But such caution was ill advised. After a successful battle against
inflation in 1994, the Fed eased interest rates and the Dow subsequently
moved above 4,000 in early 1995. When the Dow was at 4,300, Business-
Weekdefended the durability of the bull market in an article on May 15,
1995, entitled “Dow 5000? Don’t Laugh.” The Dow quickly crossed that
barrier by November and then reached 6,000 eleven months later.
By late 1995, the persistent rise in stock prices caused many more
analysts to sound the alarm. Michael Metz of Oppenheimer, Charles
Clough of Merrill Lynch, and Byron Wein of Morgan Stanley expressed
strong doubts about the underpinnings of the rally. In September 1995,
David Shulman, chief equity strategist for Salomon Brothers, wrote an
article entitled “Fear and Greed,” which compared the current market
climate to that of similar stock market peaks in 1929 and 1961. Shul-
man claimed intellectual support was an important ingredient in sus-
taining bull markets, noting Edgar Smith’s and Irving Fisher’s work in
the 1920s, the Fisher-Lorie studies in the 1960s, and my Stocks for the
Long Run, published in 1994. Shulman’s own long-term studies, based
on dividend growth, reinforced his long-term bearish views on
stocks.^27
WARNINGS OF OVERSPECULATION
By 1996 price-earnings ratios on the S&P 500 Index reached 20, consid-
erably above its average postwar level. More warnings were issued.
Roger Lowenstein, a well-known author and financial writer, asserted in
theWall Street Journal:
Investing in stocks has become a national hobby and a national obsession.
People may denigrate their government, their schools, their spoiled sports
stars. But belief in the market is almost universal. To update Marx, it is the
religion of the masses.^28
Floyd Norris, lead financial writer for the New York Times, echoed
Lowenstein’s comments by penning an article in January 1997 “In the
Market We Trust.”^29 Henry Kaufman, the Salomon Brothers guru whose
pronouncements on the fixed-income market had frequently rocked
bonds in the 1980s, declared that “the exaggerated financial euphoria is
86 PART 1 The Verdict of History
(^27) Three months later, in December 1995, Shulman capitulated to the bullish side, claiming his long-
time emphasis on dividend yields was incorrect.
(^28) Roger Lowenstein, “A Common Market: The Public’s Zeal to Invest,” Wall Street Journal, Septem-
ber 9, 1996, p. A1.
(^29) Floyd Norris, “In the Market We Trust,” New York Times, January 12, 1997.