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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: jeffbas who wrote (16448)	2/17/2003 11:27:04 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 78701

As with your generalization on Market Cap/GDP, which ignored the historical context of the shift over the last 100 years from a very capital intensive to a less capital intensive economy you seem to be unfamiliar with where the market cap/GDP ratio was just a decade ago. if you were to look at a 100-yr chart of market cap to GDP, you would see an erratic series of peaks and troughs. there are peaks. and there are troughs. it so happens that in 2000 we had the biggest peak of all time, which coincided with the top of the biggest bubble of all time. the ratio has been heading straight down ever since but is still above all previous peaks (and WAY WAY above where it was just a decade ago). eventually, we will find another trough, probably at least 50% below the current level. there is no "shift over the last 100 years" reflected in this ratio. thanks for the laughs. The valuations of the 1970's were accompanied by 8-10% and rising Treasury rates and soaring inflation. Of course that competition for stocks required very low valuations. people who hope for the bubble to reflate also think high stock prices are justified by low yields. this is false. there is no long term correlation between low yields and high PEs. the people who yammer about this ignore all the data before the mid 60s. if you go back to the 1940s, yields were lower than today and PEs were but a fraction of current levels. dividend yields never fell below the 10-yr T yield till 1958. the prevailing belief then was that stocks should have higher yields than govt bonds because they were riskier. the prevailing belief now is that stocks shouldn't pay dividends because CEOs want make $100 million a year. instead, investors expect to sell at a profit to a greater fool. they trust in the prowess of $100 million-a-year CEOs to deliver them strong pro forma numbers, and they trust in the existence of future fools to deliver them capital gains, all the while ignoring the demographic tsunami of sellers that will flood the market as the boomers retire. the thing about prevailing beliefs in the market is that they have a way of changing over time. this is why the thing we call market history is of interest to serious investors. i will bet you also believe in a huge housing bubble, when last week Greenspan so you will bet on what i believe--something you have no way of knowing (and regarding which, incidentally, you are wrong). this does not surprise me.