There is a bestseller out there called Dow 36,000 by James Glassman, a journalist, and Kevin Hassett, a former Federal Reserve economist. They believe that the index will reach that number by 2018. Why? Because the authors say that blue-chips especially will rise rapidly as soon as investors understand that stocks return a lot more than, say, bonds and in the long run are really no more risky than bonds. (Oh, did I mention that the book was first published in 1999?)
Of course, this relies on data about the stock market that goes back a few hundred years. Their theory points out that valuation levels--price/earnings ratios--will remain high even throughout this bear market and that investors will realize the true value of stocks for the long haul.
Glassman doesn't admit anything has gone wrong. In an interview with CNBC's Ron Insana, he answered a question as to whether the Dow at 36,000 was even implausible in our lifetime, bearing in mind that even if the index ponies up a nine percent advance each year, it couldn't possibly hit the magic number by the prediction date. "Not in the least. All you have to do is simply extrapolate from the average rate of growth of the stock market and if you believe that the stock market is relatively efficient, then it still should happen by 2020." Interesting, even when Glassman adds that we could hit the number much sooner--such as by the end of this decade.
Before you toss that notion in the pile of unopened broker statements on your portfolio, you might consider one other aspect. According to the research firm Ibbotson Associates, which has tracked stock market data back to 1926, there never has been a period longer than 15 years in which the stock market has lost money. In fact, Jeremy Siegel of the Wharton School at the University of Pennsylvania and author of Stocks for the Long Run, notes that never since 1802 has there been a period when stocks declined for more than 17 years.
So what's Glassman doing? He's not switching out of stocks and into bonds. He is simply continuing his stock buying habits. However, what about those people already in their sixties? What happens to them? Glassman says that for the most part, such people should not have all of their assets in the stock market and that it's really a place to be when you have a way to go before retirement age. Hmm, now he tells me.
As for this quasi-investor, I'm simply sitting and watching from behind the goal posts, and shaking my head. What's the market today? Under 8,000 and he's talking 36,000? Would someone please refill my glass, and less ice this time?
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