BUBBLE or bull market?
That's the question we keep asking, and it is one that four new books with lapel-grabbing titles purport to answer. What's more, as strong as the U.S. economy and its stock market have both been the past few years, each book contends that the best is yet to come.
David Elias, an investment adviser near Buffalo who manages $650 million for clients, wrote one of the four: "Dow 40,000: Strategies for Profiting From the Greatest Bull Market in History."
A friendly, well-spoken man, the 54-year-old Elias comes across as more professor than raging bull. In his view, 40,000 on the Dow Jones industrial average by 2016 is a "done deal" -- and a Dow level of 50,000, 60,000 or 70,000 is not an outlandish projection. One of the other treatises concludes that a Dow of 100,000 wouldn't be a stretch by 2020.
We care about such forecasts because, these days, as the stock market goes, so goes the economy. Higher stock prices mean more wealth, more ability to spend. That's crucial since 70 percent of our economy relies on consumers feeling optimistic enough to buy new cars, new houses and lots of stuff to fill both.
"Because of the technological advances in the United States, the standard of living of Americans at all levels will improve immensely over the next 10, 15 or 20 years," says Elias.
The other three books essentially sing from the same hymnal. Consider:
"Dow 100,000: Fact or Fiction," by investment strategist Charles W. Kadlec.
"Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market," by financial columnist James K. Glassman and economist Kevin A. Hassett.
"The Long Boom: A Vision for the Coming Age of Prosperity," by futurist Peter Schwartz, journalist Peter Leyden and entrepreneur Joel Hyatt.
Each of the works makes the case that the ingredients for a great, global boom are in place, and that the standard of living of the typical American is in for a significant jump over the next 15 to 20 years. Naturally, the journey to the promised land will likely be interrupted by political problems, recessions, and bear markets. But we already know how the story ends, these authors contend.
At any point in decades past, you could stroll into a bookstore and find finance books that were either predicting the end of economic civilization, or painting pictures of financial utopia. But four exuberant books all at once? That's enough to send financial contrarians seeking cover.
Contrarians contend that, when the sentiment of investors and consumers reaches an extreme, be it ebullient or despairing, the opposite is probably true. Contrarians gauge sentiment in many different ways. One is the "magazine cover indicator," which holds that investors can measure market sentiment about a company or a country by studying magazine covers at the local newsstand. When investors gush that a firm or nation is economically invincible, be a seller; when everyone is despondent, be a buyer.
If these economic discordants get rattled by euphoria on magazine covers, how scared they must be with four best-sellers telling investors to buy more when the market is already at a level that many think is pricey.
But even if all four forecasts are ultimately wrong, it won't be due to reckless reasoning. Indeed, for the Dow to hit 40,000 by 2016, as Elias predicts, the market index has to advance only at an average annual rate of 9 percent. Historically, the market averages about 10 percent. Kadlec, author of the "Dow 100,000" book, is more aggressive: The closely watched market index has to average 11.1 percent a year to hit his target.
In "Dow 36,000," Glassman and Hassett put forth a much more aggressive proposition: Stocks are so undervalued that the Dow could quadruple in as little as three to five years.
Since Americans increasingly have a stake in the stock market through their pension plans at work, or through stocks and mutual funds they've purchased individually, the market matters, says Hassett, formerly a senior economist at the Federal Reserve.
Going forward, Hassett says the U.S. economy "will look just like the economy we've seen the last three years: steady growth, low inflation, low interest rates and low unemployment. It's truly a Golden Age."
It could be stunningly golden if the market were to quadruple in five years thanks to a force known as the "wealth effect": As consumer assets spiral higher in value, people feel confident enough to spend more.
In addition to the low inflation and low interest rates, factors setting the stage for a continued bull-market run include technology, efficiency-focused corporate management, the deregulation of markets and political systems that strive to nurture market-driven economies, say the authors of all four books.
Together, these forces are tinder that could fuel an inferno of worldwide capitalism -- good for us all. Let's hope the predictions come true.
However, to cushion some of the bumps on the road to global prosperity, maybe we should a add a fifth book to our reading list, this one written by Lipper Inc. senior analyst Donald L. Cassidy.
The title: "When the Dow Breaks: Insights and Strategies for Protecting Your Profits in a Turbulent Market."