Dei'ah veDibur - Information & Insight

A Window into the Chareidi World

15 Adar II 5763 - March 19, 2003 | Mordecai Plaut, director Published Weekly









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Shema Yisrael Torah Network
Shema Yisrael Torah Network

Opinion & Comment
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 us.

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