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At 07:49 PM 8/19/98 -0400, bruce wrote:
>People are bidding up the price of stocks using real money from the
>income they're earning in the free market. This is why there is no "bubble"
>about to burst.
Since the April 1998 US stock market peak, the breadth crisis in stocks
began. The Advance Decline Ratio dropped from 13.00 in April to 7.00 by
early August 1998, simply by collapsing stock prices.
Since the high and until the last two days, the 'average' NYSE stock lost
24% from its 52 week high. The 'average' Nasdaq stock lost about 32% from
its 52 week high. The Russell 2000, representative of a majority of typical
US stocks, sold off about 18%. The big blue chips and the best Nasdaq high
techs avoided the carnage and held up the balance of the averages. As the
WSJ headline stated: "For Thousands of Stocks, Bear Market is Here." And
it's true.
Air coming out of the North American stock market bubble has been a reality
since April 1998 and out of Asian bubble markets for a long time before that.
Few attribute the reason for the decline to be a decline in the savings
rate. The savings rate is almost irrelevant in the short term. Market
declines came from more sellers than buyers due to a recognized market
overvaluation and expectations of reduced future earnings.
The existence of an asset bubble in stocks doesn't necessarily mean there is
an imminent 'crash' or that the bubble will 'burst'. The air could simply
leak out in a slower, more tortuous and perverse manner.
IMO it's more of a MYTH to think the bull market will last forever.
Michael Paauwe
mpaauwe@xxxxxxxxxx
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