Somebody had to say it and John Robb puts it succinctly — the stock market is not the American economy and the economy is rather healthy. Robb writes,
Hey, for what its worth: the US isn’t in a recession. Most economists think we are going to grow from 3-4%. Productivity is expected to grow 4%. Real wage growth is over 3%. Inflation is nearly zero. Fed rates are expected to remain unchanged for the rest of the year. In fact, even the markets are still up big from their early 90’s levels (the Dow is still 2x over its 1990 level and the NASDAQ is 3x). Housing prices are up 12% nationally.
There are still those that think we are headed for a financial depression ala Japan in the 90’s or the 1930’s US. If you are in that camp, please sell all your assets for cash and move to a cabin in the woods. I bet you can get a great deal on a survivalist cabin from all those Y2Kers that moved out there in 1999.
Robert Samuelson wrote an excellent op-ed last week pointing out that much of the blame for the stock market debacle rests with individual and institutional investors who barged in gung ho with extremely risky investments. Those investors were more than happy to benefit from windfall gains in their portfolio, but are suddnely shocked when some of those risky investments went south.
How absurdly high were stocks? Samuelson noted that historically stocks in the S&P 500 have a 14:1 Price/Earning ratio. But during the stock market bubble, stocks were trading at closer to an absurdly high 30:1.
The stock market is not collapsing, but rather returning to a more sane valuation level.