Re: Dow 36,000

Max More (
Fri, 22 Oct 1999 01:46:47 -0700

At 05:09 PM 10/21/99 -0400, Robin wrote:
>As Hal nicely pointed out, you really have to believe that the economy
>has changed in fundamental ways to justify current prices. You might
>decide that investors no longer demand a risk premium (the Dow 36K argument),
>or that computers, the collapse of communism, etc. have fundamentally
>changed the economy. Maybe, but do keep in mind all the reasons
>people had to believe in 1929 that the world had fundamentally changed.
>Arguably one of the century's best economists, Irving Fischer, published
>a book in '29 about how the world had changed, and he convinced Yale to
>invest all their endowment in stocks then. Ouch.

I have commented at length in other fora on the comparison to the '20s, but will not do so at any length here, since the book Dow 100,000: Fact or Fiction? does a fine job. I will note that the '29 crash and subsequent depression was not necessary. It was largely induced by the Federal Reserve which burst what it considered a bubble then allowed the money supply to contract by a third. If they had not done that, a short term correction may have occurred, but a depression was not necessary.

You also have to consider that the first crash happened when congress passed the tariffs that greatly reduced international trade--a major factor in the declines of the US and European economies. As Kadlec carefully notes, Dow 100,000 in 20 does depend on the positive effects of demographics, opening of markets, lowering of tax rates, etc, and could be derailed by political mismanagement.

Anyway, as you say, maybe the best bet is simply to implement our respective views in our investment strategies.