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  1.  we had some pretty heavy inflation in the 80's so some cap gains are not "real".  A dollar isn't really a dollar anymore, it's half a dollar at best.

  2.  With Republicans pushing ever harder to minimize taxes on cap gains vs dividends and regular income, companies have pushed hard to drive up share prices via buybacks rather than pay out.  Not to mention puffing for their bonus pools.

  3.  Coming out of the 60-70's when the stock market was horrible on return, investors were not as willing to pay for stocks so price/earnings ratios were lower.  If a money market is paying 10%, why settle for 15/1 on a stock with risk (6% basically)?   Even now p/e of the s&p 500 is not all that extreme -- 17 ish and coming down over the last few years to near the historical average.

http://www.lowrisk.com/sp500pe.htm  and


I agree that much of the pressure is money flowing into the market that used to go elsewhere, but a big reason for that is that safer investments don't return squat compared to inflation.  The Japanese and Greenspan have made borrowing way too cheap.

by HiD on Tue Mar 27th, 2007 at 04:43:55 AM EST
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