Markets Are Falling But Bulls Still Rage
By Marcus Rubin
NEW YORK (Reuters) - With the Nasdaq down more than half from this year's peak and the Dow struggling at 10,000, a mark many bulls long thought was surpassed, how do the authors of books like ``Dow 36,000'' or ``The Roaring 2000s'' feel?
The answer: Just fine, thanks.
As Kevin Hassett, one of the two authors of ``Dow 36,000,'' said: ``I still feel pretty much the same, and it's not a coincidence that the title is Dow 36,000, not Nasdaq 36,000. I think those people who read the book, and followed its advice, have done better than those who didn't.''
In a rehash of Jeremy Siegel's classic ``Stocks for the Long Run,'' the argument in ``Dow 36,000'' is that stock prices should rise because stocks are no riskier than bonds and therefore require no equity premium. However, as the authors point out, the advice only works for long-term investors. Paraphrasing Warren Buffets famous remark, James Glassman, the other author of ``Dow 36,000,'' said: ``If you can't stay in the market for five years, you shouldn't be there for five minutes.''
But if the bulls are unapologetic, are the Cassandras boasting?
Not if you ask Robert Shiller, an economics professor at Yale University and famed author of ``Irrational Exuberance,'' a book whose title is based on a comment by Federal Reserve Chairman Alan Greenspan who warned in December 1996 that stock prices might possibly be at unsustainable highs.
``I just wish I had written the book earlier, there are some tragic stories out there,'' Shiller said.
So how does Shiller explain that so many people got caught up in what he now considers a classic bubble. ``Everybody knew the old stories about bubbles, but I think most people thought this time was different, that somehow people back then had been crazy and we were not. And then people also said, we have all this technology now, so it won't happen to us. But it did.''
Thomas Frank, editor of the Baffler magazine and author of ''One Market Under God'' agrees and adds that ``people will often participate in a pyramid scheme even if they know it's a pyramid scheme. They are just hoping there will be enough schmucks coming in later so that they can get out while they are ahead.'' DINNER DATE IN 2003
But even though things look bleak for the markets, Shiller said there is light at the end of the tunnel. ``It looks like Kevin Hassett (co-author of Dow 36,000) is going to have to buy me dinner. We have a bet that if the Dow isn't at 36,000 in 2003, he owes me a dinner.''
Others also say they have something to thank the bullish authors for. ``When books like that comes out, it's usually a fairly clear sign that the market has reached the top,'' said James Dines, publisher of The Dines Letter, an investment newsletter.
But if stock prices have clearly peaked, when will they touch bottom? Dine, for one, is optimistic. ``I definitely think it'll turn around. The Internet is here to stay so the only question is when you go back in. I think January, after the tax-motivated sell-offs ends will tell a lot about that. But I'm not sure exactly when the cycle will turn.''
Ned Riley, chief investment strategist at State Street Global Advisors in Boston agrees. ``Finally, we are dealing with diminished expectations, a good sign, its what future bull markets are made of. Once you've lowered the bar, it's obviously easier to exceed the hurdle of expectations.''
Others however are less optimistic. Michael Metz, portfolio manager and managing director of CIBC World Markets thinks there will be a recession and that the United States will be slow coming out of it.
``I think the great love affair between the American people and the stock market is over, and that the go-go years of the 1990s are also most definitely over. Despite what you see on TV, I basically think we may be headed back to more conservative attitudes toward conspicuous consumption, more toward Victorian values.''
Sex in the City, watch out.
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