|
|
|
|
|
|
|
Neal: Nina Cooper thinks that the future beyond the year 2000 is not as optimistic as it was in the recent past. Do you agree? |
|
|
|
|
|
|
|
|
Grant: Yes, wholeheartedly. Baby boomers like myself have seen nothing but a perpetual bull stock market since 1974. But there are three reasons to expect a vast decline in U.S. stocks and the U.S. economy over the next decade. The first reason is demographic. The bottoms of stock markets this century (as in 1982) have always been at the bottom of the "saver/spender ratio," which measures the number of "spenders" (people between 24 and 34 who have to borrow for new houses and babies) and "savers'' (people from 40 to 49 who reach their peak earnings and savings rate before retirement, illness, and college costs reach them). In the past stocks have peaked at the same time the five-year rate of change of this ratio has peaked or at the actual peak of this ratio. The peak in the five-year rate of change of the saver/spender ratio came last spring, and the peak of the actual ratio will come in 2002. While some people are using the later date to justify stock purchases, it should be noted that in the market that most resembles our own (1929), it peaked at the peak of the five-year rate of change in the saver/spender, not the demographic top in 1935. That brings me to the second reason for a stock and overall economic decline. The stock market is so overvalued, it would have to fall 70 percent just to get back to historic norms in terms of dividend yields, price to book, price to peak earnings, the size of the stock market compared to our economy, the 100-year trendline in total returns in the Dow, and so on. During this incredible bull market, we have had a "wealth effect" that has sustained our economy as flush investors and desperate foreigners looking for a good economy have pumped money into our consumer sectors. But once stocks begin to sell off, as they have in Asia, we will have a reverse wealth effect that will cause our economy to collapse like the Asian economies did, with a credit collapse and panic foreign selling. By the year 2000, the saver/spender ratio will reach a bottom in Japan, while ours won't reach a bottom for |
|
|
|
|
|