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The Stock Market Hysteria Still to Come

The Mega Bull Market

“Stock tickers at McDonald’s? Record-high sculptured skyscrapers?  250-mile-per-hour (mph) luxurious grand-touring cars?  4,000-passenger ‘ocean cities’ to nowhere?

As the supercharged Dow accelerates to ever-increasing record highs, most of the socioeconomic parallels of the mid 1920’s point to a ‘megamove’ in the Dow just beginning to unfold. The seeds of a surge into the decade of the mega trends have already been sown.”
–Chapman Marketline, Summer 1988

A COUNTRY CONSUMED WITH THE STOCK MARKET

In the 1990’s, as the stock market eventually powers to record high after record high, the number of individuals participating in the stock market will reach unprecedented levels.  Buying will become so pervasive that even a McDonald’s in a remote area will feel the need to feed dinners quotes with their meals. Individual stocks will swing 10 to 12 points in a session.  The public, loath to miss a beat, will want to watch their latest bets/investments grow by the minute.  In the 1920’s the advent of the glass-domed ticker gave the public an opportunity to constantly monitor their portfolios.  For us in the 1990’s, quotes will be everywhere, all the time: on computers, television, and storefront windows.  Eventually, the stock market will collapse, just as the international “Tulip Bulb” mania of the early 1600s led to a collapse when the cost of bulbs reached the prices of houses.

THE HEIGHTS OF BUILDINGS RISE COMMENSURATE WITH THE STOCK MARKET

The skyscraper phenomenon refers to the way each new generation of skyscrapers demands cutting-edge technology (Otis developed a new elevator system in the 1920s, soon after used for the extended height of the Empire State Building).  A marvel of design and engineering ingenuity, skyscrapers require such a huge scale of financial technological and logistical resource that it is obvious why they become the last extravagance of a mega bull market cycle.  Finally they become “affordable.”  Not needed in any functional way, the tallest skyscraper rather becomes a fitting coda and a state-of-art time freeze of wealth and technology.

SIZE INCREASES AS A “BIGGER IS BETTER” PHRASE UNFOLDS

Cruise ships, impossible to fund during recessionary times, invariably appear as the economy improves and vacationers feel comfortable enough to treat themselves to something different. The cruise ships being built, or in the planning stages, are so huge that they resemble “ocean cities”  (Chapman Marketline, August 1985).  With every conceivable amenity on board, they will accommodate thousands of vacationers, and of course, like the luxury liners of the 1920’s, they too will have brokerage offices aboard.  This is also the period during which immense projects such as the longest bridge in the world or the building of new rail systems or airports are begun.   Interestingly, these huge projects invariably overlap into the “bad” times, ready to give employment to thousands who would otherwise not have jobs.  (The George Washington Bridge and the Manhattan Train System began construction and overhauling, respectively, in the 1020’s and ended in the 1930’s. 

A FINAL, LUXURIOUS, EXTRAVAGANT PHASE

In the late 1920’s and early 1930’s there were incredibly expensive, fast, and luxurious Duisenberg’s, Bentleys and Cadillac’s.  We are not yet there.  But we are on our way to 250 mph grand-touring cards purchased with high profits from the stock market.

TALL BUILDING AND THE (APPROXIAMATELY) 37-YEAR ECONOMIC CYCLE

For over 100 years, construction of the tallest buildings in the world has concluded economic booms.  Culminating a deflationary periods, tall buildings were designed as the stock market was peaking in 1891 and then completed during the stock market panic of 1893 and the silver collapse in 1895.  The first of three approximately 37-year economic surges resulted in skyscrapers: Chicago’s Home Insurance Building in 1885, the Reliance Building in 1894, and New York’s (still spectacular) Flatiron Building in 1902.

The roaring ‘twenties saw the construction of the famous Rockefeller Center, followed by the beautiful Chrysler Building.  The Chrysler Building, completed in 1930, was not only designed to be the tallest building- made so by the surreptitious last-hour raising of an extension spike just two feet above the previous record height-but was styled after the 1929 hood ornament.  Capping that era and within weeks of the Dow Jones Industrial Average’s final Labor Day-weekend 1929 high at 381, papers were signed to begin work on the Empire State Building.  Just eight weeks later the Dow was under 200.  The soon-to-be- nicknamed Empty State Building opened on May 1, 1931; the Dow was at 56.

The second 37-year cycle came with the 1960’s economic surge (led by the nifty fifty stocks), as the Dow double-topped around the 1000 mark.  Epitomizing that growth period, shiny metal and glass- clad skyscrapers were built (e.g., Boston’s John Hancock Tower, planned in the late 1960s and completed in the 1970s).  Detroit’s fintailed behemoths with monster front grills getting only 10 miles per gallon of gas culminated that era of excessive consumption.  (Today, sport utility vehicles(SUVs) are becoming almost unmanageably huge; and if recent report are correct, these vehicles are scheduled to become much larger and more luxurious by the century’s turn.  That will be at least a warning sign.  It completely ignores the question of another oil crisis.)

Today, with the skyscrapers being built in Asia, we are again seeing an economic boom reflected in the height of buildings.  This phenomenon has not yet arrived here in the United States; however it is only a matter of time before we too get swept up in the competition to build the world’s tallest building.

Interestingly, moving 37 years forward from the 1966 cap on the Dow at 1000 takes us to approximately the 2001 to 2003 time frame:  the major peak in this mega bull cycle.  A hint of the coming market tip in the United States could well be the collapse of Malaysia’s tremendous economic boom just months after the Petronas Towers in Kuala Lumpur, the world’s tallest buildings, were completed. 

That economic collapse triggered sell-offs in other Asian markets, in October 1997, which the media quickly labeled “the Asian meltdown.”

THE STOCK MARKET MEASURES OUR ACTIONS, WHILE THE MEDIA MEASURES OUR REACTIONS

As Asian stock markets crumbled in overnight trading, news reporters and camera crews were stationed at trading desks and outside brokerage houses around the United States the following day.  They were preparing to interview investors for great human stores of heartbreak and despair.

Investors awoke on October 28, 1997, to an avalanche of negative Asian economic news.  The media devoted an inordinate amount of space and time to interviews from experts around the world.  (Many were the same “experts” who recommended the Asian countries as investments just months before.)   As expected, the Down opened sharply lower that day, cascading some 190 points.  And then, to the surprise- and probably the disappointment-of the news media, a funny thing happened- a selling climax.  Within an hour-and-a-half the Dow had reversed, and on record-breaking volume it closed up 337 points on the day!  A whopping 500-plus point reversal.  Simply put: there were no sellers left.

This media-frenzied international crisis was a market turning point.   When an international news story is small-town conversation, that is often a major market indicator.  The media’s handwriting turns into a seminal market event.

HEADLINES AS A REVERSAL TECHNIQUE

Attempting to identify major market lows and highs is difficult, but occasionally warning signs flash very clearly, like October 28, 1997.  Investors often throw away their losing stocks in disgust or fear right at market bottoms or buy in at market tops.  Most buying or selling climaxes occur when the tone and the volume of either negative or positive information accelerates to a crescendo of banner headlines, thereby exacerbating an irrational response from investors.  As newspaper headline size increases with the seriousness of the issue involved and the duration between news reports shortens, perspective is difficult to maintain.  Investors suddenly feel they must “do something.”  As they are swept along, a herd mentality prevails and good judgment takes a back seat.  Often the final result is diametrically opposite to the prevailing opinion just hours earlier.

On January 16, 1992, when was declared against Iraq, the stock market had already dropped significantly in anticipation of the conflict as market indicators achieved their oversold reading ever.  Headlines screamed negativism.  But on Thursday, January 17, the Dow opened almost 100 points up and then closed even higher, initiating an entirely new up phase.

SOCIOECONOMIC, SENTIMENT, AND TECHNICAL INDICATORS ON THE MACRO LEVEL

Short-term or long-term the market goes from overbought to oversold. Whether looking at the macro overview (100 years or more) or analyzing the micro shorter-term perspective (minutes), the one element that remains constant is human nature.

Gloom and doom were pervasive in the early 1980s.  With yet another recession under way economic reports in the spring and summer of 1982 were filled with the latest round of bad earnings reports and inflationary prices.  Interest rates were at exceptionally high levels and there was unrelentingly negative news on the economy and inflation (newspapers and talk shows commiserating over the end of America as we’ve know it). But under this bearish sentiment, the stock market’s technical condition showed really positive systemic changes taking place.  The markets descent leveled pit and turned upward that summer.

FRUGALITY TO COMPLACENCY TO EXCESSIVITY

A period similar to that of the Harding-Coolidge-Hoover era was likely to unfold.  All the ingredients were there: potential tax cuts, budget balancing, trade surplus even with trade barriers, deflation, political scandal (Teapot Dome), unemployment lows, peace treaties, much lower interest rates, the return of jazz as a popular landmarks of the 1890s and 1920s, a turn from the austere toward consumerism, and son on.  “The frugal, ascetic, and serious 1970s could eventually become the gluttonous, fun-loving, and frivolous 1990s”

(Chapman Marketline, early 1984).

LOWER INTEREST RATES: THE FUEL FOR AN EXTENDED BULL MOVE IN STOCKS

For an extended period of economic growth, interest rates must decline sharply.  In the summer of 1983 there was a veritable advertising blitz by banks touting their latest high interest payments on savings accounts and certificates of deposit.  That type of blatant competition is usually the first warning sign of a pending trend change.   Also, numerous technical indicators helped confirm a “sell” signal on the Treasury-bond (T-bond) yield (Chapman Marketline, August 1983).  Using the pendulum analogy plus trendline analysis, a very long term target in the 5 percent or lower area for T-bond yields appeared likely.  While rates declined, the axiom “lower yields equals higher stock prices” would remain in force.  Later, if rates were still reasonably low, the Dow would be powered parabolically higher into the five digits on sheer buying hysteria.

RIGHT, BUT WRONG

When the stock market crashed in 1987, it took the Dow much lower than anticipated from that summer’s August sell signal (Chapman Marketline, August, 1987). Significantly, the signs of major excesses that should accompany a pending major top were not yet evident.  Rather, the positive economic changes identified back in the early to mid-1980s were still unfolding on schedule.  That implied that another major up phase of the mega bull market was about to begin (Chapman Marketline, Oct. 20, 1987).  In 1988 and 1989, the socioeconomic structure of the mega bull market appeared very strong.  With interest rates on the decline and commodities pointing downward, it confirmed that the long-term target of a 5 percent (or better) yield was still on track.  Other parabolic chart patterns overlaid on the Dow’s chart pointed to a high probability of the 7900 level being achieved in 1997-possibly even higher.  That coincided with the bigger socioeconomic picture pointing to a final top coming in 1997-if the British returning Hong Kong to the Chinese in that year triggered an international sell-off (Chapman Marketline, 1988).

Looking at the socioeconomic picture in July 1988, there were only hints at the type of icons mentioned in the opening paragraph, that is, skyscrapers and luxurious grand touring cars.  That forecast of a major top in 1997 was immediately extended out even further, possibly to the century’s end with the Dow skyrocketing into the 12,500 to 15,000 area.  Significantly, as those forecasts from the mid-1980s of low interest rates, surprisingly low unemployment, and strong signs of the unexpected budget surplus going into the black have unfolded, the ultimate high continued to be raised even higher.

The sideways consolidation of 1994 essentially set the stage for “rolling” corrections to become the characteristic of the next phase of the mega bull market.  (That is were overbought sectors decline sharply at different times, thus maintaining a much higher closing price in the Dow and the Standard & Poor’s (S&P) 500 Index than in a classic bear market collapse, in which everything cascades down together.

What is evident in this 1997 period is that we have the potential to copy the action of the Japanese Nikkei Dow in 1987.  When the 1987 DJIA crash occurred, the Nikkei was impacted far less, declining about 12 to 13 percent.  And then, within six months, the Nikkei was breaking out to new all-time highs.  The Dow Jones Industrials’ response has so far (since the October 28 low) matched the Nikkei’s pattern in 1987.  That is a very encouraging sign.

PUSHING AWAY FROM A LONG PERIOD OF UNCERTAINTY INTO A PERIOD OF COMPLACENCY

The tumultuous years from 1915 to 1919 saw conscription, war, and finally an influenza epidemic that claimed over half a million lives.  The economy slumped in 1920 and 1921 as the Dow plummeted to the 65 area.  The return of peace and prosperity was a welcome relief.  That stability and continuing economic growth led to a period of complacency (while far more extended in time and price, the years from 1986 until the present have been remarkably similar to the 1923-1927 period).  Also, this period of tame inflation and peace is in stark contrast to the inflationary and inflammatory 1970s.

After the complacency of the mid-1920s, an era of excessiveness evolved, culminating in the heady days of the roaring ‘twenties. A telling symbol of that exuberance was that after three years of increasing demand and with great fanfare, Rolls Royce presented their newest and most powerful model on October 29, 1929.  A fitting contrary indicator and the consummate irony, the most expensive Rolls ever was displayed in the New York Times, directly opposite the stock tables of the previous session’s closing prices.  That followed one of the worst days during the crash.  Worse, it was only four days after “Black Thursday.”  Now that’s market timing!

STRUCTURAL CHANGE MUST ACCOMPANY A BULL MARKET FOR SUSTAINABILITY

During the industrial malaise of the late 1970s and the early 1980s, Consumer Reports gave virtually all U.S.-made cars the absolute worst ratings while Americans embraced Japanese automobiles and electronic goods for their superior workmanship.  That competition forced our automobile industry to go from cost-cutting inefficiencies and shoddy workmanship to quality, pride, and innovation.  “If my prognosis of good economic times ahead is correct, then General Motors will once again become the premier auto company, with Cadillac returning as the national symbol of success” (Chapman Markeline, 1985).

The following year Americans rushed to buy Japanese-made cars-even as the yen was pushing to record levels.  “Ironically, as our dollar begins to soar higher and higher in the late 1990s, so too will our trade exports rise to record levels.  More significantly, for the first time in decades the label ‘Made in the USA’ will become much sought after as a status symbol not just here, but especially abroad” (Chapman Marketline, 1986).

REAL ESTATE AS AN INFLATION HEDGE   

“To fight inflation one must own an increasing asset like real estate.”  That was the mantra of the early 1980s.  After all, property ownership enabled one to “come out ahead. Ironically, real estate’s attractiveness in the final phase of the mega bill cycle will be negatively impacted by lower interest rates.  The stock market’s rise will usurp much of the funds usually allocated to real estate.  Capital appreciation from the stock market has far outpaced real estate since the 1987 crash.  And that should continue except at the highest end of the luxury home and posh vacation home sector.  In the 1924 to 1929 period, the average price of a house actually declined in value.  Unfortunately it takes the public many years to let go of a belief imbedded into the cumulative psyche, at which point the “new” belief is probably as untimely as the “old” one.  Just reflect on the general mood during the bank crisis and the layoffs of the early 1990s, or on the incessant talk about a budget deficit.  Now there is the Social Security scare.  In each of the earlier cases the problem was resolved in the market place as the headlines were increasing on the front pages.

It was with inflationary expectations that the public in the Northeast resorted to bidding wars for houses and other properties in 1983.  Danger signs began to show up in 1984.  All indications pointed to a major top looming on the horizon for the real estate market.  Declining interest rates were very bullish for stocks.  Many big-cap stocks hadn’t even broken out from their long-term bases.  IN piecing together the parts of the economic jigsaw, it appeared that when the real estate market eventually did peak, it would leave just one “commodity” to have its parabolic upsurge in the latter part of the twentieth century: stocks.

In the spring of 1985 Boston-area rental property had risen to a level where it was difficult, if not impossible, to find a multifamily dwelling that had any cash flow after expenses.  Extremely high prices of rental homes made for substantial monthly payments as expenses overwhelmed receipts.  Nonetheless, rental home owners seemed convinced that large profits when selling their properties would more than make up any shorter term deficits.  Unfortunately, when reality and dreams part company for too long, reality usually wins.

The Boston Globe devoted a special article in the real estate section of its Sunday paper to the benefits of owning rental property early in the summer of 1985.  Contrary opinion plus the tremendous surge in prices indicated that the rental housing sector was becoming frothy.  The following year, as prices were still rising sharply, another article in the Boston Globe focused on the benefits of owning vacation home on Cape Cod. Prices there escalated.  Another warning sign was the steadily increasing numbers of “No money down” real estate investment “shows” and seminars.  That quickly became an avalanche.  In 1986 a “sell” on real estate was given.  Although a year too early, the 1987 stock market crash rapidly burst that real estate bubble.  Today, most properties are still far under those heady peak levels.

 At the time of that mid-1980s sell on real estate, a distinction was made.  While the broader real estate market would seriously lag the stock market, top quality property (huge estates with swimming pools, tennis courts and quarters for guests, maids, and chauffeurs), down-town office buildings, and very specific situations and sites especially related to mega projects would continue to do very well in the 19902.  AS stocks outpaced real estate the bull market would usurp the bulk of investment monies. Renting would become popular again as potential hoe owners decided that the gains in the stock market increased more rapidly than the value of their home.  In the period 1926 through 1929 the average home lost money while the stock market more than doubled (having gone from the 160s to the 308s on the Dow Average).

LEGISLATION: THE CABOOSE

In late 1987, the “from bricks to paper” theme began unfolding (Chapman Marketline, 1986).  Equity built up over many decades by investors in the real estate market would eventually be moved into the stock market.

Legislation invariably favors a bullish area on the way up and turns bearish on the way down.  The direction becomes an issue after it is clearly identifiable to the public and close to evaporating.  That is when politicians step in to do their civic duty, to fix the problem, at the point of greatest ineffectualism.  Whichever way, it is invariably too much, too late.  By then the real issue has become virtually nonexistent.  Even worse, a countertrend directional move has already begun.  In the end, history gets legislated not the present of the future (which was the original intent), thus creating a problem for the future.  Were there tax cuts in the though 1970s? No! But now that the stock market has provided exceptional returns for years and the economy is booming, there is even talk of capital gains being completely eliminated.

Over the past decade we have seen an increasing desire by politicians to target the real estate market with potentially negative legislation.  Whether it be through tax disincentives (increasing the depreciation time table), or through potential changes in the way real estate investment trusts. (REITs), rentals, or other real estate vehicles are treated for tax purposes the favorable focus evident in the 1980s would change.  Consequently, laws favoring real estate as an investment will become less desirable, while in counterpoint, stock ownership will be stimulated through legislative encouragement.

 Legislators have waited patiently in the caboose until now.  They have checked the direction of the billowing smoke and are very carefully moving up to the front of the train.  Watch out, real estate.  The politicians are coming toward the engine to stoke the stock market.

FASHION IS THE GREAT DICTATOR OF TRENDS

This mega bull market will remain unstoppable until the last penny has been wrung from the public.  The investing public is now global. As the Dow pushes ever higher, foreigners will see the United States as the safest place on earth to invest, thereby fueling the stock market even more.  When the Japanese Kikkei was soaring into the 30,000s money poured into the Japanese market.  The belief was that the Japanese had a perfect economic system.  American businesses studied their formula, as “emulation” became the theme.  But at the height of their glory, as the Nikkei was lunging toward 39,000 the rug was pulled from under them.  (Chapman Marketline, April 1979, “target 39,000 for a major peak in the Nikkei-a top that could last some 30 to 40 years.  Simultaneously, the DIHA/dollar should trade places with the Nikkei/yen as they pass one another in opposite directions over the coming years.”

As mentioned earlier, the fashion now is to invest in the stock market. No amount of dissuasion will change that.  What took the general public over 15 years to understand cannot be changed until the last believer is won over.

BANKS AS CONTRARY INDICATORS

Even when badly needed in the late 1920s, bank regulations were lax.  Instituted with President Roosevelt in the early 1930s, they were useless when no one had any money.  Theoretically, tighter bank regulations are needed now.  Instead, like the late 1920s, regulations are being lifted or eased; Roosevelt’s regulations are being tossed out.

The historical safeguards that would elongate this mega bill market, such as not allowing banks in any way to be involved with stocks except in the typical fiduciary tradition or limiting their buying of brokerage houses, are all crumbling.  The banking industry has a penchant for getting into a trend when it is practically over: bonds, real estate and now stocks. 

The real estate crash of 1987 showed once again banks’ poor timing as mortgage activity dried up and banks across the country closed or were shut down. (As a contrary indicator though, one recalls the gory headlines when beaten-down bank stocks were trading in the single digits in the early 1990s. Now they are recording banner headlines as many are pushing into the triple digits.) One of the focal points of the “Trendswatch” section back in the mid-1980s was (and remains) that banks and brokerage houses would gobble one another up, and “conglomerates” would return as the economy demanded a larger scale, especially for international business.  SO, as the antitheses of the “lean and mean” era of the 1980s, the slogan would become “bigger is better.”

FROM SAFE INVESTMENTS TO MORE SPECULATIVE AREAS

“As the bull market becomes the number-one topic around the country, banks will be forced to open stock market booths with ‘experts’ giving out advice.  Because these newly minted experts will be paid from the brokerage arm of the bank, ‘maximizing your returns’ will surely involve numerous trades.  With the click of a button, your funds will gradually move from the cocoon and safety of the fixed –income arena into the playing field.  Later, as the bull market pushes substantially higher, money earmarked as ‘untouchable’ will find its way into the riskiest areas of the stock market”  (Chapman Marketline, 1987). Another mega bull warning signal will be banks vying with one another to handle the public’s “portfolio.”

When the home equity evolution began in the early 1980s, it was and continues to be a concern that at some point home equity, a sum based on the value of one’s home, will find its way into the stock market. Low interest rates would encourage stocks to be bought on margin, or even on credit cards, as a “supercharged Dow” makes it impossible to resist a “sure thing.”  Eventually, as the stock market pushes into the stratosphere, bread-and butter money is going to find its way into stocks and options-from bricks to paper.

When essential living-expense money is lost, it is vastly different to money lost in an “event.”  The reason why the 1987 crash was essentially just an “electronic event” was that the bulk of the money lost involved long-term investments.  Time could heal that one. In October of 1929, it was the rent and daily-food money that was lost.  Within days people were selling their cars to pay living expenses. 

FROM COMPLACENCY TO EXCESSIVITY:  CONSUMERISM AND ADVERTISING

In the mega bull market, advertising will infiltrate virtually every pore.  Nothing will be sacred, not National Public Radio, public television stations, or the U.S> Postal Service-the last sacred cows of noncommercialism.  The pervasiveness of commercialism will have infiltrated even the public school system as the final decade of the 1900s concluded the most extravagant spending spree of the century.  Capitalism would be taken to its very extreme as country after country opened its arms to the concept of free enterprise, selling off every tangible asset they had.  Everything would be for sale.  Everything would have a price.

ADVERTISEMENTS PARALLELING THE HEIGHT OF THE STOCK MARKET IN THE FINAL PHASE

What happens over the coming few years should mirror well the emotions and values of the country as they change dramatically. In the next and final up phase of this mega bill market, the atmosphere will be charged with excitement.  We will accept as normal the glorification of making money, as stocks make people wealthy beyond their wildest dreams.  There will be advertising everywhere: covering buses and cars; huge flat-screen monitors that allow ads to be changed every few minutes; 60-foot holographic people, hands, animals, whatever-always selling, selling, selling.  Supermarkets are already experimenting with smells to entice shoppers to various sections and aisles.  We are becoming so immune to the pervasiveness of commercials that the commercial-free charter of National Public Radio and Public Television is really a metaphor for false advertising.

Wherever we go, even in countries around the world, the one common denominator constantly discussed will be the stock market.  And stocks represents products.  Long-term investments will become shorter and shorter trades. 

ONCE IN PLACE A TREND ONLY STOPS WHEN ITS ORIGINAL INTENT IS FORGOTTEN

For the majority of investors, the stock market has traditionally been an adjunct to their regular income.  Thought of as another way of building some security after retirement or in old age, the stock market usually functioned as a complementary way of enhancing one’s Social Security of other retirement income.  Dividends from utility or bond-type fixed-income financial instruments were the trading source, which gave rise to the expression “good for widows and orphans” when talking of steady income investments.   (Sounds so old fashioned today.)  And, if there was perhaps some capital appreciation, it was a bonus, not an expectation.  Now, a few minutes of waiting for capital gains feels like a lifetime.  However, soon it will become a form of “salaried” game as thousands of investors give up their jobs to become “traders.”  The idea of playing in the market is even being promulgated in schools, from elementary to college. It’s possible that high scholars and college students will give up their studies to become day traders.  Slowly, investing will become a fad, and then a frenzy.

THE STOCK MARKET AS A GAME

With the use of computers growing exponentially in the last decade, it became obvious that the computer would allow easy accessibility to brokers.  As the market went to new record levels, the public, trading more frequently, would push the volume of the New York Stock Exchange (NYSE) toward a one-billion-share day.  “When the Nikkei finally succumbs, the void will be filled by the NYSE as one-billion-share days become average!  (Chapman Marketline, 1989).  Now that trend is accelerating as Internet trading grows exponentially.  (even the conservative DJIA has been pressured into doing something righteously avoided up until now, succumbing to the pressure or having futures and options traded on a new DJIA Index.)

Eventually, 24-hour –a-day trading will become a magnet for money.  With stocks charts, unlimited market-related news and services, and the equivalent of the “No money down” operators of yore becoming stock seers, it will turn into a private game, played in pajamas, at home.  The formality of traditional trading will be peeled away.  When that final stock market bell silently rings one day, no one will understand why the “market” opens limit down for days on end because “speculators” (as they were called in the stock pools of the twenties) will simultaneously be pushing the sell buttons on millions of computers around the world.  And unfortunately, those sell orders will be answered by the longest busy signal in history.  Their feelings will be similar to what those wealthy holiday makers aboard the “ocean liners to nowhere” in October of 1929 experienced as they watched glass-domed tickers spewing out unbelievably lower prices on their falling stocks.  The only problem was, “modern” ticker or not, those prices were days late!

Another feature that appears at major stock market tops is the building of a new stock exchange venue offering the “biggest and best” state-of-the art trading floor and transmission.  Unfortunately, no matter how big or modern the system (remember 1987?) it will fail when most needed.

CAPITALISM GOING AWRY

Capitalism is the current fashion/trend throughout the world, and the United States is essentially the creator of capitalism as we know it.  When eventually our stock market becomes the most desirous place to invest, double-digit gains in the blue chops should become commonplace.  As the DJIA powers relatively soon into the 10,000(five digit) level, other forms of investments should pale in comparison to the easy money that Wall Street will be dishing out.  Intraday traders will probably see swings so large that entire fortunes will be made and lost in one session.

“NEW” PARADIGMS

By the time a “new” paradigm has been recognized by a majority of investors, it is closer to the end than the beginning.  “Like a supertanker slowing rounding a bend, the economy’s positive turn won’t be noticed until long after the smoke is left on the horizon” (Chapman Marketline, Summer 1986).  It is time to look past the millennium.

While remaining a mega bull on the stock market (with a DJIA target of 22,000-plus by the summer of 2001), it is as important to recognize the signs of an approaching top now as it was at the 1982 bottom.  After all, climbing the mountain is only one step; surviving the descent is equally important.

If this stock market surge continues through the year 2000, and if the political and socioeconomic trends that perfectly match the 1920s template continue (as they should), then now is the time to start thinking about the consequences.  It is a time to ruminate and circumscribe: Are we looking at another depression? Who will bail us out when there is no money left? Since a major top will almost certainly engulf the global community, if history is our guide, the answer is clear: No one. This is not necessarily a gloom-and doom ultimate scenario, but rather an attempt to see where the logical conclusion and consequence lead us.

The questions continue.  What happens if a cataclysmic scenario unfold?  How will the formerly communist and socialist societies cope when they have literally thrown out their secular ideology and core beliefs for capitalism?  What if the rug suddenly gets pulled from under them?  Where do they turn?  Will there be a support system left at this rate(especially as almost every country is selling the infrastructure of their government property and services to the newly glorified free market system)?  Are the disenfranchised to become the new rulers?  And foremost, what will happen to our youth, many of whom have started life with nothing but luxury carriages and leather seats under their pampered bottoms?  How will they deal with adversity?  The generation that still shuts off the lights when leaving a room is almost gone.  This is now an era of “forever golden.”

SO WHAT DO I DO?

An orchestra conductor, in the middle of a piece, stops the orchestra.  “No, no, no!” he says, waving his arms.  “That’s not how Beethoven wanted it. This is where Beethoven is strolling in the forest contemplating the melody of the slow movement.  It’s a beautiful late afternoon as the sunset filers through the leaves.  Birds are in the trees, and – Suddenly, he is interrupted by a trumpet player who asks impatiently, “Do I play louder or softer?” Just so, inpatient investors fume, “Forget the talk! Do I buy, or do I sell?!

If the socioeconomic assumptions made are correct, implying that the next major up phase of the Dow Jones Industrial Average in this mega bull move is to the five-digit level, then the answer is easy.  As long as one is invested in blue chop stocks or a growth-and-income fund that has a proven track record or the late cyclical stocks, just sick back and enjoy the ride. A reasonable strategy regarind preservation of capital-again, if this very long term prognosis is correct-should be to lighten up one’s portfolio by a certain percentage as the DJIA goes parabolically higher.

THE DIFFICULTY WILL BE TO STEP OFF THE ACCELERATING TRAIN AT THE RIGHT STATION

Extricating oneself from a fully invested position is going to be an almost impossible task.  Very few have the temperament of the famous investor Bernard Barusch, who sold his stocks before the 1929 crash.  Selling when everyone is buying will be an extremely difficult task.  The social pressure to be fully invested will be immense.  Included in the list of enticements to get one into the stock market will be stock tickers at the bottom or virtually every news show on TV or on the Internet.  Commissions on stocks should remain very low because high trading will eventually make the brokers money.  Worse, your family, friends, and neighbors will constantly remind you how much they have made in “just a few days.”  (never mentioning how much they might have lost in “just a few days”).  Anyone who lightened up on stocks in the summers of 1987 or 1997 can tell you  how many times they were almost sucked back in, especially as they watched those big-point moves as the blue-chip stocks were hitting all-time highs.

When finally those icons discussed in the opening paragraph appear, time will be running out. No one knows the precise high or time of the exact top, but this is market that is essentially concluding about a century’s worth of growth.  If that assumption is correct, then, like the Nikkei before it, this bull market could go on for a great deal longer.  It could also power very much higher than the targets set forth.  Regardless, a strategy for exiting is as important as entering.  We all know when to buy, but selling is a different story.

The forming of a major stock market top should be easily identifiable.  However, amongst the plethora of “mega” everything’s that are announced, yet another new building isn’t going to stand out as anything very special.  The project will have to be something really unusual to challenge a magnificent edifice such as the new Malaysian Petronas Towers.  The person to build it will no doubt represent this age perfectly: a “self-made” entrepreneur easily recognizable by name in and out of his or her field, extremely rich, known for big mistakes and great comebacks, and who has a specific sense of style and a grandiose plan that some who mixes personal ego with the entire country’s exuberance.

IN CONCLUSION

This chapter has attempted to deal with how history has repeated itself often enough in the stock market that some repetitive overlay can be used as a guidepost.  While there are many technical and fundamental tools available to project numbers to the upside, it is the socioeconomic template that remains the key to this market’s magnitude.

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