[mailto:email@example.com]On Behalf Of Rob Schaap
Sent: Sunday, August 29, 1999 9:13 PM
Subject: Re: wheeeee!
Either these guys are wall-biting lunatics, or there's a new mode of
competition at work in the publishing industry (if you can't compete on
price or quality, compete on the grand impossibility of your book names) -
I opt for (c) both of the above. Anyway, here's a little something to pop
in the attic with an eye to getting a snigger out of the grandkiddies one
Bulls roar for Dow to break 100,000
By STEPHEN ROMEI
The Australian 30aug99
WHEN a week on Wall Street manages to combine an interest rate rise and a
record high for the Dow Jones industrial average, it's probably a good time
to listen to a few of the biggest bulls on the block.
The question: are investors irrationally exuberant, as Alan Greenspan
famously put it, or "rationally exuberant", as James Glassman and Kevin
Glassman and Hassett have received a lot of advance publicity for their
book, Dow 36,000: The New Strategy for Profiting from the Coming Rise in
the Stock Market, in which they argue the old rules for pricing stocks are
The American Enterprise for Public Policy Research scholars say stocks are
just as safe as bonds over the long term, yet provide a higher return. On
this basis, stocks should sell at a valuation that provides the same return
as bonds, which on their calculations is about 100 times.
That's right, a price-earnings ratio of 100 - about four times the present
average for the stocks that make up the Dow. Yes, Glassman and Hassett
believe the Dow is worth 36,000 or 40,000 right now, not at some point in
"Dire warnings from professionals have accompanied nearly every step of
the Dow's rise from 777 on August 12, 1982," they write in an article;
stock prices are still far too low, on the AEI Web site.
"Could it be the model Wall Street has been using to assess whether stocks
overvalued - based largely on historic price/earnings ratios - is deeply
flawed? We think so.
"Investors are ignoring the old shibboleths and pricing companies like
Microsoft at a PE of 66. This reflects not their nuttiness but their
Dow 36,000, published by Random House, is scheduled for release on October
However, investors with a taste for really big numbers don't have to wait
that long, thanks to Wall Street money manager Charles Kadlec, who has just
published - wait for it - Dow 100,000 Fact or Fiction.
Fact, according to Kadlec, managing director of 135-year-old investment
firm J&W Seligman & Co. He predicts the Dow will top 20,000 by 2005, 50,000
by 2014 and 100,000 by 2020.
To reach 100,000, the Dow would have to gain an average of 11.1 per cent a
over the next two decades, which is modest compared to its spectacular
performance of recent years.
However, it means the Dow, which has already increased tenfold over the
years, would have to sustain a virtually uninterrupted bull run for 40
Unlike Glassman and Hassett, Kadlec does not think the old rules are out
window. Describing himself as a fundamental investor, he is comfortable
with PEs in the 40s.
"Is that high? Yes. Is it unrealistic? I don't think so, given 20 years of
While Kadlec allows for a few corrections along the way, his "road to Dow
100,000" would be severely potholed by a genuine crash or sustained bear
market. Kadlec is not blind to such risks, and deals with them in detail in
his book. However, he believes we have entered an era of "great
prosperity", underwritten by a historic coalescence of economic and social
Briefly, these are: lower tax rates; stable prices; trade liberalisation;
global competition; an end to war; the spread of freedom; the ageing of the
boomers; and the technological revolution.
"Few times in our history have the prospects for a great prosperity been as
great as today," Kadlec says during an interview in his New York offices.
"The real risk people face is not seeing this possibility, not taking a
longer term view when putting together their business or investment
strategies." To underscore this point, Kadlec produces a graphic which
shows $US10,000 invested in the S&P 500 in 1982 would have turned to
$US255,836 by 1988. Take out the 10 best days during that period, and the
investment is worth only $US129,893. Take out the 30 best days and you're
left with $US45,488.
Kadlec compares the latest technological developments with the construction
of the transcontinental railway linking the east and west coasts of the US
"For the next 30 years the US economy grew by 4.1 per cent a year in real
terms. That was a phenomenal increase in wealth," he says.
Historically, whenever technology has entered that phase, it has been
followed by a huge increase in prosperity.
"The Internet is far more than an information highway. It is going to be
the biggest commercial thoroughfare in the history of mankind."
Not surprisingly, Kadlec believes technology stocks will lead the market
higher. He points out that the most innovative companies of the 1920s, such
as General Electric and General Motors, retain a dominant place on the
There are plenty of sceptics ready to take on the Dow boosters, but some
feel as if they are whistling into the wind.
Morgan Stanley Dean Witter global strategist Barton Biggs recalls a recent
debate with Glassman of the Dow 36,000 team: "I got slaughtered. The crowd
embraced Glassman and his theory."
Yet Biggs remains undaunted. "It absolutely overwhelms my imagination that
new world can be so different that fair value for stocks would be 100 times
earnings when, for a century of fantastic progress and growth, it has
averaged 14 times," he says.
"The human emotions of fear and greed that drive the stock market to
have not changed over the course of human history and are just as valid
in the past. Booms are still booms and bubbles always burst."