Bubblenomics: The Financial Mess from an Investor Perspective

After reading literally scores of articles about the recent Wall Street crises, I recommend this one from today’s Week in Review section of the New York Times. Entitled simply Bubblenomics, I think it is the best I’ve read from both an overall and investor viewpoint.


Only now, for instance, are the bubbles of the past decade and a half, first in the stock market and then in real estate, starting to go away. It’s easy to think of the turmoil of the past 13 months as being unconnected to the stock bubble of the 1990s, which appeared to end with the dot-com crash of 2000 and 2001. That crash brought down the overall stock market by more than a third, its worst drop since the 1970s oil crisis. Corporate spending on new equipment then plunged and employment fell for three straight years.

But dramatic though it was, the dot-com crash did not actually come close to erasing the excesses of the 1990s. Indeed, by some of the most meaningful measures, Wall Street after the crash looked a lot more like it was in a bubble than a bust.

The good news? P/E ratios are how back to their historical average. The bad? Looking at the chart, they tend to sink right through the average before hitting bottom at about half that.

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