Aesop's Fables
Ever since the current bear market started in early 2000, strategists, economists, and general investors have blamed the market and economic woes on everything except the real cause—the massive structural imbalances and excessive valuations built up during the unsustainable late 1990s boom. Although the current mantra now says it’s all the fault of the Iraqi situation, this is only the latest in a series of excuses that have kept investors in the market in the face of the second worst market decline of the past century. The following is a chronology paraphrasing the various excuses put forward at different times over the past three years.
February 2000—“This is a new era. Growth will soar, recessions are obsolete and the Dow is worth 36,000. The dot-com companies are the place to be. Forget price-earnings multiples. That’s for your grandfather. These are bargains at any price.”
July 2000—“Well, we always suspected those dot-com companies, but the rest of the economy is in great shape. The better-quality technology companies will grow forever. Just wait until those portfolio managers get back from summer vacation. The market will take off after Labor Day.”
October 2000—“We know the technology companies have hit the skids, but it won’t spread to the rest of the economy. This is strictly a tech-oriented phenomenon.”
December 2000—"The market would have taken off by now if not for this stupid election dispute. You better load up on stocks right now. They’ll really take off once the election dispute is settled.”
January 2001—“Now that the Fed has cut rates a market rise is a sure thing. We’ve got this study that shows that every time the Fed has begun a round of rate reductions the market has been up substantially over the following year—well, not every time—1929 was an exception, but that’s not going to happen again."
September 2001—“Every statistic was showing we were recovering until the terrorist attack. If not for that we would be in strong recovery now. But soon everyone is going to go out and spend, and by the first half of 2002 the economy will be soaring—and we’re overdue for a new round of technology spending too.”
February 2002—"Well, we’re definitely in a recovery mode, although we concede it’s a bit slow. We’re looking for a gangbuster second half.”
October 2002—“ We would certainly have been in strong recovery by now but those Enron, WorldCom, accounting and general corporate governance problems have damaged investor and consumer confidence. The authorities are now taking corrective measures, and by the first half of 2003 these problems will be behind us. After that the economy will soar as both consumers and corporations will spend.”
February 2003—"It’s all Iraq. People are focused on that and it's hurting the market and the economy. Even Greenspan says so. As soon as we resolve the Iraq situation the market and economy will really take off.”
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