ships and resorts in some of the world’s most isolated locations were
sure to carry all-financial stations. Air travelers could view up-to-the-
minute Dow and Nasdaq averages flying 35,000 feet above the sea as
they were flashed from monitors on phones anchored to the back of the
seat in front of them.
Adding impetus to the already surging market was the explosion of
communications technology. Internet service providers such as AOL al-
lowed investors to stay in touch with markets and their portfolio from
anywhere in the world. Whether it was from Internet “chat rooms,” fi-
nancial Web sites, or e-mail newsletters, investors found access to a
plethora of information at their fingertips. CNBC became so popular
that major investment houses made sure that all their brokers watched
the station on television or their desktop computers so that they could be
one step ahead of clients calling in with breaking business news.
The bull market psychology appeared impervious to financial and
economic shocks. The first wave of the Asian crisis, discussed further in
Chapter 10, sent the market down a record 554 points on October 27,
1997, and closed trading temporarily. But this did little to dent investors’
enthusiasm for stocks.
The following year, the Russian government defaulted on its
bonds, and Long-Term Capital Management, considered the world’s
premier hedge fund, found itself entangled in speculative positions
measured in the trillionsof dollars that it could not trade. Markets tem-
porarily seized up, and the Federal Reserve facilitated a rescue of the
fund in order to resuscitate financial markets. These events sent the Dow
Industrials down almost 2,000 points, but three quick Fed rate cuts sent
the market soaring again. On March 29, 1999, the Dow closed above
10,000, and it then went on to a record close of 11,722.98 on January 14,
2000.
THE TOP OF THE BUBBLE
As always, the bull market gave birth to those who envisioned much
higher stock prices. In 1999, two economists, James Glassman and Kevin
Hassett, published a book entitled Dow 36,000. They claimed that the
Dow Jones Industrial Average, despite its meteoric rise, was still grossly
undervalued, and its true valuation was nearly three times higher at
36,000. They incorrectly asserted that the theoretical underpinning for
their analysis came from my book Stocks for the Long Run! Since I showed
that nominal (nonindexed) bonds were as risky as stocks over long hori-
zons, they improperly claimed that stock prices should rise sufficiently
88 PART 1 The Verdict of History