[OPE-L:7033] [OPE-L:528] Re: Re: Re: Re: stagnation

Gerald Levy (glevy@pratt.edu)
Fri, 26 Feb 1999 06:49:31 -0500 (EST)

Alejandro Valle reproduced the following in [OPE-L:513]:

> ***********************************************************************
> The Baltimore Sun June 17, 1997
> Market on verge of collapse, analyst says
> When the stock market crashes, it'll be like an earthquake leveling a
> city. That's what Thomas H. Eichler says. And he feels the rumbling.
> Eichler, who is the president and chief investment officer of Eichler
> Magnin Inc., a Los Angeles-based investment management firm, says that
> within the next 12 months the stock market will plunge by 50 percent.

Well, what the article doesn't say is either what the theoretical
perspective of Eichler is or the assumptions made in his prediction (it is
unclear whether he employed some kind of a simulation model).

> He argues that investors are paying unrealistic amounts for stock, more
> than twice their normal value.

That sounds like an exaggerated claim. However, even when there has been a
major "correction" on Wall Street, there have been in recent years a quick
recovery (usually in a matter of days). Of course, this doesn't mean that
will be the case next time!

As I have mentioned on this list previously, I think that workers' savings
and pension funds have played a significant role on the stock market.
If there is a high degree of over-valuation of stocks, then it is related
to the influx of other (individual and institutional) investors. This is
related to the range of other options for savings. E.g. what happens to
savings if you keep it in a savings account? The, perhaps 2 1/2%, interest
rate on savings might be less than the rate of inflation.

Alejandro V writes:

> The health of US economy is the key issue for the world economy. If the
> US economy fall down at the same time other economies are in recession
> we will face a world depression.

But, if you were going to ask a few years ago what would happen to the
world economy if the Japanese economy fell down, what would you have
said (in terms of what would happen to the US economy and the world
capitalist economy)?

If someone had told you that the South Korean, Russian, Brazilian (and
many other) economies would all fall down during the recent past,
wouldn't you have anticipated that the US economy and the rest of the
world capitalist economy would have also fallen down?

It makes one wonder about "globalization".

In solidarity, Jerry