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Strategies & Market Trends : TATRADER GIZZARD STUDY--Stocks 12.00 or Less..... -- Ignore unavailable to you. Want to Upgrade?

To: Mike Sawyer who wrote (32048)	8/1/2002 11:15:27 AM
From: JD	Read Replies (1) \| Respond to of 59879

Its too late to back pedal...their book will be one of the 'bubble landmarks' that financial historians will study for many decades to come: July 30, 2002 Editors Wall Street Journal To the Editor: It is no surprise that, despite the most punishing stock market decline since the 1930s, Messrs. Hassett and Glassman are sticking to their story of Dow 36,000 (“ ‘Dow 36,000’ Gurus Hold to Their View Amid Downturn,” July 29). They ignored stock market history in the first place, and continue to ignore what the market is telling them now. Throwing out all conventional notions of volatility-risk, they focused narrowly on relative return in arguing that the equity risk premium is destined to go to zero. They conjectured that if investors were willing to hold equities continuously over periods of 20 years or more, investment returns would be superior to other asset classes (especially bonds), which would obviate the need to price in any volatility-risk. They completely disregarded 200 years of stock market history, which shows that the equity risk premium is highly cyclical, rising and falling inversely to price until extremes are reached at market peaks and troughs. There never was a rational basis for expecting that investors would suspend all reactions to fluctuations in price, earnings and other determinative factors - that is, suspend the fundamental price discovery process itself. In fact, historical norms are returning with a vengeance, as investors rationally decide to pare their holdings and cut their losses in response to continuing uncertainties about earnings. So much for 20-year holding periods. As equity prices have been falling, the equity risk premium has been rising, powerful evidence of its cyclicality. It never was destined to go to zero. The Hassett-Glassman theory was just the most recent in a long line of rationales put forth at every secular bull market top to persuade investors to abandon their natural risk aversion and buy wildly overvalued equities. Mr. Glassman’s crack that Yale professor Robert Shiller, author of “Irrational Exuberance,” is “one of the luckiest guys in show business” is misplaced. It more aptly applies to the guy whose book sales and TV appearances soared on the backs of millions of unsophisticated investors who were induced to enter a market they did not understand at the worst possible time - and already have paid a terrible price for it - not to the guy who warned those investors of the danger of it all. In response to our critique of the Hassett-Glassman theory, Mr. Glassman opined in a March 1999 communication to me that “over the past five years, many small investors have been frightened from the market by doomsayers warning of imminent crashes and the like. That’s a shame.” As it turns out, the real shame was in Hassett and Glassman providing those small investors with a ruinous rationale to act with irrational exuberance. Bob Bronson Bronson Capital Markets Research csf.colorado.edu