Well, Ibbotson still predicts Dow 100,000 in 2024... Speaking of equities and returns, I'd be really curious to hear your opinion on equity premium shrinking.

Fama and French (2001) felt that "the stock return of the last half-century is a lot higher than expected." More recently, Arnott and Bernstein (2002) suggested that "the long-term forward-looking risk premium is nowhere near the level of the past; today, it may well be near zero, perhaps even negative."

What do you think?

In 1997, 1998, and 1999 I was arguing myself into believing that the equity risk premium was shrinking. But, as Andrei Shleifer and Larry Summers both said apropos of 1999: "The people buying stocks at these prices--do you really think any appreciable number of them are doing so expecting equity returns in the future to be lower than in the past?"

The old equity risk premium of 5 or 6 percent per year was always unreasonably, ludicrously too large to make sense in terms of fundamentals. But today I would be wary of anyone who thought it was likely to be less than 4 percent per year in the future.

Brad DeLong

Wow, that's 13% or so annually compounded between 2002 and 2024. Just a a *tad* unlikely.

I thought that Glassman and Hasset, the Dow 36000 authors, had just made an arithmetic error, and then decided it was better to look stupid defending it rather than admit the error and move on. In particular, a P/E of 25 implies an annual 4% return. Given that Treasuries pay around 6%, and inflation is 2%, that means there is no risk premium left! I don't know how they predicted another quadrupling in the market.

I always thought that Glassman was an idiot. I think the WSJ was duped into promoting this joker as a serious academic with serious views on the economy, markets and risk premiums.

the tech bubble (and the 10,000 dow and the 5000 Nasdaq) were caused by buyers who would not know a risk premium from a hole in the wall. To suggest that the run up in the market which was primarily caused by foolish buyers bidding VA Linux to $247 at IPO had anything at all to do with risk premiums - real, historical or imagined, is incredibly naive.

What really bothers me is that none of these so-called experts - Glassman, Cramer, Abby Joseph Cohen, Blodgett... ever get up and say they were wrong.

I see a very disturbing culture in the US today. Admitting that you were wrong seems to be reserved for criminals and other scum of the earth. It seems like 'I was wrong' automatically brands you 'a loser'. Everybody wants to be right all the time, so they spin the wrong answers the best they can.

Whatever happened to 'I was wrong, here is the right answer'?

It's just amazing-- Glassman is still writing columns for the Washington Post that give out advice about what stocks to buy and scoff at conservative investment strategies. 'Shameless' doesn't seem strong enough.

>> a P/E of 25 implies an annual 4% return<<

I think what Glassman and Hassett wanted to argue is that "earnings" are mismeasured, and are *way* too low.

But I agree that they didn't make it clear what they wanted to argue, and in their debate with Clive Crook came off like true idiots.

And I agree: were I the Washington Post, I would have already gotten myself a different stock market columnist.

Brad DeLong

earnings as measured are too "low" - good grief - the real problem is that earnings as measured especially with outstanding options counted are too high

randall