We agree with Mr. Buffett that stock prices are high and speculation is heavy in certain areas, especially in anything connected to the Internet. But we disagree with the dread- filled interpretation that some investors put on his views. Today's situation is unsettling, but it could stay that way for years. By most standards, the boom is still in its adolescence. We've yet to see the rising inflation and interest rates that ordinarily show up in a boom's late stages.
Economic pessimists say today's main problem is excess productive capacity.
But a revival of demand from Asia and slow-growth areas like Canada and Europe could quickly put much of that surplus capacity to use. To profit from the Buffett indicator, you have to put it in perspective. Mr. Buffett began managing investors' money in 1957. He began warning about market speculation in 1965. But he waited till 1969 to dissolve his investment partnership and give investors their money back, explaining that he just couldn't find anything worth buying.