Brace yourself for an investment forecast that could give anyone the shivers.
It comes from, of all places, the upper-crust money-management house US Trust Corp in New York. It speaks not of some horrible plunge in stock prices, but of a "sideways" stock market of a kind seldom seen in the past 20 years.
PHOTO: REUTERS
Now comes the really disturbing part: "There are strong parallels between the current tone of the stock market and market activity during the 1970s," according to a US Trust missive sitting here on my desk.
Back to the 1970s? No, no, anything but that! Gas lines, Disco Duck, and styles in hair and clothing that stand as an eternal warning against letting current fashion dictate how you dress. See any Partridge Family rerun or my wedding pictures.
To the modern investor well-accustomed to bull markets, the stock charts from those days may appear equally bizarre. A check of my Bloomberg shows that the Dow Jones Industrial Average closed the last trading day of 1970 at 838.91. Nine years later, on Dec. 31, 1979, it stood at 838.74.
Here in late 2001, David Tillson, a US Trust fund manager, says he expects a similar "aimless pattern for the foreseeable future." He isn't the only one speaking in troubling terms.
Kevin Parke, chief equity officer at MFS Investment Management in Boston, which manages US$140 billion in mutual funds and other accounts, figures it's going to be harder to spot clear-cut investment trends and themes in the next 10 years than it was in the tech-happy 1990s.
"The 90s spoiled us," Parke says. "The themes were so readily apparent. Our expectation is that the coming decade is going to be much more diversified."
Now, let's remember that all market forecasts are iffy, whether the story they tell is dramatic or, in the present instance, dull. As the 1990s began, many pundits wrongly told us that the new decade couldn't possibly prove as exciting as the 1980s had been.
For the sake of argument, though, let's assume the low-expectations crowd is onto something this time. Does that leave any reason to stick with stocks or stock funds? My answer is yes. Several significant ones come to mind.
There's the eternal problem with any effort to time the market.
Assuming you pick a good time to get out of stocks, how are you going to know when to jump back in? Another, possibly even tougher question: do you have a better place in mind to put your money instead? Even when the averages flat-line, the market isn't necessarily devoid of reward. From the end of 1970 to the end of 1979, thanks to dividends, the Dow posted a positive return of 4.8 percent a year. The Standard & Poor's 500 Index did even better, gaining 6 percent per annum, with dividends accounting for about four-fifths of the total return.
You remember dividends. "Disparaged, neglected, relegated to the bleachers, nobody seemed to care about dividends up until about six months ago," says Bill Gross, the Pacific Investment Management Co. managing director who has been a prominent bear for some time. "`Show me the money' now means `show me the dividends.'" Today, sad to say, there's a problem with dividends too.
Stocks typically came out of past bear markets with dividend yields averaging 5 percent, 6 percent, or even 7 percent. Now yields are more like 1.4 percent to 1.8 percent, depending on which market indicator you check.
But inflation and interest rates, two principle bugaboos of the 1970s, are also much lower now. And if investors demand it, many companies could soon start paying fatter dividends in lieu of the popular bull-market alternative, buying back blocks of their stock.
If we try hard enough, we can think of some good things to say about the 1970s in finance. They turned out to be an excellent period for accumulating stocks or fund shares at low prices for the boom to come in the 1980s and 1990s. Financial deregulation moves in the 1970s, such as the elimination of fixed brokerage commissions and the creation of Individual Retirement Accounts, helped to set the stage for that boom.
So if the current decade might bring us echoes of the 1970s, be it resolved that it will nevertheless offer interesting investment opportunities. Think positive -- at least the radio won't be playing You Light Up My Life this time.
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