"Economics," said the late AFL-CIO leader George Meany, "is the only profession where a man can have a lifelong reputation as an expert without ever being right."
Meany should have added negative stock-market forecasting to his list.Pity the poor fellow who makes an erroneous optimistic prediction; he will be savaged and driven back to his computer in tears. But the same old financial publications are now featuring the same old failed pessimists, explaining once again why everything they said would happen didn't.
They obviously find real life absolutely perverse. Business Week magazine, which portentously proclaimed "The Death of Equities" in 1982, on the eve of the greatest bull market of our lives, now inquires, "Has the Market Gone Bonkers?" Barron's, whose editor has been doggedly resisting reality for years, continues to play up such laughable wrong-way Corrigans as the "Elliott Wave theorists."
No wonder these folks are confused. Taken in last year by the fear merchants who predicted deep and horrible depression, and a total stock-market collapse, they panicked when the market sold off in the wake of Saddam Hussein's aggression - and mocked those few people who tried to put the setback into perspective as foolish Polly-annas.
Clearly, it is time for rational investors to apply a large dose of salt to any future comments from these upside-down analysts. At their recent peak, the Dow Jones in-dustrials were up close to 25 percent in four months - a historically spectacular bull move by anybody's count - and the broader New York Stock Exchange composite and Standard & Poor's 500 indexes had both barreled through to all-time highs. It was, in short, one more stunning victory for the "keep the faith" school of investing, which year after year gets most of the media scorn - and most of the profits.
So let's forget the fashionable, fearful nonsense, and see if we can figure out what's really going on now in the economy and in the stock market.
The economy began slowing long before the current official recession was proclaimed. The real estate industry was victimized by the unconscionable ex post facto provisions of the 1986 tax law, which made previously sensible investments suddenly unsustainable, and such leaders of Congress as Senate Finance chairman Lloyd Bentsen tell me they recognize Congress' malign role in this. (Whether they will soon correct it, in the current revenue-raising frenzy in Washington, is another question.)
Similarly, the counterproductive, anti-investment turn to recent tax legislation has intensified the problems of such major capital-spending industries as autos. Housing, autos and some other manufacturing sectors were in outright recession before the rest of the nation, and the overall economy has been losing steam since 1989. Last fall, in the wake of skyrocketing oil prices and consumer fears of a rerun of the 1970s, the official decline began.
It's not over yet, but there are unmistakable signs that it will be neither as long nor as deep as the gloomy consensus has believed. In financial terms, the end has been in sight since the Federal Reserve belatedly recognized the problem; the Fed has lately been pumping with extraordinary enthusiasm, twice lowering its discount rate and even reducing bank reserve requirements. That bodes well for a palpably stronger economy a few months from now.
The consumer will not feel great all of a sudden; such traditionally lagging statistics as unemployment will continue to get worse before they get better. And the foolish 1991 tax increases won't help, either. But we did not enter this recession with undue inventories needing to be worked off, so the prospect is for a shorter and shallower recession than average - followed by a tangible, but not euphoric recovery.
The stock market has been helped by fundamental improvements (while the well-known problems in the financial and other sectors are not about to evaporate, they are finally being dealt with) and by the continuation of remarkably high bearish sentiment (including unusually heavy short selling of stocks). All this suggests jagged short-term movements but eventually much higher prices. Saddam and the perennial pessimists both underrated the strength and future of America; both were wrong. It's something to remember the next time some scary "guru" tries to frighten you into selling at the bottom.