Banks and huge corporations – kept afloat for years by easy money and the “convoy system” – are in danger of sinking. The economy shrank at an annual rate of more than 3% in the 2nd quarter of this year. Now, things look worse than ever for the Japanese. Our current problems, on the other hand, are shared by much of the world – not the least by Japan itself.”Īs long as Americans were willing to buy more than they could afford, the Japanese economy managed to keep growing…though barely. That was, you might say, quite an achievement. For the past decade, Japan has been an island of depression in a sea of prosperity, its economy stagnating even as other major economies, ours in particular, boomed. “In one way…,” explains Paul Krugman in his NY Times article, “our situation is actually worse than Japan’s. was getting better and better – far better than anyone expected – Japan was going in the opposite direction…with an economy that has proved more intractable than anyone could imagine. Adjusted for inflation, investors who bought at the ’29 peak waited more than a quarter of a century to get back to where they began.)Īnd yet, there, half a world away, the world’s second largest economy has enacted “a morality play designed for our edification.” Does anyone bother to watch? Apparently not. Buying stocks at the top is almost guaranteed to be a losing proposition…unless you are as a long-lived as Methuselah. (He seems unaware that a good navigator needs to recognize the point of departure as well as the destination. Watkins, and millions of others, still believe that a steady hand on the tiller and a close eye on the star of “long-term buy & hold” investing – even through a bear market – will lead to investment success. Stocks have gone down, but there has not been a single day of panic. Watkins, mentioned above, have stood their ground…even in the midst of war, recession, and a bear market. And Wall Street strategists now advise holding 70% of your assets in common stock. “According to the latest survey of fund managers by Merrill Lynch,” writes Marc Faber in his latest letter, “84% of managers expected higher equity prices within the next year, compared to just 10% who saw lower prices.” Abby Cohen, the permanent bull, has become even more bullish. And the Nasdaq has suffered even worse damage.īut the “New Era” stars still shine in the autumn sky – brightly enough to lead perhaps an entire nation to destruction. The Wilshire 5000, as noted above, has lost 40% of its value – a sum estimated at $5 trillion.
Since January 2000, the Dow has fallen as low as 8,235. In the 4 years from 1996 to the market’s peak in January 2000, he had turned his face to the heavens and become a believer. Thanks to the twinkle of so many New Era stars, the Fed chief was able to see stocks in a new light. Greenspan alarmed by this even-more-irrational exuberance? Quite the contrary. And within days, the stock market rocketed skyward…and didn’t stop until January of 2000, when the Dow hit 11,722 – more than 5,000 points higher Within days, the astronomers of Wall Street began to discover the distant stars…”the productivity miracle”…”the Peace Dividend”…”the information technology revolution”… “the new economy”…”long-term buy & hold”…and so on. A galaxy of “New Era” rationales launched into space. But soon after, imaginations caught up…inventing a whole cluster of explanations and justifications. Stock market valuations had reached such a high level, that they had out ran imaginations. It was a case of “irrational exuberance”, said Mr.
In December of 1996, stocks in America reached an unheard of level…nearly 6500 on the Dow. Does he see himself “turning Japanese” a little more each day…as rate cut after rate cut fails to boost the economy…and consumers, investors, and businessmen turn cautious?
Does the world’s most powerful central banker look tired, he must ask himself? Saving the earth can be hard work, he must observe…with a sparkle in his eye…īut perhaps the Fed chief notices a change. Greenspan must look at himself in the mirror each day.