The DOW was around 7000 a year and a half ago. At the time, economists were buzzing with statements like "Bear market is beginning", "market is still way overvalued", "global ecomomic crisis beginning", etc etc.

Now today, we see a close over 10300. My question is this: what has changed in the intervening time to add this much value to Wall Street? Does the loss of hundreds of $ billions in y2k costs add this value?

And in the event that your answer amounts to "smoke & mirrors" (we don't really know), then how in hell can you be trusted in your assessment that y2k is a bump in the road?

-- puzzeled (blue@smoke.mirrors), April 12, 1999

Answers

Hi Puzzled,

I believe that the Fed rate cuts last year and the steep drop in commodity prices are the primary cause of this overinflated stock market. Those rate decreases, along with others in Europe and Japan, have signaled to the market that the powers-that-be will do whatever it takes to keep the markets up. However, all of the rigging in the world cannot stave off Y2K. Only international leadership, an early start, and much more money than has been spent could have done that. It is too late now. Sometime before the each of the year, the world is going to experience the greatest economic collapse in history.

-- Out Of the Market (not@wallstreet.com), April 12, 1999.

where's Dickhead Decker when you need him?

-- y2k con (a@b.c), April 13, 1999.

Where indeed?

The global economic malaise hurt U.S. exports but helped domestic financial markets. Foreigners aggressively sought U.S. stock and bonds resulting in a drop in long term interest rates.

The drop in interest rates sparked mass refinancing of mortgages, freeing extra consumer income. Oh, and we built homes at a furious pace. Not only did we find more "pocket money," we enjoyed fire sale prices for food, fuel and foreign goods.

The increase in consumer confidence and spending helped mitigate the effects of economic woes abroad. The stock market also roared along with a 20% increase. The "wealth effect" made consumers open their pocketbooks more frequently... and high stock prices and low interest rates allowed firms to maximize capital investments.

Of course, the Fed opened the spigot on the money supply. This influx of liquidity fueled growth....

In summary, it was a good year for the domestic economy... surprising many dismal scientists (including the very able Mark Zandi who I kindly acknowledge for the source material for this post).

I hope this helps.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), April 13, 1999.

Oh, and my previous post does not explain the obvious overvaluation of the U.S. stock market. Personally, I think the market is well above its "real" value and that we will see a correction. The Internet daytraders who could do no wrong will find out the hard way how markets work.

Regards,

-- Mr. Decker (kcdecker@worldnet.att.net), April 13, 1999.

Agree with Decker about liquidity. As many of us discussed late last year, this forestalled calamity in 1998. Fed has long bet that maintaining floor under speculative market is the best of a bad deal but all good things, sadly, must come to an end. How does September, 1999 for drift, October for plunge (25%), sound?

Then (believe me, I don't wish it), nervous stablization through December, 1999 and another long slide from January thru March, 1999 (add'l 25%?).

Then ........

-- BigDog (BigDog@duffer.com), April 13, 1999.