Newspaper article St Louis Post-Dispatch (MO)

Correction or Direction? `Excesses' Bring out the Bears

Newspaper article St Louis Post-Dispatch (MO)

Correction or Direction? `Excesses' Bring out the Bears

Article excerpt

The Federal Reserve hit the monetary brakes Friday and the stock market slammed into the windshield.

The Dow Jones Industrial Average dropped 96.24 points.

Is it fasten-your-seatbelts time for stock investors?

No way, say the stock market bulls. Corporate profits are powering up and the Dow is 4,000-bound.

Bail out or put on your crash helmet, say the bears. It's an overvalued market on a speculative high.

So make up your own mind. Here ar arguments from both sides.

Stock prices are in orbit and amateurs are breaking their piggy banks to pour money into the market. As the fools rush in, now's the time for smart folks to take their profits and run.

That's the argument given by today's market bears, the prophets of gloom who think the Dow is headed for the dumps.

The bears are a minority of hand-wringers among a generally gonzo group of investment advisers. Where market bulls see rising earnings and low interest rates, the bears look at wacky price-earnings ratios and remember their history.

"A speculative excess is building up," said money manager Joe Terril at Terril Brothers in St. Louis. "An accident's getting ready to happen."

For those who look at traditional signs of market value, the numbers are scary indeed.

In normal times, stocks trade at prices 13 to 14 times their earnings. The Dow Jones Industrials now trade at 30 times earnings. The S&P 500 stocks go for 23 times earnings.

To investment manager Dewayne Wiggins, the most frightening omen lies in dividend yields. The S&P 500 now yields 2.7 percent in dividends and the Dow is at 2.6 percent.

Yields have hung below 3 percent for sustained periods before. And every time, it's meant a sharp market correction.

The first time was in 1929 (talk about omens!). The others were 1961, 1962, 1972, 1973, 1987 and today.

Wiggins, of Lindbergh Capital Management, scoffs at those who say rising profits and higher dividends will push valuation measures back to Earth without a bear market. …

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