Sunday's salient points: Brinker noted that the USA, which economy
grew at a real rate of 3.8% for the year 1997 (the best growth
rate since 1988), is currently enjoying a modest 1.85% inflation rate
(averaging the CPI and the price deflator). Thus, asserts Brinker, the
long Treasury bond yield is rich at its current 5.8%; he would not
be surprised by a yield decline to the 5%-5 1/4% range.
Brinker also cited historical data indicating that the S&P 500 has
increased at an average 19% over the past 15 years whilst the average
managed equity fund has grown only 16% over the same time period.
To put some flesh to this bone, $10,000 invested in the S&P 500
fifteen years ago would now be worth $130,000 whereas a similar
scenario obtaining for the average equity fund would record $91,000.
Conclusion: the computer guided S&P 500 investment automaton beat
the average equity fund manager all hallow ceteris paribus.
Brinker paid homage to the high technology big cap sector and
seemingly predicts a strong performance going forward here. In-
deed, Brinker has twice noted that whilst the S&P 500 has leapt
by 1.1% in January alone, the big cap technology sector as repre-
sented by Dell, Intel, Microsoft, Cisco, and Sun(?) have record-
ed an astounding January increase of 14%.
Meanwhile, Brinker apparently registers his accord with Barton
Biggs of Morgan Stanley who has posited that General Electric,
the only surviving intact company of the original DJIA and en-
dowed with an asonishing market cap of over 1/4 trillion dollars,
may be overvalued in a fashion similar to that of Coca-Cola. Of
course, Brinker was first to bang the drum and alert us to the
hazards of buying or owning Coca-Cola on many occasions last
year. However, in the rising market Brinker is predicting, he
expects even these top heavy giants to lumber upward.
That being said, there are cautionary flags to be watchful for, if
history is any guide. In this vein, Brinker, noting that the market
over the past three years has gained cumulatively 92% (33%, 22%,
and 37%, respectively), recalled that only three other three year periods
in market history can beg comparison here. These are 1926-1928, 1943-
1945, and 1954-1956, inclusive. Between 1926 and 1928, the market
grew 120.4% followed by a decline in 1929 of -8.4%. Of course, the
market later plummeted precipitously to much lower levels in years
following. In the period 1943-1945, the market gained 105.7% yet
contracted in the fourth year(1946) by -8.1%. Similarly, the span
between 1954-1956 recorded gains of 114% only to be followed in
the fourth year(1957) by a decline of -10.8%. Will the pattern hold?
If so, the last half of 1998 would be a real pip. Fortunately, we have
our Commander Brinker to warn us in advance of incoming asteroids,
enemy vessel attacks, or similar unpleasantries.
Parenthetically, for UTEK watchers, Brinker opined that the latest
news regarding a UTEK office opening in Japan has "already been
priced into the stock."
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