Word: glassman
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...GLASSMAN Stocks have returned an annual average of more than 11% for the past 70 years. And, in fact, really for the past 200 years. I think that's enormously important for people to understand. It is a tremendous return compared with the alternative, bonds...
...GLASSMAN I just think people should know that in 1990 the Dow was at 2,600. In 1995 it [finished] at 5,100. Now, if you are Bob, you would say, "Whoa, we are about to have another crash like 1929." What has it done since the end of 1995? We are now, as we sit here, above 11,000 [the Dow closed at 10,609 last week], so I don't think it is predictive to say simply that if the Dow triples, it is going to crash. In the past 18 years, the Dow has risen...
...GLASSMAN O.K., something is changing. What is changing is that people are at last beginning to act in a rational way. They are bidding up the prices of stocks because, my gosh, stocks in the long term are no riskier than bonds...They have learned something about stocks, which I think Bob would admit and we certainly believe is true. For all these years, they have acted in a kind of irrational way. Now they have learned something, which happens to be true, which is that in the long term, stocks are not all that volatile, and they return more...
...GLASSMAN We say stocks will become fully valued at roughly 36,000, and then, as Kevin says, returns will trail off after that, when they are truly fully valued. So I think that is important for people to remember. If we are wrong about the lump sum up front, then maybe what will happen will be it will continue the way it has been over the past 70 years. At any rate, 11% is a lot better return than...
Robert Shiller is a professor of economics at Yale. James Glassman and Kevin Hassett are resident scholars at the American Enterprise Institute