Dow 36,000, What Enquiring Minds Want to Know

By: Fred_Sheehan

The July 25, 2012, tribute to Barton Biggs received a large response. Biggs was obviously respected as well as loved. In the end, virtue is its own reward. Virtue is rarely rewarded in the world today; in fact, quite the opposite is true. It is refreshing to see such outpouring for a man who stuck to his guns and was also successful.

Some correspondents wanted to know what James K. Glassman and Kevin Hassett, co-authors of Dow 36,000, are up to now. (For background, see Barton Biggs.) This cry poured in from near and far, including a message from J. Rogers in Singapore: "Where are they now? What do they say now?" In elaboration: "You should have exposed them further for the sake of all of us."

Taking them one at a time:

James K. Glassman wrote two books after Dow 36,000. In 2002, he wrote The Secret Code of the Superior Investor: How to Be a Long-Term Winner in a Short-Term World. According to the publisher's blurb, the book "focuses on the construction of a solid personal portfolio." Glassman offered a "Secret Code," in "uncertain and volatile times".

For devotees, the secret code probably caused less damage than Dow 36,000 since those who took Glassman's advice in 1999 had a lot less to lose by 2002.

Glassman writes a personal financial column for Kiplinger's Personal Finance. He was once president of the Atlantic, which explains why Dow 36,000 received such wide publicity in 1999. See below. (Who remembers Dow 40,000 and Dow 100,000?)

Glassman's financial planning advice in 2011 was dispensed in his third book Safety Net: The Strategy for De-risking Your Investments in a Time of Turbulence.

In his review of Glassman's newest contribution (for Reuters), John Wasik wrote that Glassman "made an effort to redeem himself with his latest book." The book was published in February 2011 - so, as a guess, was completed by the early fall of 2010. Glassman recommended that investors cut back on U.S. stocks, buy emerging market equities, buy U.S. Treasury bonds, and buy put options on stock markets for downside protection.

Glassman's prescription shows an ability to learn (this is rare among the cognoscenti and a genuine compliment to the man), but he refuses to come clean. Wasik quotes Glassman 2011 reflecting on Glassman 1999: "Yes, stocks bounced up and down but your job as an investor was to hang on and collect your reward for perseverance at the end. I advocated the same strategy of heavy and diversified U.S. equity holdings that most sensible advisors espoused - but with an extra dollop of optimism. And I was wrong."

Hanging on to "collect your reward" was not deemed necessary in 1999. Glassman had plenty of print media experience. He knows that most readers of an advice book cling to a catch-phrase (Stocks for the Long Run, 1994). Whatever warnings Glassman & Hassett published in their book, their preview of Dow 36,000 in the Wall Street Journal on March 17, 1999, was quite specific and sensationalist: "Our calculations show that with earnings growing in the long-term at the same rate as the gross domestic product, and Treasury bonds below 6%, a perfectly reasonable level for the Dow would be 36,000 - tomorrow, not 10 or 20 years from now."

Glassman has taken the same position - the Dow hitting 36,000 was a long-term calculation - when interviewed over the years. He spoke to Carlos Lozada in the March 8, 2009, issue of the Washington Post, who asked the bubble-blower: "What happened?" Glassman explained that he (and Hassett) made two points: "The more important was that for investors who could put their money away for the long term, stocks were a much better investment than bonds.... The second point was that based on our calculations, we believed that stocks would rise to roughly 36,000. We said in the book that it is impossible to predict how long it will take for the market to recognize that Dow 36,000 is perfectly reasonable...."

In addition to the Wall Street Journal preview, the Atlantic put Dow 36,000 on its September 1999 cover. This is a glaring example of when an idea has captured the major media, you know its time has passed. In the magazine of which Glassman was past-president, Glassman & Hassett wrote:

"Stocks were undervalued in the 1980s and early 1990s, and they are undervalued now. Stock prices could double, triple, or even quadruple tomorrow and still not be too high."

"Stocks are now, we believe, in the midst of a one-time-only rise to much higher ground - to the neighborhood of 36,000 for the Dow Jones Industrial Average."

Turning back to John Wasik's review of Safety Net, he thought Glassman's 2011 advice should have been rendered in 1999. Reuter's essayist concludes: "Is it time to absolve Glassman for his irrational exuberance more than a decade ago?" Wasik answers with wise counsel: "[A] lot can be forgiven, although nothing is forgotten."

Wasik's advice should be applied to all the failed phonies who told us subprime mortgage problems were contained. These are the same central bankers, economists, strategists, and monopolists of editorial pages who are oblivious today yet still design policy and control its public discussion.

Currently, Glassman is the executive director of the George W. Bush Institute, "an action-oriented organization focused on independent, non-partisan solutions to America's most pressing public policy problems." One of the most pressing problems is the unaccountability and elevation within the old-boys-and-girls-club that has sewn such mistrust among the public. Glassman graduated from Sidwell Friends School then marched forth with the avant-garde Harvard class of 1969 (summa ***** laude), where he edited the Crimson.

Kevin Hassett (Swarthmore; U Penn, Ph.D., economics; Assistant Professor, Columbia University Graduate School of Business 1989-1993; Senior Economist, Federal Reserve Board of Governors 1995-1997; American Enterprise Institute, 1997-to-present; currently, Bloomberg columnist) made one more stab at the investment advice business with a 2002 book: Bubbleology: The New Science of Stock Market Winners and Losers. From the publisher's blurb: "There are only two types of stocks: those safe from bubbles and those that are not. This is a fact of investing many discovered as they saw their fabulous gains whittled away by the extreme calamity of the Internet sector."

From this, one gathers Hassett was shell-shocked into a schizophrenic, Good vs. Evil investment approach. In any case, that was 10 years ago. He has since co-authored two policy books with Glenn Hubbard, which should offer Hassett a good shot at a high position in a Romney presidency (see "Limited Hope"). Make what you will of that.

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

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