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James K. Glassman, The American “The cult of equity is dying,” writes Bill Gross, managing director of Pacific Investment Management Company (PIMCO), the hugely successful money management firm. His August Investment Outlook, which is extremely negative on stocks, has been the talk of Wall Street. Some suspect Gross of talking his book, but it’s worse than that. Gross runs the largest mutual fund in the world, PIMCO Total Return, with $270 billion in assets — almost all in bonds — and his antipathy to equities is nothing new. In September 2002, he wrote a piece in his newsletter headlined “Dow 5,000,” that said, “My message is as follows: Stocks stink and will continue to do so until they’re priced appropriately, probably somewhere around Dow 5,000, S&P 650, or Nasdaq God knows where.” His timing could not have been worse. On October 10, 2002, barely a month after the newsletter came out, the Dow Jones Industrial Average hit a low of 7,197 and started back up. The bear market that began in the first quarter of 2000 with the collapse of tech stocks was over. Last Friday, the Dow closed at 13,207. That’s a gain of 85 percent. With dividends, an investment in the 30 Dow blue chips has more than doubled since Gross’s forecast. He was wrong about the other indexes, too. The S&P bottomed the same day as the Dow, never coming close to 650, and is now at 1,406 — up 85 percent. The Nasdaq also reversed course in early October 2002 and has since risen 173 percent. In October 2002, I took issue with Gross’s prediction in a piece titled “Why Stocks Don’t Stink,” citing the history of U.S. equities and the low valuations that were then prevailing. I advised investors not to bail out. I concluded that, not only do stocks not stink, but, “in fact, they’re enticingly fragrant.” Some might say that, as the coauthor of the 1999 book Dow 36,000, I am no better a forecaster than Gross. Fair enough. But there are two differences. First, unlike Gross, I’ve learned my lesson about the forecasting game. Dow 36,000 was a serious financial work, but it suffered from an inflammatory title and a prediction that grabbed attention but had little to do with the mainstream thesis. No more futurology for me. Second, unlike Gross, I am a believer in the long-term rationality and efficiency of markets rather than in conspiracies, name-calling, and hubris. Read More
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