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He has since learned that an overbought market is NOT enough to precipitate a crash. In the 2 previous crashes, it WAS an adequate predictor.
His track record.
By March 2000, on the basis of historically reliable valuation measures, I projected that a retreat to normal valuations would require an -83% plunge in tech stocks. In the 19 months that followed, that estimate turned out to be precise for the tech-heavy Nasdaq 100 Index.
So, he was correct in 2000 based just on valuations.There you have it. He previously looked at valuation in the long run with taking into account market sentiment.A crash must be preceded by a fall in confidence, NOT just over-valuation.OK, so we are still "early" in the credit half cycle. BUT, the speed of deterioration is likely to rapidly pick up.
"Speculation is dangerous because it encourages the belief that just because prices are elevated, they must somehow actually belong there. It encourages the belief that the paper itself is wealth, rather than the stream of future cash flows that investors can expect their securities to deliver over time. "
A big part of the over-valuation is that investors are looking for protection, NOT necessarily future cash flow.
I previously wrote about the near unlimited issuance of things that investors call "assets"This isn't 100% true because the Central Bank can pass out free money that is not a liability. Much of the TARP money was not repaid.
"the wealth of a nation consists of its stock of real private investment (e.g. housing, capital goods, factories), real public investment (e.g. infrastructure), intangible intellectual capital (e.g. education, knowledge, inventions, organizations, and systems), and its endowment of basic resources such as land, energy, and water. In an open economy, one would include the net claims on foreigners (negative, in the U.S. case). A nation that expands and defends its stock of real, productive investment is a nation that has the capacity to generate a higher long-term stream of value-added production, and to sustain a higher long-term standard of living."
Funny, he doesn't mention banks.Currently, there is VERY little wealth from past savings. With free money from the CB, the speculators didn't have to trouble themselves with paying decent interest on savings so that they could attract saved capital.
His track record.
By March 2000, on the basis of historically reliable valuation measures, I projected that a retreat to normal valuations would require an -83% plunge in tech stocks. In the 19 months that followed, that estimate turned out to be precise for the tech-heavy Nasdaq 100 Index.
So, he was correct in 2000 based just on valuations.There you have it. He previously looked at valuation in the long run with taking into account market sentiment.A crash must be preceded by a fall in confidence, NOT just over-valuation.OK, so we are still "early" in the credit half cycle. BUT, the speed of deterioration is likely to rapidly pick up.
"Speculation is dangerous because it encourages the belief that just because prices are elevated, they must somehow actually belong there. It encourages the belief that the paper itself is wealth, rather than the stream of future cash flows that investors can expect their securities to deliver over time. "
A big part of the over-valuation is that investors are looking for protection, NOT necessarily future cash flow.
I previously wrote about the near unlimited issuance of things that investors call "assets"This isn't 100% true because the Central Bank can pass out free money that is not a liability. Much of the TARP money was not repaid.
"the wealth of a nation consists of its stock of real private investment (e.g. housing, capital goods, factories), real public investment (e.g. infrastructure), intangible intellectual capital (e.g. education, knowledge, inventions, organizations, and systems), and its endowment of basic resources such as land, energy, and water. In an open economy, one would include the net claims on foreigners (negative, in the U.S. case). A nation that expands and defends its stock of real, productive investment is a nation that has the capacity to generate a higher long-term stream of value-added production, and to sustain a higher long-term standard of living."
Funny, he doesn't mention banks.Currently, there is VERY little wealth from past savings. With free money from the CB, the speculators didn't have to trouble themselves with paying decent interest on savings so that they could attract saved capital.
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