Newspaper article The Florida Times Union

In the Chips Run of Good Luck Could Mean Boom -- or Bust

Newspaper article The Florida Times Union

In the Chips Run of Good Luck Could Mean Boom -- or Bust

Article excerpt

There are two ways you can look at the prospects for the stock

market in 1997.

One view is that the market has done so well for so long and

stock prices are so high that they've got to come crashing down.

"We've never been in a more fundamentally overvalued stock

market," said Jacksonville's Craig Corcoran, editor of the

Futures Hotline/Mutual Fund Timer.

On the other hand, with the economy growing moderately, low

interest rates and inflation apparently in check, there's no

economic reason for the market to fall.

"The market is high. Corrections are always possible and we're

overdue for a 10-percent correction. But the environment for

stocks and bonds is just very bullish," said Douglas Raborn,

chairman and CEO of Raborn & Co., a Delray Beach portfolio

management firm.

So once again, we go into a new year with no clear sense of

what the market will do. You can make a case for a continuation

of the boom -- or a bust.

Corcoran's perspective, that stock prices have gotten too

high, is based in part on dividend payments. If you plan on

holding onto a stock for a long time, the only way to make money

in the meantime is to collect dividend payments. So the size of

the dividend is one determinant of the price of a stock.

Current stock prices are too high for the dividends that are

being paid, Corcoran said. The S&P 500 stocks are selling at

prices that are 51 times the dividends they're paying. That's 25

percent over the price-dividend ratio before the 1987 crash and

35 percent over the ratio before the 1929 crash.

"It is very much a bubble type of market. Bubbles can expand

as long as interest rates are friendly," Corcoran said.

"Our bet is interest rates are going to go higher in 1997 and

that's what's going to burst the bubble," he said.

Corcoran thinks foreign investors, particularly in Asia, are

going to pull out of the U.S. bond market, sending bond prices

lower and interest rates higher.

But some analysts say with inflation under control, it's

unlikely that anything will push interest rates significantly

higher. …

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