What goes up . . .

September 03, 1998|By James Lileks

YOUR BROKER won't tell you that the market is going to be in the commode for a long, long time. He'll simply suggest you move to invest long-term in American Porcelain.

Anyone who lived through the early '70s remembers what a prolonged bear market is like: night after night, NBC's financial correspondent, Irving R. Levine, had absolutely nothing to say. "Durable goods stocks rose a point today on news that Fiona R. Harking of Wooster, Ohio, was having trouble replacing the compressor on her Frigidaire, and is considering purchasing a new one." Stock prices drifted around like leaden tumbleweeds. Brokerage firms hired people to walk around the office and jab the brokers with pins just to keep them awake.

Perhaps this is just a "correction," and soon the market will

celebrate worldwide economic meltdown by adding another 5,000 points. The unstinting flow of bad news since Asian markets laid down and wept blood last year has only pushed the market higher; perhaps more bad news can revitalize this troubled market. ("The market gained 800 points today on news that Brazil has disappeared as a modern nation, and the jungle has reclaimed all major cities.")

But probably not. The bull market is most likely over. Even if Federal Reserve Chairman Alan Greenspan waves his wand and cuts interest rates, the big boom is done. Goodbye, irrational exuberance; hello, rational despair.

Why? Well, why not? All booms end. The signs of this boom's conclusion have been apparent for months: the incessant flow of money from latecomers who can't tell a mature bull market from a mewling calf; the ridiculous price/earnings ratios of stocks that looked like the odds on a Mike Tyson-Leo DiCaprio prize fight; the absurd run-ups in Internet initial public offerings, adding billions of value to companies that made no profits and gave away their products, all on the belief that one day someone would discover how to make money on the Internet. That's like bidding up the stock of lead-mining companies in the hopes someone would discover the Alchemist's Stone.

Russian troubles

Russia was bruited about as the latest cause for concern, but that's just an excuse. Yes, Russia is having troubles. They don't know what they're doing. At some point the world will wake up to the fact that communist history has nothing to do with it. Russians can't play Monopoly without losing the pieces and passing out on the board. It's not that they can't pass Go -- they just distrust anyone else who already has.

Bail them out? No. If the big banks lent money to Russian interests, then they were idiots, plain and simple. The rationale usually goes like this: Well, sure, Russians have no rule of law, private property is defined by whim, taxation is punitive and capricious, organized crime runs everything, and the opposition party would nationalize everything and jail dissenters, but we're here for the long haul.

That's akin to stepping onto Mars, taking off your helmet and proclaiming the lack of air doesn't impede your faith that Mars will one day support life.

Nervous Nellies

The big question is whether the novice investors will stay put, or pull out their money and run shrieking for Mommy, or bonds, or gold, or a strategy that has a diverse posture among bonds, gold and Mommy.

Newcomers have demonstrated unusual maturity during the last few dips -- they're in it for the long haul. After all, prices came back after the 1929 plunge. Man walked on the moon in the interim, but they came back.

There's good news in all this, though. Doomsayers were predicting that the Y2K problem would wipe out your net worth when the computers crashed.

Looks like we'll get that out of the way first.

Whew.

James Lileks writes for Newhouse News Service.

Pub Date: 9/03/98

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