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Dow Infinity

You may think the market's gone about as far as it can go, but you ain't seen nothing yet

Oct 18, 1999, Vol. 5, No. 05 • By BRIT HUME
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Glassman and Hassett believe a fortuitous set of events has created our current investment atmosphere. They cite the proliferation of 401(K) and other company-sponsored investment programs, which helped give more Americans a stake in the stock market. Estimates now are that half the nation's adult population owns stock. The Cold War is over, and market economies practicing free trade are spreading. The budget deficit, once regarded as a mortal threat to the U.S. economy, is gone. Inflation, the scourge of stocks and bonds alike, has slowed dramatically amid a wave of growth in productivity occasioned by the revolution in information technology -- a revolution whose benefits are only now beginning to be felt. Even Alan Greenspan seems now to believe that this technology-driven, technology-assisted economy is something new and lasting.

By the calculations of Glassman and Hassett, stock prices will reach parity with bond prices only after tripling beyond current levels, which would lift the Dow Jones Average to 36,000. At that level, stocks would achieve what the authors call their "PRP," their "perfectly reasonable price." Once this occurs, they predict, the growth of stock prices will level off, and stocks and bonds with comparable returns will remain comparably priced. Glassman and Hassett believe this will happen relatively soon, but they don't pretend to know exactly how long it will take.

Siegel, on whose data the book is based, has been quoted as disagreeing with Glassman and Hassett, and that may seem a damning indictment. But it's not.

In the end, stocks, like everything else traded in a true market, are worth what people are willing to pay for them. All the supposedly hard data used for market projections rest on soft assumptions about human attitudes.

The average P/E ratio, for example, is regarded by many as a solid benchmark of value, but it is nothing more than a measure of what people have been willing to pay for stocks in the past. Glassman and Hassett think people are learning through experience that stocks are worth much more than that. Could they be wrong? Of course. But their explanation of the current bull market is certainly more compelling than the arguments of those whose predictions have been consistently wrong and whose current market analysis amounts to little more than repetition of the word "bubble."

Brit Hume is a contributing editor to THE WEEKLY STANDARD.