Set forth below is the text of a comment that I recently posted to another blog entry at this site:
Let’s assume you get your wins tomorrow — how does the world avoid the 65% crash you say is imminent?
The P/E10 value is in the mid-20s. Fair value is 15. We cannot avoid the fall to 15. It is the market’s purpose to price things properly. We all should want stocks to be priced properly. Any efforts to avoid the drop to 15 are just a delaying action. So we are going to take a hit no matter what.
But we can survive a drop to 15. It won’t be perceived as good news by a lot of people. But we can handle it. It is not the end of the world.
A further drop to 8 is MUCH, MUCH worse. As people’s accounts are depleted, each new dollar of loss hurts more. Once we get down to 15, we should want the pain to stop. Drops below that will be devastating.
A P/E10 of 8 is just as crazy as a P/E10 of 30. It’s insanity. There is no rational reason for us to price stocks at half of fair value. Especially at a time when we need to get the economy going. When we go to 8, we will be deliberately tricking ourselves into believing that we possess less wealth than we really possess. Huh?
When we open the internet to honest posting, we can show people what an amazing deal stocks offer once prices go down to fair value levels. That will cut off the feelings of panic that people will feel if they don’t understand why we have fallen to 15. And then we should show them how the value proposition gets even stronger when we fall below 15. That will encourage people to buy as prices drop and thereby end the drop.
Do you see?
STOCK PRICES ARE SELF-REGULATING SO LONG AS INVESTORS ARE PERMITTED ACCESS TO THE INFORMATION THEY NEED TO INVEST IN THEIR OWN SELF-INTERESTS.
Recessions and depressions are caused by the widespread promotion of Buy-and-Hold strategies. Once we let people know what the peer-reviewed research says, we have solved the problem of the boom/bust cycle.
It’s all about getting good information out to people.