Nobel Prize winning economist Milton Friedman ..current U.S. stock market exhibited uncanny parallels to prior manias : LUSENET : TimeBomb 2000 (Y2000) : One Thread

Pictures of a Stock Market Mania,

In our view, sentiment continues to imply extremely negative consequences for the market. Despite the lip service paid to the bear case by many participants, there is little or no actual fear displayed in the arena. We believe the move by the Fed to lower rates three times in the fall of 1998 was expressly designed to "save" the stock market, on the precipice and possibly even ready to crash. The consequence of the Fed's targeted action has completely taken away the rationale for bears to play the short side of the market. The assumption is that even if stocks begin a rapid slide into the abyss, the Fed will step in and save the bulls (or the market) again. The last three corrections - all minor in nature - have witnessed less and less bears. This is strong evidence that participants feel there is little or no reason to play the downside. As a result, we can infer that more and more players are compelled to turn bullish and play (read leverage) the upside. Despite a stock market priced many times what it was seven years before, corrections are met with yawns by those who might otherwise be bears. Bears are truly a vanishing species.

It is easy to infer that a huge increase in stock prices could enable the creation of an enormous amount of household debt. This is the wealth effect in action. Keep your money in rising stocks instead of spending it. Better yet, take on more debt and buy more stocks! Simple, isn't it? But we wonder if the chart we show below now shouts "Danger!" Stocks as a percentage of household financial assets peaked in 1968, concurrent with an inflation adjusted high in the Dow and the end of a broad based secular advance in stocks. Although larger "nifty-fifty" type issues continued higher into 1972, the secular bull market had already ended for most stocks. The worst recession since 1929-1932 ensued. Today, household debt compared to Gross Domestic Product is far higher and would appear to indicate that investors/speculators will have far less room to maneuver debt service if the stock prices break significantly. Under those circumstances, another deep recession like 1973-1974 is probable, and an even worse scenario is clearly possible. 1929? Although we hesitate to make the obvious comparison, we are amazed that the mania underway continues to be glossed over at every opportunity by those who have the power to expose it - the media, economist and market analysts.

We'll let the views of Nobel Prize winning economist Milton Friedman speak for us. He said last week that the current U.S. stock market exhibited uncanny parallels to prior manias; the U.S. market of the 1920s preceding the great crash of 1929, and to the Japanese market in the 1980s before the collapse there.

MORE AT....See Charts

-- Ponzi (Ponzi@BullAboutToHitABrick.wall), September 04, 1999


I absolutely hate it when nobody responds to one of my well thought out threads that seem pertainent at the time I right them!!!

I just wish the damn stock market would tank so all those people I've been warning would realize I'm the great brain that I think I am!!

-- David Butts (, September 04, 1999.

"The study of history is a powerful antidote to contemporary arrogance. It is humbling to discover how many of our glib assumptions, which seem to us novel and plausible, have been tested before, not once but many times and in innumerable guises; and discovered to be, at great human cost, wholly false."

- Paul Johnson

-- Stan Faryna (, September 04, 1999.

David LOL! - me too, won't be long now... y2k will be the kill shot, no question...

-- andy (, September 04, 1999.

Who wrote this article?

-- Danny (, September 05, 1999.

It aint over til its over.

And its just about over.

-- a (a@a.a), September 06, 1999.

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