WSJ interviews 54 top economists on calendar year 1999 and first quarter 2000 : LUSENET : TimeBomb 2000 (Y2000) : One Thread

"Economists sharply increase forecasts for 1999 growth." (July 2, 1999, Page A2).

The Wall Street Journal just published a survey of 54 economists and their expectations for the rest of calendar year 1999 and first quarter 2000. The consensus was that the economy (GDP) would continue to grow by 3.4% in 2rd quarter 1999 (i.e., ended in June 30), 2.9% in 3rd quarter 1999, 3.0% in 4th quarter 1999, and by 1.5% in first quarter 2000.

Although the survey did note the continuing difficulty some sectors (i.e., agriculture) are having, they predicted as a whole that the economy would continue to grow for the foreseeable future (including into the year 2000).

As for the impact of the y2k problem, most economists felt that its impact on the economy would mostly be related to timing: businesses will spend more money on capital purchases (i.e., computers, networks, et al.) and inventory build-up during the second half of 1999 and replace computers to get ready for the date change-over. The inventory build-up is obviously a precautionary measure: they will do because they don't know whether y2k will lead to disruptions on their ability to get supplies. But by the first quarter of next year, the consensus was that the computer purchases will be completed and inventory overstocked, so business spending will decline, temporarily pulling down economic growth.

The survey did highlight that a minority of the economists surveyed (notably Ed Yardeni of Deutsche Bank) felt that the y2k problem would result in a more significant disruption of the US economy (in his case, a 7% contraction of GDP in the first quarter of 2000). However, the number of economists in the survey that believed the economy would actually shrink (as opposed to not growing as fast as it has) was only four (A. Gary Shilling of Shilling and Co. predicted only a 1.9% shrinkage in Q1 of 2000; Kurt E. Karl of WEFA predicted a 0.3% shrinkage, and Kathleen Camilli of Tucker, Anthony predicted a 1.0% shrinkage).

Overall conclusion: notwithstanding the recent interest hike, on average, most economists predict continued (albeit slowed) growth.

-- Jeff Donohue (, July 02, 1999


Quite the clue-free crowd.

-- Lane Core Jr. (, July 02, 1999.

Ah yes projected numbers for economic growth in the U.S.A. When it comes down again to tanks and soldiers and nerve gas and famine and increasing population pressure and the worlds problems increasing not decreasing and the nuclear weapons waiting with the greatest of patience. I wish they would announce true progress in these other matters. Background music tells anyone with a brain what to think.

-- bud (, July 02, 1999.

My definition of an economist just changed.

-- Mike Lang (, July 02, 1999.

Yardeni has made the most cogent comment about this mind-set, namely that econs are unable/unwilling to factor in singular events. It is only slightly oversimplifying (at least based on my experience at Morgan Stanley) to say that, while the spreadsheet models are extremely sophisticated, they are also quite brittle. The formulas cannot be easily modified to handle one-time events. Hence, Y2K "cannot" be factored in.

Secondly (and I should always have known better), we were always amazed in our consulting to HIGH-TECH corporations about the profound ignorance/don't want to know attitude of top management about their own systems. Of course, this didn't include everyone, but the relative lack of knowledge AND interest never ceased to surprise.

The deep ignorance of our culture about its own technology (way it works, unintended consequences) is the root driver of the clue-lessness. That, in turn, meshes with psychological denial of the potential impacts to create our current mess.

Broadly, I take econ forecasts seriously EXCEPT this time. Reason as above: they are unable/unwilling to factor Y2K into the models except in mindlessly conventional fashion (inventory run-up, which is one input but not the most important).

-- BigDog (, July 02, 1999.

Mornin' kids.

It's funny, Jeff, I never read WSJ, but I happened to read the front of it today. I didn't read the remarkable prognosis you mentioned. don't know what to make of it. Hard to dismiss their findings out of hand when we readily accept prognasticatory consensus reports from Y2K experts. Hmmm.

What caught my attention was this:

Also in the July 2 edition (B1):

Blaming suits, gun industry boosts prices


"One cause for the strong demand is anxiety over year-2000 generated chaos: the gun industry is pushing consumers to buy weapons to protect themselves and their property, and many people are responding, according to dealers."

This is a startling assertion . Shootin words, some might say.

Most of the article discusses the rise in gun pricing, due largely to litigation. Gun sales are apparently booming, as it were.

While the government warns of "con men" and extremists seeking to exploit peoples y2K fears, the gun industry urges them to buy guns?

Whats the difference? I've never been a fan of the gun industry or NRA, but this is truly cynical behaviour if true.

Has anyone seen any evidence of gun-industry interest in the Y2K issue? The article only seems to refer to "dealers" as the source for this information.

Sorry, No online link that I'm aware of. (subscription only)

-- Lewis (, July 02, 1999.

Bot uv coorzzz....

Emergency spending coupled with shelter costs added to increased overtime plus replacing things-that-go-boom also fighting wars and cleaning up toxic spills et cetera all ADD to the GDP. Them Econs some pretty smart fellahs, eh?


"...economists' outpourings should, as a matter of principle, be met with laughter, derision, benign paternalism. They should cease to be employed as media commentators. In the long term they should cease to be hired. Let them be pensioned off and die out. Extinction is a worthy end for a profession whose brief is rotten to the core. --Dr. Evan Jones, Economics Department, University of Sydney, 1991

-- (, July 02, 1999.

Does anybody have any records of what most economists were saying prior to October, 1929? As I recall, most were saying that the future looked even rosier than the present and that any who implied otherwise were anti-American. The more I here economists say that everything's hunky-dory, the more I'm glad I pulled out of the market!

-- Tricia the Canuck (, July 02, 1999.

The accuracy of Wall Street article on gun control strictly depends on the attitude of the reporter.

For example, hearing on e gun dealer "off the record" advise getting a gun to defend one's home would be enough to cause that phrase - if the reporter wanted to create that impression. Look at ANY gun magazine or gun show - there IS NO advertising justifying that conclusion.

The hysteria prompted, egged on, and created by the Clintons to confiscate guns, and to begin by restricting ownership through exploiting the Littleton martyrs, is the reason for the increased sales. There is a very real threat out there.

-- Robert A. Cook, PE (Kennesaw, GA) (, July 02, 1999.

On econmic predictions.

Clinton now claims we have a trillion dollar surplus, the second such surplus in two years. Let us assume he is right, and the Social Security theft is appropriate.

If any of his economic predictions were right in summer of 1993, 1994, 1995 - we'd still be projecting endless budget deficeits through the year 2020.

Ooops - guess who can't predict two simple things right: the government's tax receipts, and government's budget spending amounts.

And one of those two things is printed two years ahead of time!

-- Robert A. Cook, PE (Kennesaw, GA) (, July 02, 1999.


I get the gun rags. I haven't seen a reference to Y2K in an add yet. Soldier of Fortune has dealt with it, but it is more of a news magazine that covers conflicts and hot spots around the world than a gun rag. And they haven't been advocating going out and buying a gun either, although they did have an article on Y2K preps just recently. I didn't read it though.

But no sign of Y2K in gun ads yet as far as I can tell.

When reading the WSJ it's hard to keep your...

-- eyes_open (, July 02, 1999.

Typical crap, the thinking seems to always be based on the system running correctly.

Ever see what happens to GM when they have a strike at one parts plant?

Ever notice that it only takes one car to screw up half the traffic in Chicago?

Remember that 3+ MILLION gallons?

*One* little problem in today's economy can have an enormus impact on the little guy, one little problem in a *chemical* plant and we have an enormus problem for everybody, you ready?

-- BiGG (, July 02, 1999.

One day on CNBC I did see an analyst comment on how wonderful the economy is. He added, "Of course when we wake up on Jaunary first, and nothing works..." He was laughing merrily as if what he was saying was a joke, but I later realized that this guy knows the score, but can't say in all seriousness. It's a big area of disconnect.

-- Mara Wayne (, July 02, 1999.

I am quite aware of the flaws in the field of economics... and the shortcomings of economists. Despite the Hallyx quote, economists have made significant contributions to understanding "how the world works." In particular, advances in microeconomic analysis provide excellent insights into public policy matters... though often derided by special interests and ignored by politicians. Macroeconomics has not been as successful, but it is a young science.

While I am sure to invite ridicule, I consider Adam Smith's "Wealth of Nations" (the shorthand title) one of the most important and influential books published in modern times (1776). I'd invite the reader to pick up "The Worldly Philsophers" for a breezy walk through the history of economics. It is an easy read and the eccentric economists make for good reading. (T. Veblen is my personal favorite.)

While many economists may not agree with members of this forum on the outcome of Y2K, I think it important not to dismiss the profession out of hand. Economists have done far more than bore countless undergraduates.


-- Mr. Decker (, July 02, 1999.

Indeed, Decker, witness Ben Stein. Finally contributing something.

-- Lisa (, July 02, 1999.

By the way, to my defense of economics, let me add Ricardo's theory of comparative advantage.

Yes, I am a "free trader."


-- Mr. Decker (, July 02, 1999.

Thanks Robert/eyes_open for your thoughts. It seems like a pretty inflammatory paragraph to me, too. I've never seen any obvious gun promotion related to Y2K either.

still I'm tempted to write the author and ask where that idea came from. If I worked for the gun industry, (or the MRE industry, for that matter), I'd be up on my hind legs over that accusation.

-- Lewis (, July 02, 1999.

Bob wrote: "Ooops - guess who can't predict two simple things right: the government's tax receipts, and government's budget spending amounts. And one of those two things is printed two years ahead of time!"

Golly, Bob, your brilliant observation is probably dead on, even though it has nothing to do with the original post. You miss the point in that Clinton is a politician, not employed by a fund or investment bank to assess risk for clients. I do not trust government economists. I give far stronger credence to private sector economists.

But for the group as a whole: I think that most (if not all) of the econonists did factor in some degree of disruption caused by y2k, and I'd like to point out that (as a different poster posited) a "one off" event CAN be analyzed (e.g., one can predict the economic impact of, for instance, a volcano or a strike or a plague of locusts or whatever). I'd be curious to learn what, precisely, that person did at Morgan Stanley & Co. Unless he was a professional quantatative analyst, I'm not interested.

These people understand "interconnectedness" far more than this forum does: that is inherent in the study of macroeconomics. Either these people who professionally understand the economy are, on average, wrong, or most of the people of the forum (many of whom I think WANT a disruption, subconsciously or not) are.

My money is on the professionals.

-- Jeff Donohue (, July 02, 1999.

By the way: we just encountered one of the massive problems with this forum. The original post was about economics. People are now posting about guns. Unless we're talking about the macroeconomic impact of guns, I don't see why it's here. (Of course it WAS an interesting post, but posts like that drive these threads off topic instantly. Unless that was the point...)

By the way, I take no position on the gun argument (haven't read the article).

-- Jeff Donohue (, July 02, 1999.

But Sir Jeff -

If these "private economic analysts" should have "more" right then- in 1992, 93, 94 - they should have been able to predict things more quickly, more accurately - before the federal predictions came out. Instead, nothing.

NOBODY (except Ronald Reagan and Newt Gingrich!) predicted government surpluses and long term economic growth once Congress slowed the federal growth in spending. I just wish they had slowed federal spending more, and reduced taxes more.

Sorry. But they were silent. They were wrong. But how many economic experts were the Democrats able to find to point out massive deficits and economic ruin would happen if the Republican spending plans were put i place in 94, 95, and 96? How many "scholars" and "historians" stepped out from the cracks whent he democrats needed "political" opininions that Clinton should not be impeached? You get the predictions you pay for, you get the opinions from the experts who agree with your agenda in the first place.

And all these economic experts are going to make money - for themselves, their company, and from the government - by predicting continued success through first quarter next year. They will immediately lose money - for their commissions, their companies business, and by government threat (SEC, NYSE, and IRS) - if they predict anything but success.

If they were any good, these 50 economic guru's should have loudly and forcefully predicting surplusses and 6 more years of growth - instead they paniced (as late as last year!) and over-reacted to the Oct drops in the Dow Jones.

-- Robert A. Cook, PE (Kennesaw, GA) (, July 02, 1999.

Sorry - wrong year referenced for the Oct drop - which still demonstrates my point - none of these guys predicted the sudden Oct stock market drop!

If they were accurate, they'd have pulled their client's money OUT immediately before the drop, and put it back in one week later. But I don't remember any of these 50 saying about that on the Sunday morning news show that next weekend. None predicted the Dow at 8,000 (much less 10,000, 11,000, or 12,000) at this time this year.

-- Robert A. Cook, PE (Kennesaw, GA) (, July 02, 1999.

Working in the ag sector, I was interested in the brief mention of it as an exception to the rosie predictions. I think that this is an oft overlooked element in the economic picture and y2k.

Some people are vaguely aware of the severe problems in the ag sector. Although I am not an economist by any sense of the word, I do know that the economy rests on food and fiber as the fundamental creation of wealth. The rest is value-added and circulating dollars.

In early records at my disposal, a farmer got .90 per bushel for wheat in 1852. Folks, the price is not too much different today. The "good times enjoyed by all" in the past decade has been built on the backs of small family farmers, ranchers and loggers who have suffered enormously. Americans spend less of their income on food than any other develped nation. The rural areas dependent upon ag industry health have seen accompanying double digit unemployment (at least in the west.)

As small family agriculturalists succomb, they are folded into large conglomerates or their land developed or fallowed as a "environmental easement." (This is often where the farmer, under economic pressure to survive, is forced to sell the right to use his land to the government...part of the oft touted "corporate welfare" of being paid not to grow something.)

"Big deal," you say, but the erosion of domestic agriculture has been made possible by cheap imports, bolstered in competitiveness by protective tarrifs and exemption from environmental regulation. With NAFTA and GATT, there are no "walls" the agriculturalist can "push against" to leverage a fair price for his product.

If prolonged, y2k may change this. There are many dynamics here, import availability, government price control, continued availability of inputs, storage lag from harvest to shelf, transportation and how processors will be effected.

Economists with a grasp of ag dynamics may understand the impact, but to me it is a wild card. I do anticipate that there will be a sea change in the amount of disposable income we spend on food; the types of food and fiber available to us; the amount of processed food available, etc. I also think that this will vary regionally.

I have no idea whether this effect will kill the family farm or save it.

-- marsh (, July 02, 1999.

Mr. Decker,

Ah yes, the bugaboos of forecasting. I think you give macroeconomists short shrift. Remember, you must judge a forecast not only on its accuracy, but also on how accurate it HAS to be for the decision makers who will use it. Sometimes, all you need is the NBER's growth or decline outcome. Of course, Yardeni's -7% should be enough to give anyone the willies.

I have never been a Heilbroner fan, but I would recommend The Cartoon Guide to Economics for people who want the basics plus a little history.

Agreed that Comparative Advantage is the single greatest contribution to economic thought EVER (with the possible exception of the closely related concept of opportunity cost). Even more incredible is that it came so relatively soon after Smith blew out the mercantilists with Absolute Advantage.

If you ever want to have some fun, read a translation of The Muqaddimah by Ibn Khaldun (perhaps the world's greatest historical theorist). I have long thought that he was the (missing) link between Aristotle and Smith. Smith's opening paragraphs on division of labor could almost have been lifted directly out of The Muqaddimah where he writes about what we would call socio-economic subjects.

-- nothere nothere (, July 02, 1999.


Did you ever consider that some economist did support Reagan/Gingrich but they had the same luck seeing print as Gary Kleck/John Lotts studies finding benefit to private gun opwnership? (Hey! Look! I just reunited the thread!! Top that!) This is why many people consider the mainstream press liberal. Some points of view just don't get printed. If that is true, then plenty of economists could have agreed with RR/NG but not a word of it would have gotten out. You would have to had read WSJ, National Review, etc to hear that side of the story.

In this case, shoot the messager.

Watch six and keep your...

-- eyes_open (, July 02, 1999.

Thank goodness eyes_open reunited this thread. Otherwise I would have to go ahead and apologize to all for being a knucklehead...

Don't know what I was thinking this AM. Sorry for the digression.

-- Lewis (, July 02, 1999.

Dr. Yardeni has been our best economic forecaster in the 1990s, according to both the WSJ and "Barron's"; perhaps that is why he is the chief economist for the Wall Street securities division of the world's largest bank. He has also studied the Y2K problem in detail for two years (he is a former mainframe programmer himself) and has amassed literally hundreds of pages of evidence on his website to support his position. Furthermore, he is in close contact with many of the world's top Y2K experts, including those heading national efforts, such as Koskinen, Flowers (UK), Timman (NL), etc.

By contrast, most of the other economists in this survey are, relatively speaking, small fry who probably have done little, if any, actual research on Y2K. For that matter, last year I heard Abby Joseph Cohen of Goldman Sachs (one of the supposed Wall Street "gurus") talk about Y2K. She revealed appalling ignorance of the issue. And then there was the Merrill Lynch Y2K survey last summer, which many economists and stock analysts later used for their "take" on Y2K. How was that survey conducted? Well, the ML "analysts" (stock brokers, not computer experts, please remember) basically called up the CEOs and CFOs of several thousand companies worldwide and asked, "How ya doin' on Y2K?" Guess what answers they got? What would you tell the world's biggest brokerage firm?

Finally, I've said it before and will say it again: almost no economists foresaw the Crash of 1929. Almost no economists foresaw the Asian financial crisis that started in 1997. Almost none has jangled alarm bells about our hyperinflated stock market (71% overvaluation of the S&P 500 Index as of market close yesterday, using the Federal Reserve's own stock valuation model and assuming 6% growth in corporate operating earnings over the next four quarters.) Most economists are lousy at thinking "outside the box." Always have been, always will be.

-- Don Florence (, July 02, 1999.

Okay - so show me the reason why the relative prices of gold and oil have remained at nearly the same ratio since oil was discovered 125 years ago.

Interesting point about price of wheat - I know that since the early 50's, the general price of housing, food, cars and household goods has remained proportional to income - the normal worker is getting no more "stuff" for what he (and she) is now "making" now than then.

1/5 of middle salary = low end car. 1/4 year's average salary = one average car. 1/3 of a high salary = one fancy car. Four years salary = average house.

Thus, can one conclude that one wage earner "making" something of tangible value then (some physical durable good or service) does the same economic function (including tax, title and insurance) of two current workers plus taxes (two real workers per one government or "health care worker), only 1/4 of whom are still producing tangible goods or services.

-- Robert A. Cook, PE (Kennesaw, GA) (, July 02, 1999.


Regarding the 1997 Asian financial crisis, I believe that Dizzard fellow who writes for The American Spectator called. Imagine my suprise when someone who follows markets actually predicted something! Didn't know it could be done. I have no idea if he is an economist.

Good Luck and keep your...

-- eyes_open (, July 02, 1999.

BigDog's comment about Yardeni is IT:

"Yardeni has made the most cogent comment about this mind-set, namely that econs are unable/unwilling to factor in singular events. It is only slightly oversimplifying (at least based on my experience at Morgan Stanley) to say that, while the spreadsheet models are extremely sophisticated, they are also quite brittle. The formulas cannot be easily modified to handle one-time events. Hence, Y2K "cannot" be factored in."

Or, in investor/speculator language, a trend continues until it doesn't.

-- A (, July 02, 1999.

Sorry Robert,

Normally I enjoy your posts, but you're missing the boat here. While I agree that we are more heavily taxed now than we were in the 1950's, it is simply not true that you get the same amount of stuff today for the same amount of work.

Economists call this productivity and it's a LOT higher now than it was in the 1950's. The growth of it slowed to a trickle during the 1970's (for reasons that economists are still struggling to FULLY understand), but it has grown considerably in the 1990's.

Remember that a 1957 Chevy (nostalgia aside) is not the same as a 1997 Chevy. Even if you don't like airbags, the 1997 Chevy probably gets better gas mileage. Economists don't do a great job measuring these kinds of changes, but they make a reasonable attempt.

Consider health as well. I know ONE person of retirement age who got polio as a child. Most kids today probably don't even know what polio is. My child will likely never get chicken pox. I never got the measels.

You can complain about the deterioration of our culture if you'd like, but the fact is that we make more stuff in less time than we did 40 years ago. Of course, I expect this to change rather radically in the next 7 months. I now expect a very large hit in the first quarter on the order of a depression or worse. The machines that allowed us to become more productive more quickly are going to drag us back into the 1970s, at least for a while.

-- nothere nothere (, July 02, 1999.


Did you notice that althought as you state it still takes 4 years salary to buy a house we are now all in higher tax brackets? So, if you made $7,000 in 1965 and could afford to buy a house with about three years salary ($20,000 for a nice split level in the 'burbs) now you make ten times more, houses cost ten times as much, but your tax bracket is 32% federal. Suprise.

Watch six and keep your...

-- eyes_open (, July 02, 1999.

P.S. This doesn't mean that Dr. Yardeni couldn't be wrong about Y2K, of course. He could be, big time. Even with his brains, training, and unusual access to information, there is so much conflicting and ambiguous data out there that it's hard to make really reliable projections. Plus, nobody can conceptualize globally just how domino effects might or might not occur. This is a unique event; we are in uncharted waters. Even somebody of Yardeni's talents has problems under such circumstances.

During his June 14th T-200 Y2K Action Day Conference (available on RealAudio at his website), Yardeni talked to, among many others, Gary Beach, editor of "CIO Magazine." Mr. Beach is also quite worried about Y2K, and both Yardeni and Beach expressed surprise and dismay that many economists and Wall Street analysts have seemingly had their heads in the sand on this issue. As a natural function of his position, Beach hobnobs with quite a few CIOs (Chief Information Officers)--and he said that many are still privately very worried about Y2K, especially as it relates to supply chains and JIT inventories. Beach also mentioned a meeting attended by about 40 CIOs, where somebody remarked that the SEC filings, etc., of many companies with regard to Y2K seem to have been edited/re-written by the CEOs, CFOs, and lawyers--in other words, that CIOs were not being allowed to get the unvarnished truth out. Beach said he sat facing these 40 CIOs, and when this remark was made, most looked down to the floor.

Yardeni himself is an optimist by nature: he was the biggest bull on Wall Street until he started studying the Y2K problem two years ago, and he is by no means comfortable with his current role as Gloomy Gus. He acknowledges, too, that he could be wrong about Y2K: in his conversation with Beach, Yardeni commented, "Sometimes I look into the mirror and wonder if I'm delusional about all this." So hey, if a fellow who got his doctorate at Yale under a Nobel Laureate has self-doubts about his analysis of the Y2K issue, everyone else is entitled to such doubts, too. And I think that Yardeni really hopes he is delusional about Y2K's impacts; as I said, he's an optimist by nature. (He predicted the huge bull market of the 1990s way back in 1985; he was the first to predict Dow 10K before the end of the Nineties.)

That said, it's interesting that Yardeni is not wavering a bit in his pessimistic Y2K economic forecasts. In fact, according to the article that led this thread, he's currently predicting 7% contraction in U.S. GDP for Q1 2000. That figure surprised me a bit: it seems a bit more gloomy than his earlier estimates. (For comparison purposes, the most commonly accepted technical definition of a depression is a 10% or more contraction in GDP over a year.) Even at that, I daresay that Yardeni thinks the U.S. economy will slowly begin recovery by middle to late 2000 or thereabouts, with the recession ending some time during 2001.

-- Don Florence (, July 02, 1999.

Tricia, you raise an excellent point. All my books on the Great Depression are out on loan right now, so I don't have any quotes to offer up. If my memory serves, you are correct in that the vast majority of economists were blind-sided by the crash & subsequent effects upon the economies - domestic & global.

I would very much appreciate it if a few kind souls would dig out some quotes from the period 1928-1932 or so.

Best Wishes,

-- Bingo1 (, July 02, 1999.

From the "Timebomb 2000" archives - The Big Bull Market

(Some excellent excerpts (posted by "Kevin") from chapter XII of Only Yesterday--An Informal History of the 1920's. Copyright 1931 by Frederick Lewis Allen):

An ex-actress in New York fitted up her Park Avenue apartment as an office and surrounded herself with charts, graphs, and financial reports, playing the market by telephone on an increasing scale and with increasing abandon.


Even the revolting intellectuals were there: loudly as they might lament the depressing effects of standardization and mass priduction upon American life, they found themselves quite ready to reap the fruits thereof. Literary editors whose hopes were wrapped about American Cyanamid B lunched with poets who swore by Cities Service, and as they left the table, stopped for a moment in the crowd at the broker's branch office to catch the latest quotations; and the artist who had once been eloquent only about Gauguin laid aside his brushes to proclaim the merits of National Bellas Hess. The Big Bull Market had become a national mania.

In September the market reached its ultimate glittering peak.

It was six months, now, since Herbert Hoover had driven down Pennsylvania Avenue in the rain to take the oath of office as President of the United States. Hed had appointed the Wickersham Commission to investigate law enforcement in general and prohibition in particular. At the President's insistance Congress has passed the Agricultural Marketing Act; and Alexander Legge had assumed, among his other duties as chairman of the new Federal Farm Board, the task of "preventing and controlling surpluses in any agricultural commodity."


Everybody was reading All Quiet on the Western Front and singing the songs which Rudy Vallee crooned over the radio. The literary journals were making a great fuss over humanism.


Stop for a moment to glance at a few of the prices recorded on the overworked ticker on September 3, 1929, the day when the Dow-Jones averages reached their high point for the year; and compare them with the opening prices of March 3, 1928, when, as you may recall, it had seemed as if the bull market had already climbed to a perilous altitude.


One thing more: as you look at the high prices recorded on September 3, 1929, remember that on that day few people imagined that the peak had already been reached. The enormous majority fully expected the Big Bull Market to go on and on...

-- Mac (sneak@lurk.hid), July 02, 1999.

07/02/1999, Market Details:

Dow, S&P 500, Nasdaq Jump to New Record Closes

Stocks concluded a stellar week in style as the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index all closed at record highs...

-- Mac (sneak@lurk.hid), July 02, 1999. - Economic Outlook: Who's the Greater Fool?

March 21, 1999

...What the buyer of a private business never has to deal with is the presumption that the business is somehow worth more merely because it is popular and others may also want to buy it. If the probable rate of return doesn't meet the test, then it will be left for some greater fool to buy it.

But where privately held businesses are concerned, there are rarely any greater fools around. If a buyer overpays, it is usually because his or her assumptions as to market share, profitability, productivity, etc. turn out to be out of touch with reality.

Now look at the stock market. Today a good analyst (of which there are not many around) can only justify the prices of many stocks by adding in a totally new factor  the existence of a legion of greater fools who are defining value as whatever someone is willing to pay. That definition of value is appropriate to collectibles, not to stocks. A Monet provides no economic benefit  its value is whatever it can be sold for. A company has an economic value, but the price of its shares at any moment is whatever it can be sold for  like a collectible. However, most of the time, a company's stock tends to be priced at some reasonable relationship to its economic value. That is so long as expectations for its future are realistic.

Today, a large number of stocks are either being priced like collectibles, or the assumptions being made to justify the prices being paid are well outside the bounds of rational optimism. Actually, both are true. Many old line companies whose growth rates and profitability have not changed in years  and in many cases have declined  have seen their price earnings multiples (P/E) expand each year, beyond that which could be explained by declining interest rates. One market favorite has had a 17.5% five year earnings growth rate. Its predicted growth rate for the next five years according to Value Line is 15%. It has had one new product which came onto the market in 1997 to replace an earlier version of the product. Its market share world wide has stayed relatively constant. In 1991 the market accorded it an average P/E of 21; by 1998 that had risen to 40. Recently it was trading at a P/E of over 45. This has become a collectible...

-- Mac (sneak@lurk.hid), July 02, 1999.

On the very day, June 14, that Yardeni made his comment, "Sometimes I look into the mirror and wonder if I'm delusional about all this," the Wall Street Journal published an article about Charles Merrill. Heres the relevant paragraph:

Merrill had opened his own brokerage, Charles E. Merrill & Co., in 1914 and merged it with the firm of the bond salesman Edmund Lynch the following year to form the first Merrill Lynch & Co. The firm prospered during the 1920s, as most Wall Street firms did. But as the end of the decade neared, Merrill sensed trouble ahead. So contrary was this to the prevailing wisdom that he went to see a psychiatrist to make sure he wasnt losing his grip. After a few sessions on the couch, both he and the psychiatrist began to sell out their portfolios. Merrill foresaw a protracted depression and sold the firm to E.A. Pierce & Co., he and Lynch becoming limited partners in that firm.

By the way, there are 133 million jobs in the U.S. A 7% drop in GDP could easily translate to 9 million new unemployed. They dont pay people to stand around while the assembly lines arent running.

-- Alan Rushby (, July 02, 1999.

Bingo 1 and friends,

You must have found the Fiend's site by now ??? It's an excellent site, full of quotes - many links to latest newsletters - everything financial up to and beyond Y2K; and Bingo, the Fiend recently posted many quotes from the late 20's. He's very approachable, and I'm sure he would help you out with what you are looking for. The time he must spend maintaining the site - I believe it's a labour of love for the guy.

Best wishes to all Pam lawrence

Sorry, I don't know how to post a link. It's

-- Pamela J Lawrence (, July 03, 1999.

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