Dueling Fools
1999
December 30, 1998

1999 Bull's Rebuttal
by Bill Barker ([email protected])

As expected, the dragons that Rick sees breathing fire from their 1999 lairs are those that dwell in the land of historic valuation. Surely these are fearsome creatures. We know this, for the Wise, who have been around long enough to know, declare them to be vicious and unforgiving monsters at every opportunity. "History will forever repeat itself, what goes up must come down, etc., etc." How is one to hold forth any optimism for stocks, doomed as we are to ever repeat the bear markets and market crashes that Wisdom and history assure us are already now long overdue?

Rick states that "Gravity is going to have hell to pay next year!" Given history's gravity, is the only way to hold forth any optimism for investors to declare The End of History? I don't know (mostly of course because I never read Fukuyama's book), but to make a long story short, the future does look pretty good, doesn't it? We have incredibly low inflation that every year nevertheless manages to drop a little lower. Daily we see advances in productivity and information access brought on by the Internet, an as yet barely tapped potential by the way. There is unprecedented global political stability. Is it too early to speak of The New Paradigm? To declare that we have reached The End of History? To declare that we are entering a Golden Age?

Certainly it is. The existence of, and the need for, The Motley Fool Charity Fund is too much proof to the contrary. However, I am not in the middle of a "Golden Age/New Paradigm/End of History" Duel, but rather in one over the more limited time frame of 1999. Rick argues that for the good times to continue over the next twelve months we need specific events -- further interest rate cuts and further weakness in foreign markets. I could take on the specifics of this argument, pointing out that the long-bond rate is low enough that the current stock market P/E multiple is already sustainable, but I'd rather move from the specific to the general.

The stock market is priced at such a "high" level because, as always, investors are looking to the future and the future of the U.S. economy appears mighty bright. My guess is that one year from today, with new advances in everything from biotechnology to Internet services, and other tangentials such as no more Monica Lewinsky jokes to receive through e-mail, the present and future will look even brighter. Taking a cue from a recent Rule Breaker write-up, I'd prefer to cut to the chase. This time, this economy, and this country rock, and there isn't a single reason that I can think of why we wouldn't be even more convinced of that at the end of 1999 than we are today.

Next: The Bear Responds