An earlier blog entry set forth the text of an April 12 e-mail that I received from Mark Gunther, author of the blog The Angry Grapes: Chronicling the Great Depression 2.0. Set forth below is the text of my April 12 response.
Thanks for your feedback and especially for your suggestion that I “keep plugging.” That is very much the spirit in which I approach this. It’s about learning.
I wouldn’t say that I have studied Hayek and Mises. But I have read some of their work and read many articles discussing their work. I am at least to a minimal extent familiar with their ideas.
It seems to me that rather than an ebullient psychology leading to a bull market, it could be that a bull market leads to an ebullient psychology. You are of course correct that no INDIVIDUAL can demand an inflated price for his stock shares. But the COMMUNITY of investors as a whole certainly can. There is nothing in the short term (the long term is a very different matter!) to stop investors from bidding stock prices up to whatever they like. And once they do, they feel rich. So why not be ebullient?
I discuss in the Knol one of the reasons why I believe that it is stock overvaluation that is the driver — there is a Ban on Honest Posting in effect at every large investing discussion board on the internet! Why would this be if the problem were monetary policy? Why would investors care about such a thing coming out?
It’s easy, however, to understand why investors would not want it coming out that the problem is their attraction to Get Rich Quick schemes. That’s embarrassing to all!
What this suggests is that the market cannot function properly until we open the internet to honest posting or find some other means of getting realistic investing information out to investors. In ordinary circumstances, market prices would be self-correcting. We would let people know that stocks do not offer a strong value proposition at high prices, people would sell once prices got too high, and thus high prices would become an impossibility. That’s a well-functioning market! But look at what happens once The Stock-Selling Industry spends millions promoting Buy-and-Hold. A Social Taboo blocks posting about the realities and the market becomes dysfunctional because investors no longer have access to the information they need to make effective decisions.
Anyway, I am grateful for the back and forth. I wish you continued success with your blog.
Mark wrote back that: “I wish you success as well.”