<SPECIAL FEATURE>
January 21, 1999

Eyes on the Press

Business Week
Don't Panic

Issue Date: August 17, 1998
Cover Headline: "How Worried Should You Be?"

Of all the major magazines I looked at, Business Week's coverage of the market mayhem was by far the most responsible and insightful. The first cover story asked all the scary questions ("Is the great bull market over?") and weighed in with the view that a "bounce-back could take far longer -- at minimum, investors may have to settle for average or subpar gains for at least a few months." Generally, though, every question was met with a highly responsible form of equivocation: It depends.

"So, where is the market headed? The answer depends on which way you analyze the conditions."

"But are stocks really cheap? That depends on the level of earnings and interest rates and what method you use to relate the two." (An accompanying table laid out "fair value" for the S&P given an assortment of earnings and interest rate expectations.)

The cover stories didn't ignore all the danger signals of ostensibly rich stock valuations and declining earnings estimates, narrow market breadth, international financial turmoil, or how falling stock prices might (eventually) hurt U.S. consumer spending. But they highlighted comments from Paine Webber's Mary Farrell and Goldman's Abby Joseph Cohen, two long-term bulls with terrific track records over the last few years. Farrell said "inflation is so low that it argues for higher valuations." Cohen explained how earnings for the S&P 500 companies were often reported as declining even though operating profits before special charges were still growing nicely.

For the most part, Business Week gave its readers a balanced view of things, trusting them to reach their own conclusions. The magazine even deftly raised such a conventional bugaboo as the declining (and now negative) savings rate, which worries some commentators. But the magazine put this stat in the proper perspective. "[T]he savings numbers look so grim because government economists calculate savings differently from the way real people do." Indeed. This number doesn't include increases in the value of your home or capital gains on stocks and mutual funds. In other words, the oft-cited savings rate stat actually doesn't include the major vehicles used by Americans to, eh, save.

For those looking for more investment advice, a separate article by Robert Barker, entitled "Don't Let Mr. Market Push You Around," Foolishly instructed investors not to panic. A market dip might present you with certain good buying opportunities or lead you to take a closer look at a holding with deteriorating fundamentals, Barker said, but it "shouldn't change your basic approach." Amen, brother!

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