New Yorker's Surowiecki: 'Argument for Stock Market Bubble Is Flawed'

Tuesday, 28 May 2013 11:50 AM

By Dan Weil

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The stock market's repeated rise to record highs in recent weeks has some analysts warning of a bubble.

But James Surowiecki, The New Yorker's Financial Page correspondent, doesn't see one.

"The argument for a stock market bubble is flawed," he writes.

Editor's Note:
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"When it comes to the role that corporations play in the U.S. economy, the present looks very different from the past. ... The four most dangerous words in investing may be 'this time, it’s different.' But this time it is different."

That can be seen in several areas, Surowiecki notes:.

• Corporate taxes as a percentage of profits have fallen by more than half since 1951.

• Foreign earnings account for almost one-third of corporate profits.

• "The decline of unions and the sluggish labor market have enabled corporations to cut payrolls, thus keeping profits high."

Bottom line: "In recent decades there’s been a shift in the U.S. economy," Surowiecki writes.

"It’s become far more congenial to businesses and investors. The fundamental trends that have driven the profit boom are unlikely to be reversed," he adds.

"It’s still possible that investor hysteria could eventually inflate stock prices, or that investor panic could send them crashing, but there is no profit bubble and, for now, no stock-market bubble, either."

Still, some experts say the stock market is primed for a correction.

"Buyers can only take stocks so far," Michael James, managing director of equity trading at Wedbush Securities, tells Reuters.

"There's certainly a little bit of buyers' fatigue setting in, and with the market being as extended as it is, it's certainly not unrealistic to think sellers will start to come in and take advantage of the strength we've had."

Editor's Note: This ‘Third War’ Will Be the Most Destructive in History, Warns Pentagon Adviser

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