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A testament to just how euphoric markets are right now


From Azizonomics:

In a testament to just how euphoric stock markets are right now, James K. Glassman the co-author of the fabled Dow 36,000 — a book published in 1999 that claimed that stock prices could hit 36,000 by as soon as 2002 (and which quite understandably is now available for just $0.01 per copy) — has written a new column for Bloomberg View claiming that he might have been right all along:

When we wrote our book, we expected that the stock market, as represented by the 30 blue chips of the Dow, would rise to 36,000 for two reasons.

 

First, investors had mistakenly judged the risk in stocks to be greater than it really was. Here, we drew from the work of Jeremy Siegel of the Wharton School of the University of Pennsylvania. He showed that, over long periods, stocks were no more volatile, or risky, than bonds.

 

We saw indications that the risk aversion of investors was declining — as we believed it should. Lower perceived risk would mean higher stock valuation measures: rising price-to- earnings ratios, for instance.

 

Second, we assumed that real U.S. gross domestic product, the main driver of corporate profit growth, would rise at 2.5 percent a year — a bit below the historic post-World War II rate, but still a decent clip. We warned, however, that small changes in growth rates could have big effects on stock prices…
Glassman thinks that Dow 36,000 is attainable with a return to strong growth:

Let’s set investor fears aside for a moment. For investment gains over the long term, there is absolutely no substitute for faster economic growth…

 

How fast can the U.S. grow? Four percent is attainable, but I’d settle for 3 percent. Get there quickly, and we’ll get to Dow 36,000 quickly, too…
Back in the real world, we have the opposite problem…

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