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The following article appeared in Left Business Observer #76, February 1997. It was written by Doug Henwood, editor and publisher. It retains its copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.

This updates and replaces the "Bloated Market" supplement, which has now been trashed.

For a longer version of a related argument, see the text of Doug Henwood's talk at the Brecht Forum, New York City, which was televised by C-SPAN on June 30 and July 1, 1997.

Dow 7000

America is back. That was reportedly the theme of the real Renaissance Weekend, the annual ruling class retreat to Davos for the World Economic Forum. Proof of this resurrection are the U.S.'s boomy 2.5% growth rate, when Europe and Japan are dead in the mud; the Internet; and the stock market's ceaseless rise. Claims of a U.S. boom are dispensed with elsewhere in this issue (page 7) [though not on this website, alas - webmaster] - and who wants to read another article on the Internet? Let's stick with something easy, like explaining the stock market.

A writer strains for fresh adjectives to describe the stock market's course since the bull market began in August 1982. Over the last 15 years, the real (inflation-adjusted) Standard & Poor's 500 index, a proxy for blue-chip corporate America, is up 574%, by far the biggest 15-year real rise since good statistics start in 1886; in 1964, it was 434%; in 1929, 205%. By most conventional measures of whether stocks are reasonably priced, the market is at or near historic extremes. In the past, such extremes of ebullience have eventually given way to their opposites; in fact, a statistical model of that observation yields the prediction that the stock market is in line for a 68% decline over the next 10 years. But everyone says those old measures don't apply anymore.

It's tempting to open an explanation of the stock market's rise by saying that it's happened because new money is flowing in. But sometime, years ago, the market entered a phase when its very rise lured in new money. People who had never owned a speculative asset before are now playing around in a world of small-cap "growth" stocks, whose main asset is often little more than a clever name, and "emerging" Third World markets, whose main asset