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BEARING THE BULL The stock market plunged 508 points on October 19, 1987 ... half a trillion dollars lost in one day. But upward momentum could not be suppressed, despite a ho-hum 1994. 1995 roared back to new highs. 1996 echoed. 1997 marched even further, and this time, a 500+ drop gave but momentary pause. One remembers the caveat of tradition: three successive years of gain must produce a fourth year of overdue and considerable correction. 1998 was that fourth year, though its first quarter through April 15th was only a leash on a strong dog, resistant but powerless against advance. Now, after new Dow highs past 11,000, we should pause momentarily to consider if, when, and how this expansive bubble might ever burst. First to mind is that all corrective downswings happen because of a "trigger" event, whether political, economic, sentimental, catastrophic, etc. The common mind would normally think that the Asian meltdown of 1997 would have had a much greater effect on the Dow than it did. Or the steady news of Clinton's proven moral vacuum. But none of that stopped the rabid market, mad with its own momentum. 2 Partly, the steady progress is understandable. With bank savings rates so low, and equally pitiable returns from CD's, T-Bills, or Money Market funds, there is little sensible reason not to jump into the Market. Even Social Security faces the pressure for better returns from equities than the safe harbor of tradition. But one is naturally hesitant. Some heard the Bear growling after more than fourteen straight weeks of early 1998's hundred points a week. Some hear it growling now. How high is too high? Not high enough! say others, aware of the profits they missed by pulling out of stocks when 5000 was reached ... then 6000 ... then 7 ... then 8 ... then now. Many Bears, like the well-known Joe Granville, gave up the growl and climbed on board the bellow, bragging of their newly recent gains and change of heart. But even he must wonder ... when will it end? What will finally wake up this long unconscious Ursa? Normal triggers have fired blanks. News of Asian Miracle becoming Asian Meltdown was largely a yawn, though it's a vital trade region. We closed our senses and dismissed any long-term implications, just as with the presidential peccadilloes, thumbing our profiteer nose at the impertinence of any such outside influences. Full steam ahead! No one need remind a Baby-Boomer or his senior of the significance of previous times. And no one will convince a Post-Boomer of that significance. But the raging market is an irresistible temptation. Therein lies part of the problem. 3 Those who know of 1929, though deeply at heart, have gradually abandoned its caution to the steady pull of better returns in the stock market. And those born after 1964, with no investment in tradition, have no worries or basis for caution. It's a New Age, say some, convinced that former restrictions on unbridled progress no longer apply. The past is quite passe', some think, and quite unlikely for today. Such folk would also be unaware of Santayana's famous remark: "Those who do not remember the lessons of history are doomed to repeat them." points, but did it matter? No! This was a new time, a time when such corrections seemed out of place. How dare "they" interrupt my profit's progress! was a common sentiment, and the Dow quickly made up lost ground. Just as in the twenties. Aldous Huxley once said: "The best thing we can learn from history is that most people don't learn a thing from history." might formerly have seemed prudent. Not helpful, surely, was the ongoing myth by President and Press that national debt was now so non-existent it was even a surplus. Though unbelieved by many, our government had plunged us well beyond a red line of six trillion dollars, and no soothing assurances could alter the fact that such debt could never be repaid by mere mortals. No less unsettling should be the influence on American lives of damaging political decrees such as NAFTA, GATT, and 4 other renegade precepts launched by Executive Orders and presidential betrayal. Because of these high-level "agreements," opposed to an American ethic, our future will pay the price of freedom. We won't know such insult til it's here, though, because we've been so thoroughly finessed by our politicians. They've played us like a harp and we've sung most obediently in tune. Politics will not be the only possible threat. Natural disasters may converge in frequency, taxing regional limits, though these events will likely pose modest threat to the financial markets. But Asia's bite is overdue. Japan's collapse will add sharper teeth. China will devalue its currency to stay competitive. Americans may finally remember moral outrage. More citizens will refuse to pay illegal taxes. Foreign investors may cash out their faith in our bonds. Europe may dis-embrace the anti-sovereign single Euro currency. Any or all of these and other unforeseen events may act alone or combine to trigger a collapse. Before that eventuality, it would seem wise to plan in advance. One such measure is this: Keep your eye on the all-time high (just over 11,000 in early '99 but sure to be higher). Subtract twenty percent for your "Sell" signal. If the market falls below that, sell your stocks or mutual funds and buy T-Bills, CD's or Money-Market funds. If interest rates rise (for they'll rise more than once), sell your bonds, too, and put one-fourth of your money into pre-1933 gold coins or, better, silver rounds. And even if the market goes up again ... Stay Out! Let the 5 Kamikaze's have their little gains -- they'll never get out in time. As in 1929, 1974, 1987 and 1997, brokers will take their phones off the hook when the crush of calls comes: unlucky investors won't be able to sell. Disturbing signs persist: by mid-August of '98, shaky currencies of Brazil and Mexico had shed almost a fourth of their value, as with Brazil, which then followed Russia's lead in devaluation of their currencies. By 8/28/98, Russia's troubled ruble whittled away at the American stock market, which fell to 7539 on 8/31, 19% off the previous high of 9338 on 7/17. By early September of '98, Colombia devalued its currency while those of Canada, Australia and Japan were ever weaker. Russia's largest bank put a hold on withdrawals. The quick fix for our own sluggish market was an interest rate cut of a quarter point in September. When that proved ho-hum to the market, Alan Greenspan shaved off another quarter point in October. Sure enough, the Dow soon gained back half its total loss. That, too, was understandable. With interest rates ever lower, savings or money market accounts or CDs or T-Bills become less attractive and the siren song of the stock market grows ever louder. Investors feel even more convinced that it's the only game in town, the highest return on their money. 6 But even if further interest rate cuts inject a predictable bouyancy to this bubble, keeping Asian and political and economic chickens at bay for now ... they will come home to roost. And the market's recent recovery will then be seen as a "bear trap" ... a mere delay in the most certain downturn which pulls in unwary investors before heading south for good. If the Bear sleeps and the Bull roars through 1999 with only modest corrections, the inevitable has merely been postponed. On the very last day, or even slightly sooner, the "millennium bug" will bite us all as the Year 2000 problem (Y2K) brings down systems worldwide. When the collapse finally occurs, the long- sleeping Bear will be now long awake. And the Dow will dive. The lower it goes, the deeper the damage done, and cash will be king. Recession will be rightly called depression and only real-value items will matter. Debt of any kind will debase. CD's and money market funds will lose luster to gold and silver and the only debt acceptable -- T-Bills and other government securities. If these finally fail, God save us all, for no one else will. |