Re: A Market Oblivious to Gravity.

Robert S. Thau (
Thu, 17 Jul 1997 16:17:54 -0400 (EDT)

People do not care about value, Steve Leuthold, a Minneapolis-based
analyst whose Leuthold Group closely monitors valuation, said
Wednesday. "Individual investors don't know price-to-book value, or any
of those things," he said. "They know prices are going up." Given the
market's momentum and the strong demand for stocks, Leuthold's market
model is bullish, however, even with valuations looking to be very high.

To summarize: fools keep investing because prices are going up, and
prices keep going up because fools keep investing. The cycle ends, of
course, when we run out of fools. Still (as the Times points out on
the front page today), it can be a hell of a ride till then.

This analysis reduces the current stock market to a classic pyramid
scheme (all right, a baroque one, with various mutual funds and other
intermediaries providing all sorts of rococo ruffles and flourishes).

After all the fools have their money in the market, however, the
Endless Stair of Rising Prices ends, and the steady capital gains
income ends along with it. Following which, the fools will suddenly
be able to get higher returns (once again) with, say, a standard bank
account. At this point, I've been worried for a while, their money
starts flowing out. En masse. All at once.

If they can get it out.

This will be interesting... what would be particularly interesting
would be to have some idea when this is going to happen. Does anyone
know where to get stats about exactly how many 97%ers with savings to
invest are now playing the market, and at what rate this number is
going up?