Bogle's Take

[boont]

What's your take on the market's meltdown?

Bogle: We've had this orgy of speculation and it's crowded out intelligent investing. I'm certain we're in a recession and I'm certain it's going to get worse. But we have to get back to investing and not focusing minute by minute.

What's ridiculous about this is that back at the 2000 high, and again at last autumn's high, the Standard & Poor's S&P 500 Index was valued at about $15 trillion. It's now about $9 trillion. Does anybody in their right mind think that the value of American business has dropped by $6 trillion? American business has grown every year in little ways and big, because that capital produces earnings.

In this speculative market we've forgotten the fact that investment fundamentals prevail. The dividend yield on the S&P 500 has gone from 1% to 3%, while the market is down almost 40%. The book value of the S&P has almost doubled, from $2.3 trillion to $4.2 trillion. Instead of having a market price of seven times book value, the market price is twice book. The market relative to the book value and dividends it pays is far cheaper than it's been in a long time.

What would be a sign that the worst of this bear market is over?

A: There will be a point at which stocks will turn, long before the economy does. It's a year or a year-and-a-half to go before the economy reaches bottom. We've got a lot of toxicity to get rid of in our system. We need patience and fortitude; 90-95% of what's going on is due to speculators. Turnover in market this year will be 330%. Last year it was 280%. In 1929 it was 140%. This is a crazy era and we're letting the speculators run the train. We're letting the nuts run the insane asylum. Eventually speculators lose.

b.

[socca]

Originally Posted by boont

Does anybody in their right mind think that the value of American business has dropped by $6 trillion?

Tell me what the American taxpayers' current and future liability for bad mortgage debt and the pyramid of bad derivatives built on top of this debt actually is, and I'll be able to form a yes/no opinion. Until then, I'm uncertain.

[Art G]

The market was falsely overvalued before. Now we have no idea what it's worth and Wall Street will be slow to speculate. JMO

[plex]

Originally Posted by boont

What's your take on the market's meltdown?

Bogle:

There will be a point at which stocks will turn, long before the economy does[.] (and) [i]t's a year or a year-and-a-half to go before the economy reaches bottom. We've got a lot of toxicity to get rid of in our system. We need patience and fortitude; 90-95% of what's going on is due to speculators. Turnover in market this year will be 330%. Last year it was 280%. In 1929 it was 140%. This is a crazy era and we're letting the speculators run the train. We're letting the nuts run the insane asylum. Eventually speculators lose.

The takeaway from that is Bogle expects stocks to rebound in a good bit less than a year.

[Retire Soon]

Here is a recent interview by Morningstar of Jack Bogle:

Morningstar Video