began (more on this later), as did accounting scandals in a score of
major U.S. industrial companies. The Dow Jones Industrial Average
lost 25 percent of its value from 2000 to 2002. The technology-
laden Nasdaq Composite average lost more than 50 percent.
Conflicts of interest in brokerage firms were revealed in 2002,
calling into question the validity of professional market research.
Although these conflicts of interest came as a surprise to some, they
are nothing new. They were first exposed to the public in a book
that is a must-read for anyone even considering the stock market.
Where Are All the Customers’ Yachts?by Fred Schwed, published in
1940, explains that the basic conflict in a brokerage company is be-
tween its investment banking arm and its research arm. This con-
flict results in research recommendations to the public to advance
the interest of the investment banking arm—known in Wall Street
vernacular as “talking the book.”
It is unwise to count on a broad stock market comeback with
sustained double-digit annual growth anytime in the next 5 to 10
years. The war on terror has placed a significant and long-term
cloud of uncertainty on the economy.Prolonged Low-Intensity War—Not Favorable to
Stock MarketSurely no one expects the war on terror to be anything like the Gulf
War. It will be much more similar to the Vietnam War, except
tougher. “Find the enemy” has forever been the first essential to mil-
itary victory. It is impossible to win any armed conflict if the enemy
cannot be found. Our inability to precisely locate the enemy in Viet-
nam caused the war to drag on for almost 10 years of frustration that
deeply divided America. During this period (1965 to 1973), the Dow
Jones Industrial Average showed no growth. (See Figure 2.3.)
This economic result, combined with the political result of the
Vietnam War, leads to the conclusion that Lyndon Johnson’s guns-
and-butter strategy failed to produce sufficient quantities of either.Characterizing the War on Terror
The war or terror can be characterized more accurately as a war on
Muslimterror. Such a characterization may not be politically cor-
rect, but you can be pretty sure that the FBI and other intelligence
agencies are not busy looking for Presbyterian terrorists or Amish24 The Old Methods No Longer Work in Today’s Economy