Dave, thanks for the good reading. I shortened. ( Part 2 of 3 )
ROBERT RUBIN REDUX:
There have been so many tributes to Robert Rubin's performance as Secretary
of the Treasury that it is necessary to submit an opposing view, if only for
balance. Consider what would have happened had Mr. Rubin decided to stay at
Goldman Sachs:
1) MR. RUBIN WOULD HAVE BEEN BETTER OFF
According to the New York Times,
Robert Rubin as a 5% owner of Goldman Sachs would have seen his stake in
that company worth about $1.5 billion dollars. Even if his stake had been
reduced to 3%, this would mean $900 million dollars, which when added to
his current net worth of $100 million would make him a billionaire, or ten
times as wealthy as he is now.
2) THE ADMINISTRATION WOULD HAVE BEEN BETTER OFF
Mr. Rubin jump-starting the U.S. economy, and prolonging its expansion,
Clinton has felt that he can say or do almost anything and still receive
strong public approval, thus encouraging him to go down various paths which
he is now beginning to regret. Had the economy not performed as strongly,
the President surely would have been forced to devote more time and attention
to properly managing world affairs.
3) INVESTORS IN U.S. STOCKS WOULD HAVE BEEN MUCH BETTER OFF
If the Dow Jones Industrial Average had only gone as high as, say, 4000
instead of 9400, there would not be the current army of uninformed
investors in U.S. stocks who are about to lose 80% or more of their wealth
in the bear market, since the drop from top to bottom would be only half as
much in percentage terms, and more importantly, far fewer people would have
decided to take the fatal plunge. The ensuing recession(s) in the first
decade of the next century would also have been much less severe, since most
households would have still had enough money in safe investments to cushion
the bear market's negative wealth impact.
Call it the "family and friends" indicator--how many people do you know who
put their money in the stock market just since 1997 after years or even
decades of indifference and/or insistence upon safe investments? More to
the point, do you know anyone who is NOT invested in U.S. equities!
Who will be left to buy? Even more to the point, how often are these people
recommending stocks for you to buy, and being right, at least in the short
run! J. P. Morgan said he knew it was time to get out of the stock market
when his shoeshine boy was giving him stock tips.
THE BULL MARKET HAS ENDED
The technical deterioration of the U.S. stock market is now complete,
with the divergence between small stocks and their large-cap brethren
showing their greatest disparity since the "Nifty Fifty" behavior of 1973,
just before the worst bear market since the Depression. The number of new
highs vs. new lows, as well as the advance/decline line, demonstrate a sharp
narrowing of the number of issues which are continuing to increase in value,
along with an irrational ballooning of these issues' P/E ratios as was the
case in 1973. Essentially investors are crowding into the fewer and fewer
stocks which continue to rise, thus bloating their values well beyond what
is justified by these companies' profits. One interesting parallel between
1973 and 1998 is that in both instances there are virtually the same tiny
number of stocks which are continuing to show technical strength.
One notable difference is that today's "Nifty Fifty" are showing an average
P/E ratio which is 50% higher than at the inflated 1973 peak, suggesting that
these large-cap beloved brand names are almost certain to lose about 90% of
their value over the next decade after adjusting for inflation. With a
current dividend yield not even competitive with a decent checking account,
the market will find it difficult to remain flat for any extended period of
time, as recent events have demonstrated. Although there have been a number
of sharp rally days in the Dow over the past several weeks, they have been
strictly limited to fewer and fewer stock groups, as well as fewer and fewer
stocks. The famous rotation patterns of the mid-1990s have disappeared as
no stock groups have been able to undertake the leadership role typical of
a healthy bull market. There will continue to be large-cap rally days
throughout the ensuing stages of the bear market, as a small core of
investors find it difficult to break a 16-year pattern of equity inflow and
are reluctant to conclude that the bull market has ended, and assume that
as long as they are in the right stocks, they will still enjoy solid positive |
