who
hopes to persuade Congress, and the country, to adopt partial
privatization of Social Security. Critics will ask: Will the
government-approved funds in which individuals will invest portions of
their Social Security taxes be more secure investments than, say,
AT&T?
Once synonymous with blue chip reliability, AT&T's stock has
plunged from $61 to $17 in nine months. Lucent Technologies, the
once-mighty equipment firm spun off from AT&T, has issued five
profit warnings this year. Peter Goodman of the Washington Post says
that this year the market erased $380 billion of worth from Lucent and
AT&T shareholders.
The broadening demographics of stock ownership, which now
includes more than half of all households, is desirable, not least
because it broadens the constituency for policies of economic
prudence and growth. Yet as participation in the stock market
increases, so does the potential for economically destabilizing mood
swings in the public.
That is, some analysts, including Alan Greenspan, believe there is a
``wealth effect'' -- that consumption increases as rising portfolio values
cause consumers to feel more prosperous on paper, thereby
producing irrational exuberance among consumers. It is irrational if
based on the assumption that paper wealth is permanent.
Greenspan's formula is that every extra dollar of stock market wealth
prompts a 3 to 5 cent increase in consumption. And it would seem to
follow that in a society of broad stock ownership, there can be a
negative wealth effect -- declining portfolio values cause mutually
reinforcing retrenchments that drive the economy down further and
faster than underlying realities warrant.
However, Kevin Hassett, resident scholar at the American Enterprise
Institute, notes that individuals who are at least moderately wealthy
own most stocks: ``The top 1 percent of equity owners hold about 50
percent of all corporate stock. The top 5 percent own about 80
percent of all stock.'' But these individuals account for a small share --
perhaps as little as 12 percent -- of society's aggregate consumption.
Therefore, Hassett says, it is mathematically implausible to argue that
positive wealth effect drove the economy to its heights. Whether a
negative wealth effect can of itself cause a downward cascade of
effects that result in a recession is a known unknown.
In October, Nokia, the Finnish telecommunications firm, estimated that
400 million cell phones would be sold in 2000, that ``in the region of
550 million'' more would be sold in 2001, and that sometime during
2002 there would be 1 billion cell phones in use. If so, one in six
people on the planet will have such phones. Whether that will come to
pass is as yet unknown.
The world's sixth-largest economy, California's, already rocked by the
implosion of the dot-com sector, is now running short of electricity.
This is because of badly administered and half-hearted deregulation,
and badly underestimated demand for electricity. The effects of
California's woes on the national economy are as yet unknown.
The known unknowns are less worrisome than the unknown sort. But,
then, 20 years ago the Internet was an unknown unknown. |
