The Bottom Line

Despite 13 rate cuts by Federal Reserve Board, despite the lowest interest rates in 46 years, despite the most expansive monetary policy I have seen, the Dow sells today for less than it did in 1999.

Stop and think about this for a moment. If you had bought the stocks in the Dow Jones Industrial Average (America’s biggest big-cap stocks) in 1999, those stocks would still be worth less today than they were worth back then.

Remember all those mutual fund ads and financial commentaries quoting statistics that, over time, the stock market has delivered consistent returns? I seem to recall various ads and articles that spoke of returns on common stocks varying from 5% to 10% per year. Well, for the past five years, the return has been negative.

And as far as I can remember, in fact since I’ve been publishing the daily PROFIT CONFIDENTIAL, my message has been to avoid big-cap stocks. That opinion remains unchanged today.


When we look at mid-cap stocks, the picture is no better. The S&P 500 was selling in mid-1998 at 1120. Today, six years later, the S&P 500 is again selling at 1120. Yes, the S&P 500 has been higher, and it has also been lower since 1998. But the bottom line is that after six years, the index is in the same place… stock prices today are at the same level they were six years ago. Whoever came up with the “buy and hold for the long-term” idea should have a reassessment.

Now, please don’t get me wrong. The whole idea of stocks for smart investors is to make money by either buying stocks low and selling them when they rise, or shorting stocks high and covering low… all in the short term. The research and analysis of our editors is living proof you can make big money in the stock market on the “right” stock plays.

My interpretation of the action of the general market, in particular the big- and mid-cap stocks, is of general concern for the economy. Stocks are supposed to lead the economy… the economy doesn’t lead the stock market.

My premise concerns the current favorable monetary conditions and the actions of the stock market. Given the best, most expansive monetary policy in nearly half a century, the Dow and the S&P 500 are selling for about the same they did five or six years ago. I’m a true believer in the action of the market and that its actions lead the economy. Given those convictions, the stock market is simply telling us problems lie ahead for the

U.S. economy. What those problems are no one really knows… but the action of the market speaks louder than words.