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To: Alias Shrugged who wrote (4641)	10/25/1998 8:15:00 PM
From: The Ox	Respond to of 14427

From: decisionpoint.com Can a secular bear really be waking from hibernation? The stage appears to be set from a number of vantage points. The year-to-year percent change in before tax corporate profits is now under the zero line for the first time since 1992. Profits, which were one of the strongest forces driving prices, were somewhat suspect to begin with in recent years. If poor quality earnings are on the decline now, the logical next step is that stock prices must suffer. Total equities as a percentage of financial assets held by private pension funds, and state & local government funds rose from 30% in 1990 to about 58% in 1998, the highest reading ever. At the same time, total cash fell to 21%, the lowest reading ever. Participation by foreign investors exploded from an annualized rate of $15 billion in 1997 to more than $90 billion (a record, of course) in 1998, possibly accounting for the final index highs. Typically, foreigners are the last ones into the pool. At one point at mid-year, foreign stock transactions accounted for more than 23% of total NYSE dollar volume! These are not the kind of numbers normally seen at cyclical turns; they are far more indicative of an imminent turn in the secular tide. Lest we forget, at the highs, Dollar Trading Volume was 177% of GDP, meaning that for every dollar spent on goods and services in this country, $1.77 was utilized for trading stocks. Even in 1929, the insanity ran to a far lower level. On March 30, 1998, the theories of James Glassman and Kevin Hassett were published in a WSJ article entitled, "Are Stocks Overvalued? Not a Chance." By coincidence or not, they certainly were. The secondary internal top for total cumulative breath for combined NYSE and Nasdaq was achieved a mere four trading sessions later, on April 4th. Although the Dow went on to register a series of records through another three-and-a-half months and 6.3% higher, the broadest based measure of American stocks, the Wilshire 5000, topped a scant three weeks later, only 4.6% above the mark when Messrs. Glassman and Hassett shouted "Excelsior!" to the world. In retrospect, we suppose this might have been a fitting end to the secular bull market and the insanely bullish psychology that grew to mammoth proportions over the prior three years. After all, if Glassman & Hassett were right about stocks being fairly valued up to 100 times earnings, then one only need work long enough to be able to invest a sufficient sum to live off the unending profits, thus escaping the menial toil of everyday life. Thereby set for life, Americans could sit back and enjoy their riches. The problem with this scenario, of course, is reality. If everyone is going to be a full time investor, who is going to work for a living and produce the goods and services American corporations need to produce the kind of profits that will drive their shares to 100 times earnings?! As we showed in CROSSCURRENTS in the issue following the Glassman/Hassett article, although the long term does indeed usually turn out well for investors, it is far from a guarantee. Since 1912 and ex-dividends, annualized returns of less than 0% have occurred 13.6% of the time over all 15-year stretches. In other words, the next 15 years could conceivably have a bit more than a one-in-eight chance of showing a 0% annualized return, ex-dividends. Considering the 15 years that came before, the odds for a long sideways or down stretch might even be significantly higher. The SPX/RUT ratio again ran to a record high this week, placing the largest capitalized stocks in the realm of pure fantasy. As pointed out by Leon Cooperman in last week's BARRON'S, the lion's share of gains in the SPX has come from just five issues; Dell Computer, Lucent Technologies, Microsoft, Pfizer and Walmart. These five issues accounted for 52% of the total index return as of September 25, 1998. The five stocks averaged gains of 75% whereas the bottom 495 averaged -6.1%! To be sure, it's tulip time at the top of the heap. A replay of 1973 is probaby very close by.