![[Powered by Blogger]](https://lh3.googleusercontent.com/blogger_img_proxy/AEn0k_uf8Hq3e6_j1jJJn9GP21zYOh0WAa9sp_XsDwQF3YEKLHaIZm6zbiS9qlqHT95ne_ZBnnINcO1HpNx0vJDwfcWjRKwSji8uZRwyi6-vc-VC=s0-d){kind=small}
Monday, April 21, 2003
MARCH 28 FAIR VALUE FOR STOCKS AT THE MOMENT?
In sum, although the truly excessive overvaluation of the late 1990s in nonfinancial corporate equities has been taken out, stock prices in the fourth quarter of last year still were overvalued, according to my model. Given that I am forecasting slightly slower real GDP growth this year than last (2.5% vs. 2.9% on a Q4/Q4 basis), with increasing doubt about even achieving that, an "up" year in the stock market in 2003 does not appear to me to be a "slam dunk" as some analysts think.
In sum, although the truly excessive overvaluation of the late 1990s in nonfinancial corporate equities has been taken out, stock prices in the fourth quarter of last year still were overvalued, according to my model. Given that I am forecasting slightly slower real GDP growth this year than last (2.5% vs. 2.9% on a Q4/Q4 basis), with increasing doubt about even achieving that, an "up" year in the stock market in 2003 does not appear to me to be a "slam dunk" as some analysts think.
APRIL 4 CASH SAVINGS WILL HAVE DEPRESSIVE EFFECT ON THE ECONOMY
However, if households cut back on their current purchases of goods and services in order to increase their holdings of money - coin and currency, bank/thrift deposits, and money market mutual fund shares - then there will be a "leakage" from the current spending stream. Classical or pre-Keynesian economists made a distinction between saving and "hoarding." Increased holdings of stocks and bonds was called saving. The increased holding of money was referred to as hoarding. The term "hoarding" has become archaic in this reference. Rather today, hoarding is referred to as a decrease in the velocity of money.
In sum, an increased desire for thrift can paradoxically lead to a decline in saving and economic activity if the increased thrift takes the form of increased money holdings or a failure on the part of the Fed to let interest rates fall to their "natural" levels. U.S. households currently are showing an increased desire for thrift. I suspect that the two conditions that could make this thrift paradoxical are coming into play.
However, if households cut back on their current purchases of goods and services in order to increase their holdings of money - coin and currency, bank/thrift deposits, and money market mutual fund shares - then there will be a "leakage" from the current spending stream. Classical or pre-Keynesian economists made a distinction between saving and "hoarding." Increased holdings of stocks and bonds was called saving. The increased holding of money was referred to as hoarding. The term "hoarding" has become archaic in this reference. Rather today, hoarding is referred to as a decrease in the velocity of money.
In sum, an increased desire for thrift can paradoxically lead to a decline in saving and economic activity if the increased thrift takes the form of increased money holdings or a failure on the part of the Fed to let interest rates fall to their "natural" levels. U.S. households currently are showing an increased desire for thrift. I suspect that the two conditions that could make this thrift paradoxical are coming into play.
APRIL 17 WHY THERE AINT NO CASH FOR STOCKS
In sum, all that "cash" on the sidelines is likely to stay there for a long time inasmuch as the public's demand for money appears to be rising back toward some historical average. All of this sideline "cash," therefore is unlikely to be the catalyst for a stock market rally. Moreover, this decrease in the velocity money could have negative implications for economic growth. The slowdown in money growth we are experiencing along with a slowdown in velocity growth is a lethal combination for GDP growth.
In sum, all that "cash" on the sidelines is likely to stay there for a long time inasmuch as the public's demand for money appears to be rising back toward some historical average. All of this sideline "cash," therefore is unlikely to be the catalyst for a stock market rally. Moreover, this decrease in the velocity money could have negative implications for economic growth. The slowdown in money growth we are experiencing along with a slowdown in velocity growth is a lethal combination for GDP growth.