Customer Reviews

Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market

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This book was one of the reasons I got completely out of the stock market in late '99 early 2000. When I read this pustulous piece of putrescent puffery I just knew I had to get out. THANK YOU KEVIN AND JAMES!!!!!

I come to write this review because just for a lark I thought I'd search the internet for Glassman, see what he's pushing today, so I can get out of it for my own safety.

In writing this review I treat the authors' late-90s media appearances and book-related articles all as one whole.

Hassett and Glassman are out there now (Nov 2002) writing (paraphrased) "we never wrote the DOW would be at 36000 soon".

I read the book in fact in winter 99/00 along with some of their articles, and did catch a few of their TV appearances. They definitely did write either in the book or one of the accompanying pieces (Washington Post or The Atlantic) that stocks are in a 'one-time surge' and everyone must GET IN NOW.

Their media appearances were even worse...

"GET IN NOW!!!
DON'T MISS THIS ONCE IN A LIFETIME OPPORTUNITY!!!!
YOU'RE FOOLS IF YOU DON'T
MORTGAGE YOUR HOUSE TO BUY STOCK!!"

They used to remind me of that Joe Piscopo SNL salesman character (you remember, the frenzied salesman, "WE MUST BE INSANE!!! OUR PRICES ARE SO LOW WE'LL GO OUT OF BUSINESS YESTERDAY!!!!").

And they are completely unrepentant. I just read a Glassman article (Wash Post - why the ...are they still giving this unrepentant, lying moron/clown a stage?) claiming he was right all along and 36000 is STILL the DOW's fair value. Claiming that Siegel's research supported G&H's conclusions (Siegel, who currently seems bullish said they misconstrued his research. Interesting word, misconstued - is Siegel saying G&H are liars, idiots, or some combination thereof?). Claiming that all investors everywhere should still be fully invested in the stock market for the long term.

Something a lot of the other reviews are not pointing out is that G&H had ideological motives for pushing stocks (Glassman was once publisher of a right wing magazine, I forget which one). Both G&H were[1] republicans and both felt that the more people own stock the more conservative they become, in an attempt to protect their assets.

[1] I don't know their current predilictions.

Dow 36,000 elicits (or did from me) plenty of laughs. It would have taken a couple of academics to produce such a relentlessly wrongheaded book.

The key errors are twofold, in my opinion. First, the authors exhibit precisely that of which they accuse those who differed with them: they think they are smarter than the market. They feel (or felt -- maybe they have wised up by now) that right at that moment (mid-1999) the Dow should have been three hundred percent higher than it was at the time and that the proper PE ratio was 100. Nevermind that market history refuted that position, and nevermind that we have seen such claims before and they proved false. (The authors strain credulity in their attempts to show otherwise.)

Second, the authors assumed that earnings growth (which they apparently took to be real) would continue ad infinitum at a steady upward incline AND that dividend growth would take a similar path. Well, the intervening years have proven both assumptions to be completely false. They made a pro forma nod toward ups and downs in the market, but ignored the meaning and impact of those ups and downs.

More fundamentally, perhaps, the authors' relentless (albeit I think somewhat disingenuous) insistence on the long run (20 years plus) ignores the reality that (1) many big players in the market are NOT waiting out 20 years, but rather play for short term advantage and (2) many people -- those who actually have to live off their investments -- must sell from time to time to cover expenses, and CANNOT simply wait out gut-wrenching market drops.

The most ludicrous advice in the book is, in effect, that investors SHOULD fall in love with their stocks -- which is the most fundamental error of all, and one that has victimized countless investors. Their term is to form a personal relationship with their stocks, but the meaning is the same: fall in love with them and hold on for dear life no matter what signals the market is sending. That worked out *real* well for bagholders of Worldcom, Enron, Sun Microsystems, and at this point, it appears, even Automatic Data Processing, one of their favorites.

This is not to say that patience is a bad thing, but only that blind devotion to a stock even through badly damaged fundamentals and the intrusion of important new information is insane.

Now, in mid-2002, much of this book elicits guffaws -- but the strength of the laughter is inversely proportional, I suspect, to how badly burned one was by following the authors' loopy advice.

James Glassman should apologize for his stupidity, his arrogance, and this book, which lured in a whole lot of amateur investors just as the stock market was about to go bust.

Talk about hindsight. This book should be a collectors item for it's laughable prediction. Hilarious stuff. The only thing funnier is one of the author's is Mcain's ecnomic advidor. ho ho he he

As an addendum to my previous review, where I wrote that one reason I got out of the market was this book, let me add that before I get back into the market I'm waiting for "Dow 36" by Glassman and Hassett.

I'm pretty sure they meant "Dow 6,000 - The new strategy for watching the stock market turn into a quantum singularity that swallows the entire planet's net worth". I wish I had time to savor my schadenfreude, but I'm busy watching my 401(k) disappear.

Thank God McCain's got these guys as advisers. Just think how flawed his economic plan would be otherwise.

I remember learning arithmetic in second grade, apparently the authors of this book do not. It takes no more than some very basic arithmetic to refute the book's central claim. To set the scene, the book claims that stocks are no more risky than government bonds, therefore on average they should provide the same return. Let's accept this one for a moment and run the numbers.

I can get a government bond that will pay me 4.0 percent interest above the rate of inflation, as measured by the consumer price index (CPI). Keep in mind, this is an absolute iron-clad guarantee. If the government does not collapse, I have a return of 4.0 percent above the rate of inflation, each and every year that I hold this bond. If bonds and stocks are equally risky, then stocks should be able to provide me with the same rate of return. Is this possible with a 36,000 Dow?

At 36,000, the ratio of share prices to after-tax corporate earnings will be somewhat over 100 to 1. We can round down to 100 to 1 to keep things simple. Firms typically pay out 50-60 percent of their profits either as dividends or share buybacks, which for purposes of this discussion are identical. This means that the return from dividends is 0.6 percent annually (60 percent of 1 percent).

To provide the same return as my inflation indexed government bond, the rest of my 4.0 percent return would have to come in the form of capital gains. In other words, the stock price would have to increase by 3.4 percent a year, above the rate of inflation. Is this possible?

The answer to this depends on how fast corporate profits grow. Most projections assume that corporate profits grow at the same rate as the economy. According to the Social Security trustees projections, this is expected to be about 1.5 percent annually, in years after 2010 (we are looking at the long-run). This means that if stocks are to acheive the 3.4 percent real annual growth rate assumed by the authors, then they will have to rise by almost 2.0 percentage points more rapidly than the growth rate of corporate profits assumed by the Social Security trustees.

This leaves two possibilities. Either stock prices continually rise more than coporate profits, pushing the price to earnings ratio ever higher. This is kind of like the tulip bulb mania in Holland in the 17th century. People buy stock certificates just because they like to hold them, not because of their connection to coporate profits, not a terribly plausible story.

The second possibility is that the economy will grow more rapidly than the Social Security trustees project. This is possible, but note that the difference is not small. The authors need a growth rate of 3.4 percent (as measured by the CPI), more than twice as high as fast as what the Social Security trustees project. This growth rate is also far higher than the rate projected by the Congressional Budget Office and every other long-term forecast regularly used in public policy.

So, if the 36,000 Dow is going to give me the same returns as my completely safe government bond, every major economic projection must grossly understate the economy's growth potential.

This brings up a final point. Until now I accepted that stocks and bonds were equally risky. But, let's acknowledge the possibility that the authors are wrong about the economy's future growth rate and the Social Security trustees and other experts are right. How much would stock prices have to fall, in order to raise the dividend yield enough, so that the stocks gave a return that was equal to my government bond?

Well, if the economy is growing at 1.5 percent annually, then I would need a 2.5 percent dividend yield. If the ratio of the stock's dividend to its share price is 2.5 percent and the company pays out 60 percent of its earnings as dividends, then the ratio of its earnings to share price must be about 4.2 percent (60 percent of 4.2 percent equals 2.5 percent). This implies a price to earnings ratio of 24 to 1, or in other words a Dow of 8,640, less than one quarter of the book's title.

There's the proof that stocks cannot possibly be as safe as government bonds. Unless you have the same confidence in the authors' predictions (as opposed to those of every expert in the field)as you do in the survival of the federal government, stocks carry far more risk than government bonds. See what you can do with second grade arithmetic?

Glassman. What a maroon. At the height of the market bubble, Glassman tells people that stocks should be 3 times higher because everyone in investing history is an idiot and Glassman is the only one who knows what stocks should really be worth.

This guy is a disgrace.

What a strange place to find a typo misprint! But overall, surely this book is too pessimistic. Times may be hard, but it doesn't seem likely that the Dow will really fall as low as 3,600. If it doesn't, that will surely be the time to buy! Great comedy, anyhow.

Lop off the three zeroes and you have the combined economics IQ of the authors. You'd be hard-pressed to find a more glaring example of market charlatanry (other than the daily stream of "experts" paraded through news shows of course). The real irony is that they published this sorry book AFTER the bubble had begun to burst in 2000.