Among the myriad explanations for the stock market crash that have been bandied about in the past weeks, the most obvious one has been almost entirely overlooked: It was an appropriate correction.
Based on price-earnings ratios and the historical relation between stock dividend yields and bond interest rates, the Dow at 2600 was grossly overpriced. At its present range of 1900-2000, it is at its traditional value and still 50 percent higher than it was three years ago.
Had the drop in the Dow from 2600 to 1800 occurred over three to six months, all analysts I`ve talked to said, it would have been viewed as only a correction, and probably a desirable one at that.
The danger now is that the speculators will again drive the market too high. Then if its next fall occurs when our economy is weak instead of fairly strong, it could be dangerous.
