Vol. 11, No. 2,640 - The American Reporter - May 6, 2005

Market Mover

by Mark Scheinbaum
American Reporter Correspondent
Boca Raton, Fla.

BOCA RATON, Fla.. Sept. 13, 2004 -- We are in the final stage of a 17-year bear market, and there are lots of reasons to believe we are poised for a bull rush, similar to the one which started back in 1987.

It's true that my definition of a "bear market" doesn't match anything from the U.S. Treasury Department or the Wharton School, but the influential "Lex" column in London's Financial Times the other day got me thinking.

Lex commented on a Lehman Brothers study which indicated that equity markets might have squandered the earnings growth from the 1970s to the 1990s and put the markets into the doldrums. On CNBC today, Ed Keon, new chief investment strategist for Prudential Equity Group, agreed. He sees a "broader earnings slowdown" in technology and elsewhere.

Terrorism, high commodity prices, cyclical factors which normally would have been present, dot-com boom and bust, would all be my likely suspects.

But what if we really and truly stepped back for a longer view of the period just before the market crash of October, 1987?

Seen through a longer lens, the "Bull Run" from 1982 through, say, 1999, in both blue chip and second tier (OTC) stocks, might not have been so bullish.

At this writing, the Dow Jones Industrial Average stands at 10,300. Although my personal preference as always been for the OEX (S&P 100 Index) as a surrogate for the investment-grade market, the DJIA is just as instructive. It is also a comfortable and familiar benchmark for even the casual investor.

In August 1987, while the investment bankers of Boston and Wall Street were gathered in Saratoga Springs, N.Y., for the annual running of the Travers Stakes, the Dow hit a pre-crash high of 2,722. For investors who did not panic in October, the year 1987 actually ended with a fractional percentage gain over the start of the year.

Much has been written about the double digit annual NASDAQ booms which followed, and the big money accumulated in equity funds, variable annuity sub-accounts, and 401K's in the years that followed. But let's see:

  • In a little more than 17 years the DJIA has grown by 7,578 points.
  • This translates to a (usually taxable) gain of 278 percent, which looks pretty darned good.
  • When taken as an annual figure this is about 16.35 percent a year. Depending upon your tax bracket, the after-tax results could be more like 11 percent. Even so, things look good.
Let's arbitrarily assign the slowed inflation rate of recent years to a 4 percent rate over this period, which means an annual increase of 12.35 percent a year in buying power.
  • As Joan Rivers might say, "Psst, can we talk?" Okay, so it doesn't really qualify as a "bear" market, but over the same 17 years many Americans have found their property values explode by 200-300 percent or more. Along with this climb in property taxes have come higher property insurance deductibles - especially in areas subject to hurricanes.
  • Intellectual honesty also forces us to note that figures lie and liars figure. Thus, while it seems as if the bull market rages on at 12 percent annually, that number does not take into account the fundamental stagnation of the DJIA and the broader markets in four of the past five years.
  • The huge gains of the early 1990s and dot-com IPO's of the mid-'90s artificially colored even blue chip results. Also, a number of the "giants" (Woolworth, AT&T, Westinghouse, Exxon) of your grandpa's "Dow" either don't exist, have merged, or have been bounced from the Index.
  • A number of analysts feel that the price/earnings ratios on many investment-grade stocks and indices have fallen back to attractive "buy" levels. The economic recovery since Sept. 11, 2001, has resulted in a more stable manufacturing outlook. The airline and gasoline problems are not new to the new millennium.

    Although I am basically a pessimist and contrarian, there's an old sarcasm on Wall Street which goes: "In a world of Contrarians, if you're not, you are!"

    Any student of modern politics can see myriad reasons why a sudden terror attack, a change of leadership in the White House, more Middle East woes and so forth can slam global markets down below recent lows. It just seems as if the upside of things is now overdue for equal time.

    A raging bull of several years of 20 percent-plus annual gains is not out of the questions.

    Last year, a multi-year rebound seemed to start and then slip down a wall of worry. Now the same wall of worry might produce generational huge investment rewards for those brave enough and savvy enough to greedily hoard quality long positions.

    Political scientist and former UPI newsman Mark Scheinbaum is chief investment strategist for Kaplan & Co. Securities based in Boca Raton, Florida www,kaplansecurities.com members of the Boston Stock Exchange, NASD, and SIPC.

    Copyright 2005 Joe Shea The American Reporter. All Rights Reserved.