The current boom in the stock market won't come to a catastrophic end. Major speculative bubbles, on the other hand, tend to deflate over a period of years. If one looks at a chart of daily returns over these years, it is hard to see the end of the bubble. But all this talk about the bubble is obscuring a major, troubling shift in how people invest and why. The current boom has been bolstered greatly by our confidence in the economy and in technology.
Confidence is a critical factor in any decision to invest.
But that confidence is normally not so overreactive to news. We are in the longest business expansion ever, with generally good news for years about inflation and unemployment rates, and about company earnings. A successful stock market sounds like good news. What's troubling, though, is that the gap between stock prices and their actual worth by any standard measure has never been greater. As a nation, we are impressed with each other's upbeat moods.