Some of you may remember the unforgettable title of the 1999 financial best-seller, Dow 36,000. It made a lot of waves back during the heyday of the internet stocks and day trading, but unfortunately for the authors, the timing of the book’s release was less than ideal. The market topped out in late ’99 and the infamous “tech wreck” followed in 2000. To this day, Dow 36,000 is considered as the ultimately example of a contrarian indicator – that is, when a book cover announces an extremely bullish forecast, the end is usually near for the bull.
I was surprised to discover recently that the Dow 36,000 forecast has been resurrected. A Bloomberg article last week penned by the co-author of the book, James Glassman, tried to make the case that his mis-timed forecast still has validity in the foreseeable future. Glassman argued that Dow 36,000 is within reach in view of current levels of market momentum, corporate earnings valuations, etc. Given that the first release of Dow 36,000 was a contrarian harbinger of doom, should we be concerned by its reappearance in the media?
To answer that question I recently paid a visit to my local Barnes & Noble bookseller. I’ve derived a great deal of useful data over the years, from a contrarian perspective, from perusing the shelves of mainstream booksellers. When the financial section of book stores like B&N are brim-full with bearish titles, like they were for much of 2009-2012, you’re generally safe in assuming that the market is probably not going to crash. This is based on the principle that when all the scary bearish scenarios make the covers of mainstream books, the negatives have already been fully discounted by the stock market. What’s more, book authors are notorious for being behind the curve of market trends. Most of them write about what happened yesterday, not about what’s going to happen tomorrow.
Bearish book titles have abounded in recent years and a few examples will suffice: The Warning: The Coming Great Crash in the Stock Market, Conquer the Crash, the The Great Crash Ahead, Patriots: Suriving the Coming Crash, the Coming Collapse of the Dollar and How to Profit From It. Admittedly the numbers of crash-related books have thinned from bookstore shelves in the last year or so, but I found many more bearish book titles on my latest visit than bullish titles. I didn’t get the impression, as I did in the late ‘90s, that the collective mindset of financial book writers was overly optimistic – far from it! There’s still a great deal of caution and conservative that characterizes today’s leading financial book titles and Dow 36,000 is at this point an anomaly.
If ever Dow 36,000 and its ilk become the rule rather than the exception, we’ll definitely have much to worry about as far as the stock market is concerned. For now, however, I think we can pretty much discount the super-bullish forecast of Dow 36,000 as being an attention-getting ploy rather than a manifestation of widespread bullish psychology.