Alan Greenspan, 1996: "Clearly, sustained low inflation implies less uncertainty about the future, and lower risk premiums imply higher prices of stocks and other earning assets. We can see that in the inverse relationship exhibited by price/earnings ratios and the rate of inflation in the past. But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?"
If it is just positive for the year I will be happy.
I've been to this party before...
If it is just positive for the year I will be happy.
I know. But Alan Greenspan, clearly prescient, warned during 1996, and the party lasted past 1999, really accelerating during 1999!
All we can do is go a bit more conservative and expect to wait for a while.
It is only the late comers who started investing at the late 90s who got hurt because they got the pain without the enjoyment of the early gains.
I've been to this party before...
I wonder if we can look at this analytically?
Start with the 20% gain this year, of which 3% was for GDP growth, 2% for inflation, and 15 % for anticipation of tax cuts / speculation.
With the tax cuts in place, corp profits should be 21% higher (they keep 71 cents of every profit dollar instead of 65 cents).
That leaves another 6 percent gain for the tax cut effect (as part of this was priced in already).
Then add in 2 percent for inflation, and another 3% for GDP and you have an 11% return next year. Plus anything the corps get for increased profit due to less gov't regulation.
Thoughts?