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American Morning

Author James Glassman Discusses Economy

Aired July 16, 2002 - 07:09   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
PAULA ZAHN, CNN ANCHOR: Today, attention on Wall Street turns to Fed Chairman Alan Greenspan, as he delivers his economic report to Congress. And even though the market had a stomach-churning ride yesterday, there are still those who predict the bears' days are numbered. James Glassman is among them, and he says we could see the Dow quadruple in our lifetime and hit 36000. He even wrote a book about it, and today, the author remains bullish as ever.

James Glassman joins us now from Washington -- welcome, good to see you.

JAMES GLASSMAN, AUTHOR, "DOW 36,000": Thanks, Paula.

ZAHN: Before we get to your prediction, let's talk about what happened yesterday. We are going to put a graphic up on the screen to remind people just how intense that ride was yesterday. The market down 439 points at one point, and then of course, closing with a loss of just about 45 points.

What happened? What sparked the downturn? What sparked the turnaround?

GLASSMAN: Yes, in an hour-and-a-half, the stock market rose 400 points, just about unprecedented in history. What sparked the downturn was certainly the continuing worries about whether the economic recovery is for real. I think it is. Alan Greenspan will probably say today that it is, but a lot of Americans are dubious about it.

Second, not just the accounting scandals, but I think that a lot of investors are worried about the political reaction to the accounting scandals, which, in my opinion, borders on hysteria. We just don't know what's going to happen with all of these new laws in place.

The recovery almost certainly was the result of investors looking at stock prices and saying, hey, that's a bargain. You know, I can buy Pfizer at $27, or you know, GE at $28, or whatever it is. There are lots of bargains out there, and while many stock investors are depressed and worried and scared, many others are picking up bargains.

ZAHN: Let's look at just how nervous investors are. And here is some of the latest statistics released from a Gallup-CNN-USA Today Poll, basically showing that 31 percent of those polled think the economy is getting better -- you'll see this number in a second -- 57 percent say it's getting worse. And I guess I am just wondering what kind of signals those 57 percent of Americans will get that it's an OK time to be buying stocks.

GLASSMAN: Well, I think that a lot of people are getting signals, including from the president by the way, emphasizing that there is something really bad going on here, and we need to fix it very quickly. I think that's what's driving people and making them more and more worried.

When you look at the actual numbers, in the first quarter, we had this tremendously strong recovery, things are going to level off, but almost every economist today predicts 2.5 to 3.5 percent growth, just to put that into perspective. That's about the average for the last 50 years. Maybe we should be growing more, since we just had a recession, even though it was shallow, but that's pretty good. Unemployment is below 6 percent, almost all of the numbers, except for a few, like business investment, are going up.

But Americans need to be convinced, and you know, the president is out there on the husting (ph) saying, you know, everything is going to get better, don't worry about it. I don't know if that helps. Frankly, it might even hurt. They need to see it actually happen, and I think they will over the next six months.

ZAHN: In fact, even Senator Biden suggested yesterday the president give up giving these kinds of speeches over the next couple of days, because of how volatile the markets are.

GLASSMAN: Well...

ZAHN: I mean, are you in that camp?

GLASSMAN: Yes, I am. And I think that the Clinton administration, President Clinton to his credit, I don't think ever did this. And I think it's a mistake, because people think that the reason the president is going on television is to try to influence the market. Markets are more powerful than politicians. It is very rare that a politician can actually move the numbers in the market.

I don't think that's really what the president is out there trying to do, quite frankly. But it looks like that, and he gets ridiculed, Oh, he spoke, but the market went down. I think he should not speak about the economy or the market while the stock market is in session.

ZAHN: Of course, the White House making the point this morning that the president only talked about the economy yesterday, not specifically the markets.

Now let's come back to your prediction.

GLASSMAN: Yes.

ZAHN: There are people out there, particularly those who have lost their retirement nest eggs, wondering what the heck you were smoking when you said the Dow might reach 36,000 in our lifetime. Do you still stand by that prediction?

GLASSMAN: Right. I wrote a book in 1999 with Kevin Hassett, who is an economist at the American Enterprise Institute, where I work, that said that the Dow would reach 36,000, moving up since 1982 -- the Dow, by the way, in 1982, was at 777. The time that we wrote our article in "The Wall Street Journal," it was about where it is right now. Then, the next year we wrote a book.

So things have been level since we wrote this book. That's not very good. We warned in the book that there would be bear markets along the way. We did not set a timetable. Our main point, and this is I think very important for investors to remember, and I stand by this, is investors should own good, diversified portfolios for the long term. If you can't be in the stock market for at least five years, better yet 10 years, you shouldn't be in it at all. It's a dangerous place, but for the long term, it's a wonderful place.

If you are in your 30s, your 20s, your 40s, even older than that, you can put a large chunk of your investment money that you don't need for a while for your retirement in the stock market, and don't look at it every day, every hour. I think that's an obsession that a lot of Americans have developed. It makes them very nervous, and they don't need to be.

ZAHN: James, it sounds to me like you are saying that 36,000 mark was maybe a little bit of California dreaming.

GLASSMAN: No, absolutely not. I think that we will reach 36,000 within a decade, but I don't really think any particular number is the point. The point is that 200 years of stock market history has shown us that stocks perform far better than the alternatives, which are bonds or money market funds or gold or anything like that, but only if you are able to hold your investment for the long term. Otherwise, stocks are very, very volatile, as we say yesterday, in the short term. But for the long term, diversify portfolios, hang on as long as you believe in the U.S. economy, as I do, and I believe most Americans do.

ZAHN: Delighted to have you with us this morning.

GLASSMAN: Thanks, Paula.

ZAHN: A lot of folks who lost their lunches yesterday watching the market's tumults are saying, oh, boy, let's put those seatbelts on again today. Again, thank you for dropping by -- appreciate your perspective.

GLASSMAN: Thanks, Paula.

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