1. The manipulation of stocks.
Today, however, there is far less potential for manipulation of the market. A better-staffed SEC, new regulations on the books including Reg AC (requiring a greater level of disclosure by analysts), the structure of IPOs, as well as Sarbanes-Oxley (expensive, but effective), mean that whatever manipulation is going on today is largely relegated to micro caps.
2. Lending money to buy stocks.
I'd have to admit that this factor is somewhat troubling today. According to a recent Barron's, there is a higher level of margin debt for the New York Stock Exchange and Nasdaq this year than at any previous time -- $303 billion, just slightly higher than at the peak of $300 billion set in March 2000. I'd keep an eye on this factor, but I'd measure its effect through the lens of the third factor.
3. Excessive optimism.
Today, though, the market as a whole (link opens Excel file) is trading at 16 to 17 times earnings, comfortably within the range of the historical average. Indeed, in comparison to interest rates (the Fed model), today's earnings yield points to underpriced securities. You cannot bend, fold, spindle, or mutilate these figures to arrive at the conclusion that there is rampant excessive optimism built into today's domestic stock prices. Foreign emerging markets? Yes, perhaps -- but not here.
So this appears to be a good time, even at new highs, to stay in the market.
all this bullshit was quoted from http://www.fool.com/investing/general/2007/08/10/the-3-forces-behind-a-market-crash.aspx August 10, 2007 b]
Today, however, there is far less potential for manipulation of the market. A better-staffed SEC, new regulations on the books including Reg AC (requiring a greater level of disclosure by analysts), the structure of IPOs, as well as Sarbanes-Oxley (expensive, but effective), mean that whatever manipulation is going on today is largely relegated to micro caps.
2. Lending money to buy stocks.
I'd have to admit that this factor is somewhat troubling today. According to a recent Barron's, there is a higher level of margin debt for the New York Stock Exchange and Nasdaq this year than at any previous time -- $303 billion, just slightly higher than at the peak of $300 billion set in March 2000. I'd keep an eye on this factor, but I'd measure its effect through the lens of the third factor.
3. Excessive optimism.
Today, though, the market as a whole (link opens Excel file) is trading at 16 to 17 times earnings, comfortably within the range of the historical average. Indeed, in comparison to interest rates (the Fed model), today's earnings yield points to underpriced securities. You cannot bend, fold, spindle, or mutilate these figures to arrive at the conclusion that there is rampant excessive optimism built into today's domestic stock prices. Foreign emerging markets? Yes, perhaps -- but not here.
So this appears to be a good time, even at new highs, to stay in the market.
all this bullshit was quoted from http://www.fool.com/investing/general/2007/08/10/the-3-forces-behind-a-market-crash.aspx August 10, 2007 b]
