John Maynard Keynes, the great English economist, was highly critical of the stock market’s casino-like behavior in his time.
He likened investors to those who entered a newspaper competition to choose the six photographs out of a hundred that popular opinion thought to be the prettiest. Rather than devoting energy to figuring out which photos were indeed the prettiest, contestants spent their time guessing which photos the other contestants thought to be the prettiest.
Keynes thought that in the stock market, similarly, investors don’t bother to figure out what a company is really worth — rather, they try to guess what other people think it’s worth.
What would Keynes have made of today’s stock-market behavior? It is not simply that equity valuations have reached stratospheric levels. They also seem to be impervious to interest-rate developments and increased downside risks to the economic recovery.
One reason for suspecting irrational exuberance in today’s market is the historic heights equity valuations have reached. According to the Shiller Cyclical Adjusted Price Measure (CAPE), by the end of last year, US equity valuations were around double their long-run average. That was a level experienced only once before in the past 100 years.
It could be argued that last year’s historically high equity valuations were justified by rock-bottom interest rates on risk-free US government bonds. With the 10-year US Treasury rate below 1% for a protracted period, investors seemed to have no alternative but to take on more risk in the equity market if they expected to get a reasonable return on their investments. And any stream of expected future earnings is worth more if discounted at a low interest rate rather than a high interest rate.
Better hurrrrry planning OC City Hall with raising prices. Parking (check); Bonfires on the Beach (check); room tax (chec…..whoops needed to table that one).
Numbnuts, raising prices to retrieve revenue lost in prior years is a mindset of one trapped in the rabbit hole and still digging down to get out. Which one never does so they ONLY way out is losing in the November elections OR not running at all. Lather Rinse Repeat, to town continues to lose.
If normal prices are high at home and the economy is shaking, who will come to town this summer? No amount of money spent for marketing will bring folks who are on a tight budget. Not to mention what hired help will come since ther is NO AFFORDABLE HOUSING.
6 weeks until memorial day. Will Seacrets and Coconuts have those famous lines to get in? Hahahahahaha….still laughing at you Rickie