Latest from Dr. Ed (Yardeni) : LUSENET : TimeBomb 2000 (Y2000) : One Thread

COMMENT: Remember the Mechanical Bull ride so popular in some bars during the late 1980s? It was almost impossible to keep from falling off the motorized beast. Today's Great Bull Market is doing the same to more and more stocks. At the end of March, 60% of the stocks in the S&P 500 sold below their year-ago price, the worst performance since 1994. Fewer and fewer stocks are driving the stock market averages into record high territory. There are three possibilities: 1) This is a bearish indicator. 2) It doesn't matter. If you are in the right stocks, like Yahoo and AOL, who cares about the losers? 3) The bull market will soon broaden, so small- and mid-cap stocks are the way to go. Take your choice. I pick Door #2 for now through a summer rally that could take the Dow to 11,000. During the late summer and early fall, I believe that the narrowness of the rally and the extreme overvaluation of the Nifty Fifty--or is it the Nifty Five?--will trigger a significant sell off (-30%). My bearish scenario assumes that investors will become concerned about Y2K, and will be disappointed by earnings. I have to concede that so far no one seems concerned at all about Y2K. There are far more people considering leaving their jobs so they can trade stocks on their home computer than survivalists preparing for Y2K calamity.

-- (disconnect@effect.huh?), April 06, 1999



-- FM (, April 06, 1999.

It's from his email newsletter (I get it too) - I don't think there is a URL for it........

-- Online2Much (, April 06, 1999.

You forgot to add, trade stock from home on margin and credit cards.

-- Bill (, April 06, 1999.

One might add that U.S. corporate profits were down an average of 2.2% last year; profits of the Fortune 500 were down an average of 1.8%. Yet the stock market soared.

Since late last fall, Americans have been spending more than their income; the last time this happened was during the Great Depression. Americans have been spending/consuming at a terrific rate because they feel rich based on paper profits accumulated from the stock market; this strong consumerism has helped various prominent companies, which in turn boosts the most-watched stock indices. (As Yardeni points out, the recent advance in stocks has been quite narrow; for instance, the Russell 2000 index of small caps was actually down over the past year. The DJIA consists of only 30 stocks; the Nasdaq index consists of only 100 or so.) The last time the stock market "led" the economy instead of reflecting it was in the late 1920s. Meanwhile, the agricultural, mining, and manufacturing sectors continue to be in bad shape (though the last has shown a small recovery lately); 35% of the world is in a severe recession or worse, though global stock markets have staged a modest recovery in recent months. Japan, the world's second largest economy, continues to be in very serious trouble, especially its financial sector. Underlying danger signals at home, and serious economic problems abroad, were, of course, characteristic of the U.S. in the late 1920s.

The Princeton Economic Institute, widely considered one of the best economic forecasting units in the world, recently issued its long-range forecast: the Dow will suffer a huge correction some time between now and this December, and will eventually fall to the 5000 to 6000 range. PEI thinks that the Dow might even fall to as low as 3700 by the year 2002, in effect wiping out all the paper wealth accumulated during the Clinton years. The PEI forecast is based on complex analysis of the global economic situation and I don't pretend to understand it all. From what I read, PEI does not appear to factor in Y2K, at least not overtly or to any major degree; presumably if severe Y2K effects begin to appear, that would cause PEI to lower its forecast accordingly. PEI uses highly sophisticated, quantified, computer-based analysis; it is very difficult to quantify something like Y2K.

-- Don Florence (, April 06, 1999.

I should have added that the PEI website is at

-- Don Florence (, April 06, 1999.

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