How long can a bad stock market last? How about an entire decade! In the 10 years between 1970 and 1980 the Dow went up a mere 38 points — not even a five percent gain. Compare that to the 228 percent rise for the blue chips in the 1980s and the 318 percent climb in the 1990s and you can get an idea of just how bad the 1970s were.
Why such a lousy decade? The Vietnam War, a mid-east crisis and the threat of a nuclear exchange all weighed heavily on the market back then. And those same factors are in place now. The only thing missing? Hyper-inflation. (And, of course, Disco.)
Are we in for a '70s style market going nowhere fast?
Wayne Rogers, founder of investment strategy firm Wayne Rogers & Company, says he doesn’t think so. We do not have the out-of-control Inflation and very high interest rates that we did back then, and because the economics are so different he doesn’t think this decade will be as bad as the 1970s for the market.
Jonathan Hoenig, portfolio manager at Capitalistpig Asset Management, says this market does look like a ‘70s style market, primarily in the type of broad-market trading range he sees among big cap stocks that are really going nowhere, and he believes that it could last many more years than people believe.
Dagen McDowell, FOX Business News contributor, says we are faced with a ‘70s style stock market and she says one reason is a lack of confidence both in the market and in our government. She compares the crisis of confidence in the 1970s that was caused by Watergate and Vietnam with the situation we have now where people are questioning the government’s handling of corporations that have lied to shareholders and the fear that the government did not do all it could have to protect citizens from terror attacks prior to September 11.
Hilary Kramer, senior advisor and strategist at Montgomery Asset Management, agrees with Dagen that we have ‘70s style insecurity and instability. She says we have fear within our own borders that has made the market nervous.
Jonas Max Ferris, founder of Maxfunds.com, also thinks this market suffers from some of the same problems the ‘70s did. He points out that while corporate earnings actually grew in the 1970s, stock prices went nowhere because prior to the ‘70s investors had paid too much for those “nifty fifty” stocks they felt they had to own. Similarly, investors in the ‘90s drove prices on large cap stocks up so far that even with earnings growth those stocks are still too expensive to attract buyers in this decade, and that these same big conglomerates are issuing too much debt the same way they did back then.
'70s Proof Stocks!
The panel picked investments they think will do well even if we are now in a ‘70s style market.
Hilary likes Unilever (UN) — a Dutch company and consumer products giant with half its sales in Europe. Jonathan says it’s fairly strong in the charts, and while not first on his list of favorites, he says it’s a potentially strong stock going forward — especially since now is a good time to be looking at companies overseas. But he does fear a global market sell-off that would impact all large cap stocks like Unilever. Wayne calls this pick “dull and uninteresting.”
Wayne likes Senior Housing Properties Trust (SNH) a real estate investment trust that invests in housing for senior citizens. Hilary calls this pick a winner. Jonathan likes the dividends REITs offer. He says now is the time to be looking toward income producing investments like REITs and he thinks SNH is among those REITs that will move higher in this market.
Jonathan’s '70s proof pick is all about REITs. He likes international REITs that will stay strong even in an environment where the U.S. dollar is weakening. Jonathan’s pick is the Alpine International Real Estate Equity Fund (EGLRX). Wayne’s only concern here would be a war or some other international event that could hurt real estate values overseas. Hilary is concerned about commercial real estate being too overbuilt to bet on this fund.
Mutual Fund Face-Off: Falling Dollar Funds!
The dollar has been losing value lately against currencies overseas, and that matters to your mutual funds. Is there a way to profit from a falling dollar? Dagen and Jonas picked a couple of funds they say would move higher even as the dollar heads lower.
Dagen: Harbor International II Fund (HAIIX)
Minimum Investment: $1,000
Expenses: for every $8.90 for every $1,000 invested
Year-to-date (through 6-7-02): UP 1.9 percent
Jonas: American Century International Bond Fund (BEGBX)
Minimum Investment: $2,500
Expenses: $8.70 for every $1,000 invested
Year-to-date (through 6-7-02): UP 5.9 percent
Dagen and Jonathan wrapped up the show by answering some e-mail questions from viewers:
Question: "I bought AOL for the long term at $32.00 and didn't sell when it went a lot higher but now it's been cut in half. What should I do?"
Dagen: It could take 5 or 10 years for this stock to make a comeback. If you are willing to wait that long, then do nothing. The merger between AOL and Time Warner has been a total disaster but this company does still have some valuable assets. In particular it’s cable business and in the long run cable will be the way people will access the Internet, rent movies and even make telephone calls and that’s the best reason to hang onto it right now.
Jonathan: I would not buy, sell or hold AOL here. I’d even consider selling AOL short here since I think it’s going to $12 or $13. Take your losses.
Question: "I own 100 shares of QQQ which I purchased at $40 a share. It is now much lower. When does it revisit $40?"
Jonathan: The QQQ is a bet on the Nasdaq 100 Index and this is not a market for indexing right now. This index is dominated by a lot of large cap growth stocks like the Cisco’s and the Intel’s that can’t decide whether they are growth or value stocks, and if they are value stocks they shouldn’t be trading at such high valuations. Now is not the time to own the QQQ’s.
Dagen: For the QQQ’s to get back to $40 a share, the Nasdaq 100 Index would have to go up about 40 percent. That is not going to happen any time soon.
Dagen: Neither one of these stocks looks cheap here, which makes a short-term bet risky. But Home Depot is a bit cheaper and probably the better bet long-term.
Jonathan: I don’t love either stock. But I am especially afraid of Home Depot. Mutual fund managers are sitting on millions of shares of Home Depot that they paid too much for, and I’d be afraid of tax-loss selling at the end of the year.
Question: "Can Jonathan recommend an index fund of Japanese stocks that I can buy using my online brokerage account?"
Jonathan: I like Japan, but I wouldn’t play it through an index fund. You can take a look at MSCI Japan iShares (EWJ) which is an exchange-traded index of Japanese stocks. But this isn’t a market to own indexes; this is a market to own individual stocks. You should check out companies like:
Dagen: If you don’t want to buy individual stocks on your own, look for a broad international mutual fund or even a Japan fund.
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