Love in His Eyes ... and Flowers in His Hair

JACKSON HOLE, Wyo. -- Here's what the

guy said.

Historical evidence suggests that perhaps three to four cents out of every additional dollar of stock market wealth eventually is reflected in increased consumer purchases. The sharp rise in the amount of consumer outlays relative to disposable incomes in recent years, and the corresponding fall in the saving rate, has been consistent with this so-called wealth effect on household purchases. Moreover, higher stock prices, by lowering the cost of equity capital, have helped to support the boom in capital spending. Outlays prompted by capital gains in excess of increases in income, as best we can judge, have added about 1 percentage point to annual growth of gross domestic purchases, on average, over the past five years. ... Other things equal, the condition under which real long-term rates will at some point be high enough to finally balance demand with supply at the economy's potential in both the financial and product markets will involve equity discount factors high enough to bring the rise in asset values into line with that of household incomes, thereby stemming the impetus to consumption relative to income that has come from rising wealth. This does not necessarily imply a decline in asset values -- although that, of course, can happen at any time for any number of reasons -- but rather that these values will increase no faster than household incomes.

And here's what he's talking about.

The guy wants things to look more like the '60s (when income and share prices were rising at roughly the same rate) than the '90s (when share prices grew about three times faster than income).

Is he not a hippie at heart?

And hey. Note that income grew faster during the '60s than it did during the 90s. (Inflation-adjusted income shows the same trend; it grew an average 1.5% per year during the '60s against an average 0.3% per annum during the '90s.)

This is some parade, yesiree Bob.

Side Dish

Three things.

(a) I am told that there now exists another column that (a) gives away crap for answering stupid questions and (b) includes a Side Dish.

I sincerely hope that you will not confuse this one and that one.

(b) We hope that you are

aboard the northbound bond

train already.

If not? Hop on.

(c) I cannot give investment advice.

I can point out that the

Vanguard

(VBMFX) - Get Report

Total Bond Market Index fund seeks to replicate the performance of the

Lehman Brothers Aggregate Bond Index

; that the Vanguard

(VBLTX) - Get Report

Long-Term Bond Index fund seeks to replicate the performance of the Lehman Brothers

Long Government/Corporate Bond Index

; and that the Vanguard

(VUSTX) - Get Report

Long-Term U.S. Treasury fund has a stellar performance record.

And hey. No crybabies in the casino.