Glassman is running, and Hassett is speaking, at a George W. Bush institute conference tomorrow. It is thus worth reminding everyone of their 1999 book Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market. Let me turn the mike over to Barry Ritholtz:
Lessons to Be Learned From Dow 36,000 | The Big Picture:
This book will convince you of the single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.
Glassman and Hassett, introduction, Dow 36000: The New Strategy for Profiting from the Coming Rise in the Stock Market
Call it the audacity of cluelessness: Let us congratulate James K. Glassman and Kevin Hassett, the authors of the incredibly money losing advice in their book Dow 36,000, on their 10 year anniversary. The book forecast that lofty number would be obtained in 3 to 5 years; it was published precisely 10 years ago today. In the ensuing decade since this book (and I use the term lightly) was published, the Dow is still below where it was 10 years ago, rather than tripling in price. The Nasdaq remains more than 60% below its highs of one decade ago.
I tried to read the book as a history lesson, but it was, to be blunt, unreadable. I got through enough to learn the basic argument they made: Stocks have been undervalued for decades, and over the ensuing years, we should expect a dramatic one-time upward adjustment in stock prices. Why? People were about to figure out what only these two geniuses already knew (hubris anyone?)...
Glassman and Hassett get the math of the Gordon equation for valuing the stock market simply wrong. It's not the earnings yield that shows up in the numerator, it's the dividend yield. The book should have been called Dow 22000.
Glassman and Hassett get the math of the equity premium wrong. The weighted average of the returns on bonds and stocks is the return on capital. The equity premium is a wedge between the rate of return on stocks and the rate of return on bonds. If the equity premium falls, the rate of return on stocks falls and the rate of return on bonds rises. Hassett calculated the effect of a fall in the equity premium by fixing the rate of return on bonds. The book should have been called Dow 15000.
Glassman and Hassett could make the argument that the equity premium ought to go away, and someday might go away, but that is not the argument they make. The argument they make--back in the late 1990s--is that the equity premium will go away in the next three to five years
They argue--toward the end stages of the dot-com bubble, when all standard indicators of fundamentals are blinking red, and are forecasting five-year equity returns of zero or less--that your readers should double up on their stock portfolios to "take advantage of the coming rise in the stock market" does not strike me as what my nursury school teacher used to call "playing well with others." It's kind of like treating your readers the way John-John Crummell treated the guests at my fifth birthday party when he lit the tablecloth on fire.
BONUS KEVIN HASSETT CALLS FOR U.S. AIR STRIKES ON SWITZERLAND BLOGGING:
Brad DeLong: Hoisted from the Archives: Economist of Mass Destruction Kevin "Dow 36000" Hassett Update...: Was this part of the "Stupidest Man Alive" series or of the "Republican War on Science" series or of the "American Enterprise Institute Quality Research" series? Silly question! It was part of all three. It was when Kevin Hassett called for the USAF to attack France and Switzerland to stop CERN's Large Hadron Collider from going into action.
Business Week should still hide itself from the sun in shame:
American Enterprise Institute "Economist" of Mass Destruction Kevin Hassett Strikes Again (Republican War on Science Department): Atom Smasher Exposes Hole in Earth’s Defenses: The Large Hadron Collider... consumes about the same amount of energy as a large city... could provide evidence of the existence of the Higgs boson, a hypothesized particle that has become known as the God particle.... [T]he collider’s energy could induce a catastrophic event. A brilliant review of the risks associated with the experiment by University of North Dakota law professor Eric Johnson.... LHC’s high-energy collisions might create a microscopic black hole that would, perhaps over a few years, swallow the Earth.... Oxford University’s Toby Ord, a philosopher by training, adds... [i]t may be that the models that we use to make predictions about the possibility of catastrophe are themselves flawed.... Ord estimates that the odds of the LHC producing a disaster are between one in 1,000 and one in 1 million... the likely benefits from this experiment... [cannot]... justify accepting a cost that includes a real risk of the Earth’s destruction.... Right now... [if] the U.S. wanted to stop the LHC experiment, it would have no recourse short of military action...
This did indeed carry the Republican War on Science to previously unplumbed depths of human stupidity. Let me just say that, IIRC, Leon Lederman named the hypothesized Higgs boson the "God particle" as a joke, because its effects were everywhere yet nobody had ever seen it in the flesh--not because it was in any way powerful or dangerous or numinous or terrifying.
Worth revisiting because of Roger Ebert, who tweets:
Twitter / Roger Ebert: Headline: Large Hadron Col ...: Headline: Large Hadron Collider test carried out. Subhead: Earth [still] here.