[OPE-L:5406] Re: Re: the bursting bubble and the U.S. working class

From: Gerald_A_Levy (Gerald_A_Levy@email.msn.com)
Date: Tue Apr 24 2001 - 07:50:18 EDT

Re Allin's [5386]:

> What bubble?  I'm teaching econometrics this 
> semester, and to  illustrate the "error correction" 
> model specification I ran an error
> correction model of the Dow-Jones average, 
> using quarterly data,  1959-2000. <snip, JL>

1. If one is looking for bubbles and/or non-
bubbles, shouldn't one also look at the

One of the interesting trends in the recent past 
is how the DJIA and NASDAQ can move in 
different directions and at significantly different
rates. Furthermore, since some have referred to
this as the "Internet bubble", an examination of 
NASDAQ data seems particularly relevant.

2. What about other bubbles?  E.g. do you
agree with Steve K that there seems to be a
significant bubble (still) in the housing and real
estate market?

This "bubble" also has significance because if
and/or when it bursts, it can signal a decrease
in new housing construction -- often itself a 
signal for a national recession.

3. What about the effects of foreign markets on
the U.S. stock markets and the U.S. economy?
No less an authority than the ever loquacious
J. Barkley Rosser Jr., in a post for the PKT
list dated 4/20, noted a recent article by Robert
Samuelson in the _Washington Post_ about
Argentina's massive foreign exchange and debt 
crisis and how (to quote Barkley) "a bellyup in
Argentina could trigger a full scale global 
financial collapse."   Interestingly, this claim
by Samuelson and Rosser didn't seem to stir up
any further discussion on PKT.

What I think this demonstrates is just how 
volatile the current situation is. It's almost as if
everyone knows that the bubble(s) will burst,
but they don't know when or what the event will 
be that will be the prick that will trigger the bubble's collapse.

4. What's been happening recently in the 
market for government bonds?

It seems to me that a lot of investors are 
switching from stocks to government bonds.
In so doing, I think that they are anticipating 
a collapse of the stock markets and are
thus looking for less risky investments. Yet,
as more money is taken out of the stock 
markets and invested in the bonds market, 
doesn't this reinforce the downward pressure
on the stock market?

In solidarity, Jerry

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