Call Your Broker

April 07, 1994|By BEN WATTENBERG

WASHINGTON — Washington. -- If you own stocks, and many of us do at least through pension plans, the last few weeks have been yucky. A ''correction'' has occurred. The Dow Jones Industrial Average fell 385 points from February 1 to April 4 -- a 9 percent drop. It is being said that if the slide continues it could signal an end to the long bull market.

Which, if it happens, means you will be poorer. So: Is it a good idea to sell stocks now, lest this correction turn into a massacre?

I cannot tell you what the stock market will do in the next month, or even the next year. (I can't even get you a 10,000 percent annual return on cattle futures.) After careful research I have determined that, in the short term, markets are morons. After all, this market has gone floppo in large part because the economy is allegedly so robust. (Allegedly threatening inflation, allegedly driving up interest rates, allegedly sucking money from stocks to bonds, harming both.) Simple: The bad news is the good news is bad news.

But moving out to the intermediate term, I can tell you where I believe the stock market is headed. Up. Way up. Why? Because most everything that has to do with the creation of real economic value for existing companies is headed in the right direction.

What do companies need to earn profits? (Long term, earnings set share prices.) Companies need products and producers. They need a way of doing business in a stable environment that honors profits. And they need customers. In that cosmic context, we face a remarkably positive situation.

The basket of new products is overflowing: telecommunications, pharmaceuticals, bio-technology, new alloys, better, faster, cheaper computers and smarter bombs only begin a long list. In most of the hot fields, America is in the lead. The idea that the next century will be a Japanese or European one looks goofier than ever.

America will have plenty of domestic producers and consumers. Our birth rate is somewhat higher than that of our major competitors, and we take in about a million immigrants a year. In the 1990s we will grow by 25 million people. In the first decade of the next century we will grow by another 24 million. European and Japanese populations are on the way to demographic diminishment.

The most positive news comes from the ''emerging markets.'' As regular readers of this column know, I am dubious about U.N. projections that say we're headed for a world with 10 billion to 12 billion people. But, at the least, we're going to 7.5 billion to 8 billion within a few decades. That's still 2 billion additional customers.

Mere population growth wouldn't do us much good commercially if the new people were living in rural barter economies. Socialist economies aren't much better. But what's coming on line is neither.

Suddenly, market economies, with real and growing buying power, are flourishing in strange places. Like India and China. Like Indonesia, Brazil and Mexico. Like Eastern Europe. And, buccaneer-style, in Russia. Even Africa is stirring. Along with more free markets we are also seeing more free politics in many places. Democracy makes for a world that is more peaceful and stable.

All this will happen while international trade expands, thanks in part to GATT and NAFTA. In short, there will a global customer boom in a relatively stable, democratic, market economy, with America leading the way.

This may not be good news for everyone. Environmentalists claim that more population yields more pollution. Labor unions claim that cheap imports hurt American factory workers.

But these developments do help business. More customers help generate more new businesses. And most assuredly it helps existing companies. They are the ones that benefit first from the customer/trade/technology/market/demo- cracy boom. You know the kind of companies I'm talking about. They are listed on the stock exchanges. Just the kind you can buy by calling your friendly broker.

Ben Wattenberg is a fellow at the American Enterprise Institute.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.