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To: Tunica Albuginea who wrote (42533)	10/9/1999 11:53:00 AM
From: Probart	Read Replies (1) \| Respond to of 116764

Very interesting article, sorry if it has been posted. OCTOBER 11, 1999 It Was the Worst Of Times But that made 1974 the best time to buy stocks. And 1999? By Jay Shartsis There was a time when books touting such notions as the Dow Jones Industrial Average reaching 36,000, 40,000 or 100,000 would not only be unsaleable but would be unthinkable. Indeed, it was impossible then to conceive of the Blue Chip average ever seeing 1000 again. Almost exactly a quarter-century ago, the stock market was at its nadir, as was investor psychology. "Window ledge space in Wall Street we understand is at a premium," wrote Alan Abelson in Barron's in September 2, 1974. A month later he observed, "Next to the obituary column, the saddest section of any newspaper these days are the stock tables." That pretty much summed up the mood of the time. Annus horribilis:The bear market of 1974 reflected all that was rotten in the world. Interest rates, inflation and unemployment soared, while there was tumult at home and abroad. And no wonder. During the tumultuous summer of 1974, the Dow had dropped from 850 to 650 -- or 24% -- in just 12 weeks! At that rate, Abelson noted, "we've got a sporting chance to reach zero by yearend." It didn't make it, of course. The Dow bottomed on December 6, 1974, at 577.60 -- down a stunning 45% from the peak 1051.70 set January 11, 1973. And that understated the damage done to the broad list of stocks. This graveyard humor perfectly captured the mood of the day. And that is the psychology of a market bottom, which, in retrospect, was near. But it also serves as a perfect counterpoint to the truimphalist attitude of today, one best summed up by the lyrics of a song a few years ago: "The future's so bright I gotta wear shades." Or by "Blue Skies," that memorable hit from 1929: "Never saw the sun shining so bright, never saw things going so right." Nixon resigns in disgrace. A quarter-century ago, while new homes sold for $35,000, the price of a seat on the New York Stock Exchange was $65,000, versus about a half-million in the late 'Sixties and $2.6 million currently. Average daily volume on the Big Board was 13 million shares in August 1974. Rather than the 20% -- plus annual gains that have come to be viewed as the norm in the 'Nineties, stock-market investors had to contend with negative returns during the 1968-1974 period. While the Dow peaked in early 1973, it was hardly representative of the broad market. In fact, the average NYSE stock during those six years lost about 75% of its value. The average loss over at the AMEX was an unbelievable 88%. (There was no Nasdaq until 1970, only the "pink sheets"; but OTC stocks were also driven to near-extinction.) Cars queue for scarce gas. In short, the stock market had become a bottomless pit, a national joke, though no laughing matter for the millions of people who were wiped out. There were no suggestions of investing Social Security surpluses in the stock market. The great post-World War II bull market actually ended for most stocks in November 1968, with the Dow hovering near the 1000 level, starting at 161 in 1949. The year 1968 was a time much like the present: unbridled optimism, hot new issues, soaring stock prices, "gunslinger" money manager heroes, all high points of the "Go-Go" years. The hot stocks of the day included Solitron Devices, Syntex, Teledyne, Asamara, National Video, Alphanumerics, LTV, Control Data, Duplan, Zapata Norness, Dome Petroleum, Duval, Trans-Lux, Gulf & Western. They evoked the same passions as do the Internet stocks today. Most of those names were trashed in the "terrible toboggan" ride soon to come, and some disappeared. But consider the glamour stocks of the day, which were also called "one-decision stocks"; the only decision was to buy, never to sell. These names included American Home Products, Eastman Kodak, IBM, Merck, Minnesota Mining & Manufacturing, Polaroid and Xerox. The declines in these glamour stocks were even more precipitous than the Dow's. Few of those names would be considered growth stocks today. Some of the falls were reminiscent of the 'Thirties. Dome went from 50 in early 1973 to 16 by late 1974, while Polaroid fell 90%, from nearly 150 at its peak to under 15. Some of the other Go-Go Era stars had already collapsed. LTV, the consummate conglomerate, peaked at over 160 in 1967, but was down in the 'teens by 1970; at least it didn't drop further in the '74 bear market. In late July that year, with the Dow at the 780 level, Investors Intelligence reported that 67.2% of advisors were bearish, the highest percentage of negativism since the survey began in 1963. While contrarians were tempted to buy, for once the crowd was right, at least for the moment. The Dow would fall for another three months and 200 points, although the advance-decline line bottomed in October. After losses of 20% - 25% in 1973 and another 20% - 40% shellacking in 1974, some institutions couldn't take it anymore. One major bank told its trust department portfolio managers not to buy stocks at all until further notice. Many others adopted various restrictions on stock purchases. With the broad list of stocks heading lower for the sixth year by 1974, the sheer persistence of the declines was as dispiriting as anything. By contrast, the 1987 decline had run its course in about six weeks. The reasons for collapse were obvious, but the solutions were nowhere to be found. Inflation soared, from 4% in 1971 (at which point the Nixon Administration imposed price controls) to 12% by late 1974. That followed the severing of the dollar's last link to gold, after which the greenback was allowed to float -- or, more accurately, to sink. With the dollar's value evaporating, OPEC engineered a quadrupling of oil prices, and Americans found themselves waiting on gas lines. While prices soared, unemployment rose -- something that was supposedly impossible, according to economists. The jobless rate would climb from 5% in 1973 and wouldn't peak until 1975, at 9%. This worst-of-all-economic-worlds gave rise to an appropriately ugly word, stagflation. Economists calculated a "misery index," the sum of the inflation and unemployment rate. Defeat in Vietnam is at hand. That was about the only answer they offered, however. The Ford Administration, whose Council of Economic Advisers was headed by one Alan Greenspan, passed out WIN buttons, for "Whip Inflation Now." Americans' faith in their government was never lower, after Richard Nixon's resignation over Watergate and its cover-up. The Vietnam War dragged on, and America's involvement would end the following year with helicopters bugging out from the U.S. embassy in Saigon. The Cold War, however, would continue another decade and a half. Inflation was finally wrestled down, but only by the Federal Reserve hiking short-term interest rates to the then unheard-of level of 12%, and bringing about the worst economic downturn since the 'Thirties. Equities couldn't compete with those rates. And for the first time, those yields were readily accessible with the invention of the money-market mutual fund. But the big drawback then was "hard money," commodities like gold, silver and oil. "Assets in the ground" was the catch phrase. On October 4-5, James Dines, the "original gold bug," hosted a seminar in which each speaker tried to outdo the others with the gloomiest prediction. One suggested that "the world faces a depression, akin to the German depression of 1923. The dollar will become worthless and some form of totalitarianism will eventually take over because capitalism will virtually have committed suicide." Another speaker asserted that "personal federal and corporate debts are at unbelievably high levels and there is no way to pay them off. High interest rates and the energy crisis would hasten the collapse of banks all over the world." The root cause of all these ills was traced to planet-wide misgovernment. Conclusion: The man in the street has no concept of the financial panic and liquidity crisis which is looming. Not a single speaker offered any hope for stocks. Even with the market at a 12-year trough, the lowest price/earnings ratio in two decades (5.8 times trailing earnings on the Dow), a dividend yield of 6.5% for the DJIA, and the Dow trading at one times book value, the conference's speakers agreed that the final bottom was nowhere in sight. Of course, the stock market was putting in its lows as the conferees were droning on. By early October, the relentless slide prompted Abelson to observe that "the damage to values has been so deep and so pervasive that it's anticipated just about any adversity short of a new Ice Age." A "sure sign" that a bottom was near emerged a month earlier, when the biggest stock brokerage firm, which would later declare itself to be "Bullish on America," acquiesced in permitting well-heeled clients to sell call options, which had recently been listed on the fledgling Chicago Board Options Exchange, "naked," that is, not against an existing holding of shares. "Well, when Merrill Lynch's customers decide to start selling naked calls-in effect, making unhedged bets that stocks will go down -- you can just about hear the bull snorting," Abelson observed. It's doubtful if one person in a thousand could have guessed that in the fall of 1974 the greatest bull market of all was about to be born. It's easy to get caught up in the conventional wisdom of the day, which provided the justification for the prices paid for the famous tulip bulbs 350 years ago in Holland. Life lived backwards, it's said, is easy. But a few could see what the crowd couldn't. In 1974, Warren Buffett was acquiring some of the stocks that made him the world's most successful investor. As Roger Lowenstein relates in Buffett: The Making of an American Capitalist, the master value investor told a business magazine of the time without equivocation: "Now is the time to invest and get rich." Now with tomes touting Dow 100,000 hitting the bookstores and American households having most of their assets tied up in equities, what does Buffett think of stocks? As he notes in Berkshire Hathaway's 1998 annual report, his firm was sitting on $15 billion in cash equivalents, with nothing "on the horizon" that tempted him to put that cash to work. Consider the source.

To: Tunica Albuginea who wrote (42533)	10/9/1999 11:58:00 AM
From: Tunica Albuginea	Read Replies (3) \| Respond to of 116764

Rarebird:Barron's:Market&GE Bubbles; WagePressures Part II Barron's,OCTOBER 11, 1999 Next Time Around By Alan Abelson Jesse Ventura is a man of vision. A quality, gosh knows, that every other contemporary politician conspicuously lacks. Mr. Ventura's vision, moreover, is of a very rare kind. For it extends beyond this vale of tears to that shadowy realm to which we all repair when we shuffle off this mortal coil. Thus, in an extraordinarily thoughtful interview with the learned journal of anatomy, Playboy, the Minnesota governor indicated his belief in reincarnation. More specifically, he confided that he would like to come back in his next life as a 38-double-D bra. We found that confession both revelatory and intriguing. To begin with, it adds new dimension to the concept of reincarnation. For after perusing the voluminous work of the leading scientific expert on the subject, Dr. Ian Stevenson, director of the Department of Personality Studies at the University of Virginia, we could find no reference to authenticated cases of anyone ever having come back as an inanimate object. It opens up an awful lot of new possibilities as to just what form we want to take in our next incarnation in this earthly paradise. It also means we'll never be able to put on a shoe again without wondering whether in a previous existence it was a heel or a soul. More to the point, Mr. Ventura has enlarged political discourse beyond such familiar and emphemeral stuff as health care, taxes and the budget. Henceforth, no candidate will be able to run for any office, from dog-catcher on down to President, without declaring what he most wants to come back as. A quick survey of the current batch of hopefuls discloses some unusual preferences. Al Gore, for example, in his next incarnation wants to be a living person. Bill Bradley wants to return in his next life as Michael Jordan, which he calculates would allow him to run for President without accepting matching government funds. George Bush would like to come back as a person without the burden of a famous name. In other words, he'd desperately like to be George Roosevelt or George Kennedy or George Reagan (but, for some reason, absolutely refuses to consider the idea of being George Dukakis). Patrick Buchanan wants to be reincarnated as Attila the Hun, but only if it can be arranged that Attila talks American and hates free trade. Otherwise, he'll settle for George Washington (no wig, please). Warren Beatty wants to come back as a woman to further the equality of the sexes, and randomly chose for his new incarnation someone named Shirley MacLaine. Bill Clinton, incidentally, wants to come back as Warren Beatty. Donald Trump, after weighing all the multitudes of possibilities, decided that in his next life he would most like to be Donald Trump. Elizabeth Dole would like to be reincarnated as Robert Dole so she can run against whoever comes back as Bill Clinton. Steve Forbes wants to be reincarnated as Clarence Barron in order to remedy his most salient lack as a candidate -- substance. Rudy Giuliani in his next life wants to be Norman Rockwell. Alan Greenspan is eager to be reincarnated as a bubble on the grounds it takes one to know one. George Soros wants to come back as Henry Kissinger. Henry Kissinger wants to come back as George Soros. As for our ourselves, next time around we'd kind of like to try life as a bull. (Only kidding.) All that jabber about wannabe Presidents reminded us we've been terribly neglectful in not inquiring of our friendly British bookies what their latest line was on next year's election. So Barron's research chief, Pauline Yuelys, made a long-distance query to the Ladbroke chaps in London, and here's how they rate the candidates (reflecting, of course, where the early bettors have been putting their money): Bush, 8 to 11; Gore, 2 to 1; Dole and Bradley, 9 to 2; Buchanan, 40 to 1; Trump, 100 to 1; and Beatty 1,000 to 1. Stay tuned. . . . By universal agreement, General Electric is a great company, and its peerless leader, Jack Welch, ranks as the paradigmatic corporate chieftain. Both judgments were ringingly affirmed in a deft piece on GE in this magazine early this year by Jon Laing. And certainly, it's no sweat supplying the stirring lyrics for this vast chorus of acclaim. Revenues in 1998 topped $100 billion for the first time. Year in, year out, earnings post double-digit growth -- 13% seems to be the recent norm -- and this year, as the company's recent sparkling third-quarter profits report underscored, that brilliant winning streak is being extended with gusto. As all the world also knows, GE's stock has been a stellar performer. Over the past year, it has shot up from 69 to an all-time high north of 125 on Friday. Its market cap of $409 billion is second only to Microsoft's $485 billion. And its stock commands a price/earnings multiple of over 40 times last year's earnings and 38 times this year's anticipated net. All hail GE! But, to be accurate, that exclamatory statement needs modification. For there's at least one sentient being out there who stubbornly refuses to hail GE. And, wouldn't you just know it, the non-hailer is an old friend with more investment moxie than a bushel of analysts or a peck of portfolio managers. The dissenter, an unfailingly charitable and courtly type, doesn't denigrate the company's stature nor dispute Mr. Welch's considerable skills. But he does take issue with the stuff of which the company's earnings gains have been fashioned. Part II We should warn you, right here, that he suffers from an incurable malady known as compulsive footnote fetish. He's an inveterate reader of the arcana in financial documents. Let's indulge him, then, and study footnote 5 in GE's last two annuals. These come under the plain but pregnant heading of "Pension Benefits." (In common with a number of corporations, GE's pension plan is awash with funds, so much so that the company hasn't had to make a contribution to it since 1987.) Now, if you will, fix your gaze on a table in the footnote that bears the legend "Pension plan income" in the 1997 annual and "Effect on operations" in the 1998 version. The bottom line of this table shows "total pension plan income" -- which is the amount, after all obligations and contingencies have been provided for, the company took into the year's reported income. In 1997, pension income chipped in $331 million of GE's total earnings of $8.2 billion. In 1998, pension income accounted for $1.01 billion of the company's total earnings of $9.3 billion. Okay, let's suppose that there was no contribution to earnings in either year (these are not, in any case, actual cash additions). Minus the noncash contributions from the pension plans, GE's '97 net was $7.9 billion; its '98 net amounted to $8.3 billion. On that basis, the rise in earnings last year was roughly $400 million, or about 5.1%. And 5.1%, while respectable, is a good cut below the 13% the company triumphantly reported. GE's shares, as we observed, are selling at some 40 times last year's earnings. Which is undeniably rich, but not unduly outrageous in this euphoric market, given the company's many admirable qualities, not least of which has been its ability to deliver 13% growth in earnings. But that's the point: What kind of a multiple, our friend muses, would GE get for earnings growth of 5%, as it would have had to report last year, except for the help from pension income? If you're generous and use the going multiple on the Dow of 25, the stock would be selling at around $70 a share, and its total market value would weigh in at $230 billion. In other words, by this reckoning, the $685 million more in pension-plan income GE took into earnings last year than it did in 1997 added a tidy $179 billion to its market capitalization. Man, that's leveraging to a fare-thee-well! We think it's a shame so few people seem to have noticed this remarkable addition to shareholder value. GE's bulking up earnings via its pension plan, incidentally, is strictly according to the accounting rules. But the investment implications are not especially favorable, holds our critical friend. However legitimate or even mandated the contribution of pension income to profits, investors can be finicky on occasion about the value they place on earnings that aren't quite the right stuff -- that can't, for instance, be used to buy favors for the Christmas party or pay dividends. The substantial enhancement to earnings of pension-plan income, especially when it turns a modest improvement into a brisk one as it did last year, in his view makes GE's stock at least 50% overpriced. We should mention that he most often errs on the conservative side. . . . . . The memory lingers on. And so does the mischief. . . Both memory and mischief, in this case, are courtesy of Floyd. The havoc the hurricane visited is still very much evident up and down the East Coast. Last Friday, moreover, its after-effects were quite visible on the financial front. Confounding the consensus of Wall Street economists (which, it must be said, is not among life's more difficult challenges), the number of new jobs created in September was less than nothing -- it shrank, in fact, by 8,000. To be fair, that meant the consensus estimate was off by only 230,000 or so. According to the Bureau of Labor Statistics, Floyd washed away 50,000 jobs. Which suggests that even without a hurricane, employment last month was more than a tad disappointing. As our eminent colleague Gene Epstein observes in his Economic Beat column this week, something doesn't compute ("Counter Intuitive"). Message 11495239 The plain fact is that the Labor Department's statistics fly in the face of a variety of other data and, equally important in our book, of anecdotal evidence as well. None of the recent measures of manufacturing activity square with the continuing decline in manufacturing employment reported by Washington. Similarly, the weekly tally on new claims for unemployment insurance also runs counter to the weak showing in the monthly numbers prepared by the BLS. On that score, the gathering strength in the purchasing managers' surveys, most notably in the latest one, also encourages a skeptical view of the official data. For that matter, so does the outsized jump in hourly wages in September, to $13.37, from $13.30 the previous month, hardly suggestive of a slowing job market or, by implication, of a slowing economy. If there indeed is a drag on hiring, it's more likely the result of how tough it is to find suitable workers than it is reflective of a contracting need for them. The available pool of what might be called peripheral candidates for employment contracted last month by 200,000 from the year-earlier total. We also have to wonder about the supposed drop of 9,000 service jobs, including a decline in retailing employment. With consumers spending like there's no tomorrow and retailers anxious about being caught short of goods and help as they were same time last year, it's a little much to believe the figures. And, in fact, we simply don't.