Is There Residual Value in the Stock Market Bubble?
Three years ago this month the US stock markets reached a
peak. All the major measures of market prices were at the
highest level that they had ever reached. Since that pinnacle
they have gone way down.
When the Nasdaq composite index closed at its record high of
5,048.62 on March 10, 2000, it had more than doubled in just
one year. Today the Nasdaq is around 1300, about a quarter of
what is was then.
The Dow Jones Industrial Average, one of the most closely
followed market indicators, actually reached its highest
point in January, 2000, when it hit 11,497.12. It had tripled
in just about six years. Since then it has fallen back to
about 7500, losing about a third of its high mark.
The broadest measure is known as the Wilshire 5000 Total
Market Index. It tries to directly include all aspects of all
the stock markets. Its all time high was 14,751.64 on March
24 of that year. Now it is at 7972, having lost 46 percent
since the top and more than 22 percent in the past year
alone. This index maintains that it directly reflects the
value of the market. Following its guidelines, we can get at
least a rough idea of the mind-boggling dollar numbers that
are involved. According to the guidelines of the Wilshire
Index, their numbers track the value of the total market, so
that the fall implies a loss of $6.8 trillion, almost half
the value that it had at the peak.
The sharp rise that preceded this peak is now clearly seen by
everyone as a bubble. This means that it was like a soap
bubble that contains a small amount of liquid that is blown
up to appear to be huge -- only to eventually pop of its own
excessive size and collapse into a small puddle of suds.
That is what everyone says now. But then it was very
different. Most of the experts said that the growth reflected
real value, and that everything was still sharply on the way
up. The economy was growing. Even if it was much slower than
the stock market, that was of no concern. Federal Reserve
Chairman Alan Greenspan, considered a sober analyst of the
state of the economy, told Congress that "beneficent
fundamentals will provide the framework for continued
economic progress well into the new millennium."
The truth is now coming out slowly that the bubble was not
confined to the stock market and not confined to America.
Companies such as Enron and WorldCom used phony deals or
accounting tricks to generate hundreds of millions of dollars
in phony profits, and then showed these to the stock market
which assigned them tens of billions in phony valuations.
WorldCom just admitted that real property, plant and
equipment for which it had paid $44 billion is really (now)
worth only $10 billion. A huge Dutch company (Ahold) was
recently found to have reported false earnings.
Instead of the continued growth that all the experts foresaw,
America has lost 2 million jobs over the past three years,
its trade deficit is huge and its budget deficit is huge.
Will the market go up from here or further down? We will
leave the answer to that one to the experts.
Did you make money or lose money? Whatever your answer, we
will say that the reason is not the boom or the bust but
rather the decision of Shomayim.
If there is value to be taken from this experience, it must
be in the lesson that we can learn: No one knows any path to
sure riches. Our concern must be to lead moral lives of Torah
and mitzvos and we can be sure that Heaven will take care of
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