The roaring stock market has left in the dust
many of the old formulas by which shares were valued, and left
commentators futiley searching for explanations.
"The end days of the 20th century saw an 'end of memory' when
it comes to stock market pricing," says Michael Flament of Wright
While he doesn't spell it out, those vanished memories are about
such things as price-earnings ratios, profits as a percentage of
revenues, the rate of profit growth and so on.
Why list them all? Some of the stocks most in demand today have
no earnings and no immediate prospects of them. And those that have
earnings are priced so high that only big institutions, such as
pension funds, can afford them.
"Don't bother checking for a precedent of 1999's stock
market," says Flament, because "there is certainly nothing in
U.S. market history remotely on a scale" with such a love affair.
Such rhetoric rather than numbers is perhaps the only way to
respond to Harry Dent, who foresees 41,000 points on the Dow Jones
industrial average or to Glassman & Hassett, who expect 36,000.
Faced with such explosive expectations, members of the old-line
fraternities feel futile in countering with their ancient formulas,
which would have them settling for gains of 10 percent a year.
And so they try simply to be descriptive, declaring that the
ballooning in technology prices is a bubble. To which Russell
Redenbaugh responds: "It's only a bubble if it bursts."
Redenbaugh, analyst for Philadelphia's Cooke & Bieler, an
investment firm "committed to high-quality, low-risk investing,"
puts forth what sounds like the Alka-Seltzer explanation.
He concedes, for instance, that there will be a great many
losers in technology, "especially among the dot-coms," but there
will be many successes too.
The technology market, he explains, "is probably more like
foam, made up of thousands of bubbles, which are always in the
process of popping and reforming."
While old-timers, some of whom still remember the tail end of
the Great Depression, think the new-market theorists are crazy, and
that maybe mathematics is a bit berserk too, they are outnumbered.
Temporarily, the say. They have seen too many "new eras" in
the economy vanish, having been little more than something
imagined, something forecast, something so deeply desired it seemed
Referring to the economy rather than simply to the stock market
segment of it, David Wyss of Standard & Poor's contends "there are
few signs that this record expansion represents a 'new' economy."
Indeed, he adds, "this is simply the old economy tuned up and
running on all cylinders," its one special feature being the stock
"Measured in any rational way price-earnings ratios, ratio of
market to book, or ratio of market capitalization to gross domestic
product the market looks ridiculously overvalued."
Sounds like an old-timer with a firm belief in the old formulas.
Yes, but with a twist that seems to place at least one foot on the
turf of the new rationalists.
"We have given up on a correction, and expect the market to
remain overvalued," he confesses. "We now believe there has been
a fundamental shift in the risk premium, rather than an irrational