Bell Financial Management Corporation

January 1999 started out with a bang. All the major market indexes took off like rockets in early January. They all peaked on January 11th. The Dow Jones Industrial Average (DJIA) and the SP-500 dropped 5% in 4 days to trough on January 15th losing almost all the gains of the first week.

The Nasdaq Composite Index de-linked from the DJIA and SP-500 on January 18th gaining more than 14% Year to date by early February. By mid February the Nasdaq Composite Index had lost almost all its gains year to date and diving more than 10% in a few weeks. The technology sector took the biggest beating.

All the major indexes remained range bound through early March when the stock market regained its bullishness.

Then on March 16 at 6:51 AM Pacific time the DJIA reached 10,000 for the first time in history. The DJIA hit a intra-day high on that day of 10,001.78 only to retreat to a close of 9930.47, down 28.30 points for the day.

This historic benchmark is used as a barometer for the health of the U.S. economy. However, the DJIA being a price weighted mathematical index of 30 large company stocks has little specific correlation to the portfolio of most investors.

It wasn’t until March 29 for this historic milestone to close at or above 10,000. At this level , the DJIA now stands more than 300% above its level of October 1990. The DJIA is up more than 1200% since 1982, when the taming of inflation unleashed a long-term rise in stock prices.

In the DJIA 103 year history there has never been another bull market so long and one so powerful.

More than just a home-grown wonder, the bull market encapsulates America’s economic rebirth. The U.S. now dominates world markets the way it dominated the world economy in the aftermath of World War II. The U.S. stock market has risen to 53% of world market value, from 29% in 1988.

Intellectuals that once studied Japan’s companies for the secret of that country’s success now study Silicon Valley and the NASDAQ stock market in hopes of emulating America’s energetic capitalism.

Pessimists argue that at the lofty levels of the U.S. stock market is today, that historical benchmarks of valuation of stocks have been breached, and as such, the U.S. stock market is doomed to correct aggressively. But while stocks have never been so richly valued, neither has the U.S. economy ever enjoyed so long a period of economic growth with declining inflation and increasing productivity.

U.S. companies have also been successful not only in the domestic economy but have also been enormously successful in the foreign markets as well.

The fall of the Berlin Wall and spread of global economics allowed U.S. multi-national corporations to extend their formidable brand names and technological skills into every corner of the world. The 30 companies represented in the DJIA now get an average of 40% of their sales overseas, compared with 35% in 1988.

The crisis that swept through Asia, Russia and Latin America starting in mid 1997 has strengthened many multinationals by allowing them to scoop up many operations overseas at cut rate prices.

The technology sector has been outpacing most other sectors for some time. The side-by-side increase in overall stock prices and overall technology spending is more than a coincidence.

It is part of a fundamental change of the U.S. economy as a result of the birth of the information age.

All successful companies are learning that it make good business sense to become efficient in the ability to gather, manage and use information.

Companies that use technology wisely are finding that they work faster, cheaper and more cost efficiently. Conversely, companies that stumble in their use of technology are all too likely to be devastated in the marketplace, only to see their stock price plummet.

Investors have also become computer savvy and have little patience for companies that are under-performing their peers. This has led to increased volatility in the stock market, a phenomenon that I think will continue, as information is passed on to hungry investors with the click of a mouse and the speed of light.

Information-technology now accounts for more than 25% of all U.S. investment and more than 50% of business spending on new machines.

My company Palm Springs Financial Management Corporation, has spent a considerable amount of money on technology in the past 5 years. Our technology would have cost millions of dollars just 15 years ago. As a result of the advancements in computer chips and peripherals and with cost dropping dramatically, small companies like mine can serve its clients professionally and competently utilizing technology as an powerful tool.

I don’t think that the party on Wall Street will be over any time soon. Perhaps the stock market is under-valued not over-valued as many pessimists (bears) profess.

The extent that technology will continue to revolutionize U.S. and foreign businesses has certainly not been fully realized today. The future will harvest the fruits of the streamlining of the operations of all business as we know it.

The increased productivity of businesses today has all but eliminated the inflationary pressures that grew in the past due to economic-overheating.

The Federal Reserve has been on hold since its meeting on November 18, 1998 when it lowered short term interest rates slightly. It is unlikely in my opinion that they raise short term interest rates this year with the Y2K challenge ahead in the year 2000 and its potential slowing of the economy.

My bullishness in the long term does not mean that there will be smooth sailing as the economy and stock market grows. The key is always to be properly diversified, and have the right mix of stocks, bonds and cash in your investment portfolio, and to be able to manage your cash flow efficiently.