Listen to the skeptics – or maybe not

As surely as night follows day – except north of the Arctic Circle, of course – whenever the Dow Jones industrials hit a new high, we see the experts with the pointy heads and the very high incomes.

What do most of them have to say? In this case I have to accuse Fox host Neil Cavuto of falling into the trap, as well. The day the Dow closed at a new high of more than 14,000, Cavuto not only expressed surprise and skepticism, but I would say that four of his five guests were shaking their heads in doubt.

You see, according to the wise men and women who appear on television, radio and write for metropolitan newspapers – the exception is The Wall Street Journal – the Dow really “shouldn’t” be this high because of all the terrible things going on in the economy and the rest of the world. Many of them harken back to the last time the Dow crossed 14,000 – and say, well, look what happened then. The worst mortgage crisis since the Great Depression, I guess, followed the new record high.

Naturally what happened then matters now, as they say.

A little history on observers’ ability to judge market moves correctly: You may recall that under President Gerald Ford, and then, increasingly under Jimmy Carter, we had severe inflation and high interest rates. We had settled into what was by then a seven-year despondency when Ronald Reagan took office. A year-and-a-half later, the market was stuck between 700 and 800 on the Dow. Paul Volcker, the chairman of the Fed, was applying severe interest rate increases to squeeze out inflation. His strategy was painful, but effective.

As the Dow started to inch up that August and September, someone said “this is it – the greatest bull market in history is about to begin.”

No, the market comments were almost unanimous in their doubts and skepticism. Interest rates were still too high, inflation hadn’t disappeared, who knew when there would be another OPEC oil embargo? Investors were warned to be very cautious about the market because, after all, hadn’t this happened before? False starts throughout the late 1970s, all of which produced disappointment. This move – in the early Reagan years – was to be no different. Caution? Yellow light! Danger – speculators playing! Protect your retirement – stay out!

I’m only exaggerating a little. The skepticism was so deep you could cut it with a bamboo stick from Japan. After all, weren’t the Japanese surpassing the United States in every economic measure?

Well, you know what happened. With a few setbacks, some of them deep and serious, the market began its biggest climb in history. By the way, that was just as the Nikkei averages fell into permanent stagnation.

Anyway, they’re doing it again. I have to agree that a market selling at 732 is more tempting for bargain hunters than 14,000 on the Dow. But we know the old adage: The market will do whatever it has to do to fool the most people most of the time. We could be in that situation right now. Either direction.

Bud Stevenson, a stockbroker, lives in Fairfield. Reach him at Bsteven254@aol.com.