Oposing Market Commentary :
Sept. 24, 2000, 6:51PM
Stock market expert believes bullishness to last through 2011
View is exactly opposite of another guru's
By FRED BARBASH
Washington Post
WASHINGTON -- In May, I devoted a column to Irrational Exuberance, Robert Shiller's chilling critique of the stock market's "speculative bubble." His implicit message is "stay away."
I now give equal time to The Fourth Mega-Market, Ralph Acampora's new book, in which Prudential Securities' famed chief technical analyst suggests just the opposite.
His implicit message is "get in and stay in."
In Acampora's view, the market advance that began in 1994 has another decade to run. During this period, the market will likely experience periodic sharp drops, he writes, but the direction will remain upward until about 2011.
This point/counterpoint is important for investors. If you embrace Shiller wholeheartedly, the logical decision is to invest less in stocks or avoid them.
If you go with Acampora, that's the wrong advice. This is no time to be fearful of stocks.
Oh, the joys of market commentary.
How do you suppose two high-caliber, well-trained minds, looking at the same historical patterns, arrive at such different conclusions?
I asked Acampora and Shiller the same question.
"He's a quant," Acampora told me. "He looks at earnings and P/E multiples" of the Standard & Poor's 500-stock index as an aggregate. "I'm a technical analyst. I look at stocks and the prices of stocks. When someone says the market is overvalued, I don't know what planet he's on."
Shiller said the fact that experts reach opposite conclusions about the market merely reinforces the view expressed in his book that experts are no better equipped than anyone else to forecast the future.
As for looking at stocks vs. indexes, Shiller defended himself. "When we look at aggregate indexes, we are looking at most stocks," he said.
Both men were good-natured about all this. I was the one baiting them.
But their differences are greater than just how they look at numbers. They reflect today's debate about market conditions.
Shiller sees no sensible economic reason why the markets should have grown so far so fast, well beyond the growth of earnings. In his book, he attributes it in part to a kind of blind confidence among investors that because the market's been going up, it will continue to go up.
What he really examined in Irrational Exuberance was "psychology," Shiller said. "I took psychology and sociology in college and I was impressed."
The market's growth, he suggested, is due less to economics and more to the "speculative atmosphere" and the "incredible enthusiasm in the public for the stock market. It seems to be connected with online trading and 401(k) plans."
Acampora sees the most sensible of reasons for the market's rise: peace in our time. He says the peace dividend includes more productive use of capital and of technology, expansion of global trade and relatively low inflation.
These components, he writes, were also the forces behind America's previous three "mega-markets": 1877-1891, 1921-1929 and 1949-1966.
Seeing the same factors falling into place in 1995, Acampora issued his now-famous but then-controversial prediction that the Dow Jones industrial average would jump 60 percent within the next three years. It did just that when it hit 7000 in February 1997.
Acampora dates the beginning of the Fourth Mega-Market to November 1994 and the end of the Cold War.
With no signs that the conditions that produced the mega-market are reversing, he believes the market rise will follow the pattern of the last mega-market, which endured for 17 years.
As for valuation, Acampora looks at the segments of the markets and finds that while one -- technology -- may be overvalued, the rest of the stocks are not. That leaves plenty of room for growth.
Here's what Acampora says on page 197 of the book: "Since the current market has the highest P/E ratios in history, (many experts) are absolutely convinced that a big knock-down is coming. But as we've seen before, no one measure is enough to give us a real understanding of the market. . . . Among the 1,100 largest-cap companies in the U.S., more than half of them have P/E ratios below 20. If you take the technology stocks out of the entire group, their average P/E is an amazingly low 12.1."
Acampora writes: "I think most investors forget that a bull market, or in this case, a mega-market, does not live on one group or sector alone. The secret to success is `rotation' -- the ability of investors to move from an overvalued" situation to "undervalued" groups and sectors.
"This rotational activity enables money to stay in the stock market and not be forced to chase only overextended situations.
"You and I look at market averages," Acampora told me. "But under the averages we have to look at the breadth of the market, which has had downward bias for over two years. The majority of stocks on the exchange virtually collapsed. . . . That's taken most stocks into value territory. If anything today, it's technology that's under pressure. And guess what's moving up? The Dow-type stocks."
The "Dow-type" stocks, he said, represent not a "new economy" but a "born-again economy. . . . It's value, lean into value. Hilton? Eleven dollars. Is that overvalued? Are we gonna have hotels?"
He continued: "That'll last for a while and growth stocks will come back again. You want to be in the technology of the day. But there will be periods when that's overdone. You'll want to rotate. The key word is rotation.
"They're rotating today out of some of the techies. The first half of this year was a disaster. They took those dot-com stocks and crushed them. But that freed up a lot of money for other stocks" -- and for the continued upward trend of the market.
I put that to Shiller.
Acampora "might be right" in his analysis, Shiller said. "But the probability that he's right is not too high. We're talking about the 21st century, and if you look at how centuries differ from one to another, there are a lot of unpredictable things. To try to say what's likely, there's no science to it."
Of course there are "some low-priced stocks," he said. "But the S&P 500 is representative of the whole market, and in some valuated sense, the market is still high."
What we may have here is a conflict between the halls of academe and the concrete of Wall Street.
"I respect the man," said Acampora. "He's an academic."
Who knows, Shiller responded. "There might have been someone like me working at Prudential Securities. But he's not there anymore."
Note: Acampora's book was written with Michael D'Antonio. To find out more about it, go to the Prudential Securities Web site at www.prudentialsecurities.com To find out more about Shiller's views, go to aida.econ.yale.edu/~shiller.)
--------------------------------------------------------------------------------
Barbash can be contacted at barbashf@washpost.com
chron.com |
