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Jewish World Review April 13, 2000 / 8 Nissan, 5760

George Will

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Consumer Reports



Tech- Stock Joy Ride -- TREASURY SECRETARY Lawrence Summers recalls that only 10 years ago he called his wife just to tell her he was talking on a car phone. Seven years later, in a canoe off the Ivory Coast, he was handed a mobile phone to talk to then-Treasury Secretary Robert Rubin.

At a time when 1 billion of the world's 6 billion people have not made a telephone call, technology drives America's economic giddiness. Millions of amateur investors (the Consumer Federation of America reports that only 38 percent of investors know that interest rates and bond prices vary inversely) believe that investing profitably is effortless.

In these fat years, Americans eat and drink constantly, so airport corridors--in 1975, 80 percent of Americans had never traveled by air--are lined with eateries. At one in Phoenix there is a ticker giving stock prices in streaming red lights. There is a ticker at Shea Stadium so New York Mets fans can monitor their investments between innings. America is neurologically wired to Wall Street.

Only 29 percent of persons filing tax returns itemize deductions; 74 percent of households pay more in payroll taxes than federal income taxes; 15 percent of households do not have bank accounts. However, since 1995 the number of households with a net worth of $1 million has doubled to 7.1 million (about one in 14) and the investor class now is a majority. In a country in which retirement was a rarity when Social Security was established 65 years ago, about half of households have stock holdings, and enough Americans are sufficiently attentive to the stock market that market tickers are becoming ubiquitous.

So are morally dubious incitements to do-it-yourself investing. In a recent Business Week cover story, Marcia Vickers and Gary Weiss report that advertising by brokerage firms rose 95 percent in 1999 to $1.2 billion, and that CNBC has become to investors what ESPN is to sports fans. The long bull market and cable television have turned many financial analysts into celebrities, making them less researchers than pitchmen, some of whom, say Vickers and Weiss, "own the stocks they pitch on the air." They say, "Studies show that buy recommendations outnumber sells by a staggering 72 to 1. The ratio 10 years ago was 10 to 1." Of Mary G. Meeker, chief Internet and e-commerce analyst for Morgan Stanley Dean Witter, they say: "Even though she stated in December that 90 percent of Internet stocks are overvalued, she has never placed an actual sell on a Net stock."

Investors are urged to take "control" of their financial destiny by buying on margin and restlessly churning their portfolios (in 1990, the average Nasdaq stock was held for two years; today, it's five months) with the manic energy of Stuart, that redheaded twentysomething lunatic in the Ameritrade commercials. But is the bull market apt to stampede on indefinitely?

Andy Serwer, Fortune editor at large, challenges skeptics to ask themselves: How many of these are you likely to buy in the next 12 months: a PC, a laptop, a printer, a scanner, a cell phone, a pager, a Palm-like device, a DVD player, a digital camera, a hand-held GPS (global positioning system) device, a PlayStation. "How many of those items," he asks, "did you buy in 1990?"

Granted, this is the first economic expansion since the 1920s driven almost entirely by the private sector, especially by higher productivity because of information technologies. Granted, the profusion of new consumer goods astounds--although that profusion is a difference only of degree, not of kind, for America's economy, which usually is driven primarily by consumers.

Shawn Tully, senior writer at Fortune, speaks for skeptics when he counters that a tech stock is not a collectible, it is a financial instrument. Like any other stock its real value is "the sum of its future cash flows, adjusted by an interest rate that reflects the stock's riskiness and the yields available on other investments." The anticipation of huge cash flows presupposed by the current price-earnings ratios of many tech stocks presupposes huge profits.

But they can come only from "the ability to sell a product far above cost for a very long time."

Are there really enough such products to fulfill the current market's implicit prophecies? Want another 1920s parallel? Robert Kuttner, Business Week columnist, notes: "The price-earnings ratio of the market as a whole is now far in excess of 1929 levels."

The great political event of this election year may yet be a Great Correction that gives some fliers a taste of real turbulence--think downdraft--before they board their flights from Phoenix.

Comment on JWR contributor George Will's column by clicking here.


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03/20/00: Powell is Dubyah's best bet
03/16/00: Free to Be Politically Intense
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03/09/00: And Now Back to Republican Business
03/06/00: As the Clock Runs Out on Bradley
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02/28/00: . . . The Right Response
02/24/00: Federal Swelling
02/22/00: Greenspan Tweaks
02/17/00: Crucial Carolina (and Montana and . . .)
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02/10/00: The Disciplining of Austria
02/07/00: Free to Speak, Free to Give
02/02/00: Conservatives in a Changing Market
01/31/00: America's true unity day
01/27/00: For the Voter Who Can't Be Bothered
01/25/00: The FBI and the golden age of child pornography
01/20/00: Scruples and Science
01/18/00: Bradley: Better for What Ails Us
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01/06/00: In Cactus Jack's Footsteps
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12/16/99: Star-Crossed Banner
12/13/99: Hubert Humphrey Wannabe
12/09/99: Stupidity in Seattle
12/06/99: Bradley's most important vote
12/03/99: Boys will be boys --- or you can always drug 'em
12/01/99: Confidence in the Gore Camp
11/29/99: Busing's End
11/22/99: When We Enjoyed Politics
11/18/99: Ever the Global Gloomster
11/15/99: The Politics of Sanctimony
11/10/99: Risks of Restraining
11/08/99: Willie Brown Besieged
11/04/99: One-House Town
11/01/99: Crack and Cant
10/28/99: Tax Break for the Yachting Class
10/25/99: Ready for The Big Leagues?
10/21/99: Where honor and responsibility still exist
10/18/99: Is Free Speech Only for the Media?
10/14/99: A Beguiling Amateur
10/11/99: Money in Politics: Where's the Problem?
10/08/99: Soft Thinking On Soft Money

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