Stock Market Rise a Dream Come True

Our current economy seems to be better than ever before with steady growth and low unemployment. The Nasdaq index has grown from 2,500 to 3,500 in one year despite the recent pullback. There are many new multimillionaires due to successful IPOs with Internet-related businesses. It seems that the U.S. economy is getting a tremendous benefit of wealth effect from the fast-rising equity market.

It is like a dream. It got to be a dream when the total market capitalization of the U.S. equity market has grown far faster than the GDP growth rate. It’s got to be a dream when stock price is justified with price-to-sale ratios of 100 or P/E ratios of 200. If stock analysts and brokers get their way, the only thing the U.S. has to do for continued expansion of economy is to issue a lot of IPOs at exorbitant prices.

With the wealth effect, we can import more goods to improve our daily life. We need not worry about expanding trade deficits because foreigners will loan us money back to buy more equities (thus bidding up prices and the good cycle continues).

AKEMICHI YAMADA

Rancho Palos Verdes