By Brett Arends, MarketWatch
Two modern economists are walking down the street, chatting away amicably, marveling at the perfect wisdom of the stock market. Then one of them looks down, stops, and holds out his hand to stop his companion.
“Look!” he says, pointing down.
The second economist follows his gesture. And there, on the sidewalk, he sees a giant pile of money.
The two gawp for a second. Then the first economist bends down to scoop up some of the cash, only to be stopped by his companion.
“Don’t bother,” he says.
“It’s not real.”
“What do you mean, it’s not real? I can see it right here with my own eyes.”
“It’s not real,” says the second economist, “and I can prove it. If the money were really there, don’t you think someone else would have already picked it up? What makes you think you are smarter than everyone else who has walked down this road before us? After all, the market is perfect!”
His companion thinks about this for a second. “Of course!” he says. “How foolish of me. You’re absolutely right!”
And so they walk on.
This old economists’ fable – it would be a stretch to call it a joke – is often told about modern “efficient market” economists, those who believe the market is perfect and no anomalies exist.
One wonders what they make of the situation right now.
It’s not just that the S&P 500 /zigman2/quotes/210599714/realtime SPX -2.10% large company stock index is flirting with new highs in the midst of a major crisis.
It’s that small company, higher quality “value” stocks are trading at their biggest discount since the insanity of the dot-com bubble in 1999-2000.