Vol. 12, No. 3,009 - The American Reporter - October 19, 2006



Market Mover
DON'T BELIEVE THOSE OBITS FOR U.S. STOCK MARKETS

by Mark Scheinbaum
American Reporter Correspondent
Lake Worth, Fla.

Printable version of this story

LAKE WORTH, Fla., Jan. 28, 2003 -- Don't believe all the nay-sayers who have counted out U.S. equity markets for the next few years.

With the S&P 500 and other indices retrenching, analysts are predicting Euro $1.20, Dow 7,000 and international abandonment of U.S. investment. First disclosure: I own dollars personally and for my clients; I have a long-term commitment to quality U.S. companies, and we have bet against the Japanese Yen in favor of the dollar. Iraq, Al-Qaeda, Israel, Colombia, oil, terror, war, despair, destruction, disinflation, disquieting demeanors, disasters, and more, have all been with commerce and trade since Noah rounded up wood for the Ark. The problem is that for the boom and bust investor, who follows his or her neighbor or chiropractor's investment advice, it's tough to be a contrarian. I'm one of the smartest guys I know. Other people say I'm smart. No one says I am good-looking, slim, fashionable, super-rich, trendy, or neat, but after 20 years in the investment business, I accept occasional praise with swollen ego. Ego or not, my key, conservative, total-return pension account which I personally manage for an important client was down 5 percent last year. That might be good for statisticians, but it's not good for the particular client. The year before the same account was up 9.1 percent when many other folks in the U.S. got clobbered. We told our clients that was indeed laudable, but not sustainable nor likely to be repeated. Here's the message: we firmly believe that International Paper, IBM, Wal-Mart, P&G, Lowe's, Albertson's. Mellon (Bank) Financial, Dell, and a few dozen other companies will be around in five years. Oh yes, in 10 years also. The great old names in mutual funds (we're not talking about Cucamonga Tofutti Technibio Fund II here) didn't always have a zillion "sector" funds after their names, nor dozens of annuity "sub-accounts." Putnam was once the George Putnam Fund. Fidelity was once Fidelity and Fidelity Equity-Income. Delaware/Lincoln Financial was once The Delaware Fund, and later Delaware Decatur. Oppenheimer was Mass. Financial (MFS), Invesco was ... You get the point. These "plain Jane" funds dating back 60, 70, or even 80 years did what we and other professionals are doing today. They allocated many clients' investments into investment-grade companies, most of which paid nice, steady dividends no matter what happened to stock prices. Then they totally re-invested any dividends and capital gains into more and more shares, buying even more if prices went down. In those long-ago years when Sears & Roebuck was the Wal-Mart of its day, "retail" might have been 12 percent of a fund, while mining or transportation only 9 percent. In years when gold, silver, railroad, or airline stocks looked better, perhaps your fund manager dropped retail to 8 percent and "allocated" 17 percent to the metals "sector" and 15 percent to the "transport" sector. Each fund "family" and "manager" had a distinct "style" and different rules. Typically, no one stock would ever be more than three or five percent of your portfolio, or no one sector more than 20 percent of your portfolio. By the agreed rules ("prospectus"), when you chose a common stock growth fund or growth-income fund, you agreed that 90, or perhaps 95 percent of your money would always be invested. Those analysts who bet that European equity markets will follow the Euro uninterrupted to the Moon forget that the three-year-old Euro currency has no track record during political crises. Since I came to Wall Street by way of academe's Political Science department, instead of Economics or Finance, perhaps I have a jaundiced view of it all. Yet, we already see France and Germany diverging from what some thought was a surefire U.K. entry into the Euro world. Spain's foreign policy might not always serve the same economic goals as that of Belgium, and marginal Euro economies such as say Portugal, Greece, or expanding Central European democracies may someday tear apart the now-happy experiment. My good friend and radio talk host Doug Stephan, who is in France and England this week, tells me that stores are crowded and cafes and airports are full. In Panama last week construction was booming, restaurants had waiting lines, and fewer dirty old cars were on the road, but no car dealers were expanding their showrooms. This weekend in Miami Beach, Lincoln Road was jammed and shops and even beauty salons were open Sunday evening. If some folks think that rumors of war and a staggered stock market mean that the wheels of economic progress have stopped, they're wrong. Cold, freezing, snowy December housing starts were up near a record 8 percent rate in the United States. New building and housing permits in early January were ahead of forecast. Let's be honest. Deadly honest. I could be wrong. If I am, my kids will be visiting me in a homeless shelter in Key West in 20 years, because every tax-deferred variable annuity I've socked away for our retirement will be worth zero. I suppose everyone in Rome, Paris, and Frankfurt will have drive a new Audi, and vacation in their lovely beachhouse in the new Dutch colony of Hawaii. I could be wrong, but I don't think so.

Former UPI reporter Mark Scheinbaum taught political science at the University of Florida and the University of South Florida, and is chief investment strategist for Kaplan & Company Securities, member Boston Stock Exchange, NASD, SIPC in Boca Raton, Florida (www.kaplansecurities.com).

Copyright 2006 Joe Shea The American Reporter. All Rights Reserved.

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