By Franz Schurmann

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Prediction #9 for Tuesday, April 13th,1999

The American bull market will continue.

• Introduction:
  

  All who live in this country and pay their bills, directly or indirectly, are benefiting from a bull market that most say has lasted 8 or 9 years but which I date back to August 1982 (stock price graphs show the market changed at this time from a ragged but flat line to an increasingly steep curve).

  To say all is a pretty daring assertion. So before predicting here's my argument as to why. To survive in this country the vast majority of people need an address. If you give an address then if it's not you who pays the bills someone else will.

  The immense electronic system that rules over all of us makes certain that most people have addresses. The police, especially now with their enhanced search powers, add more to the total (including those who end up getting prison and jail addresses where the taxpayers pay the bills). There are not many left who manage to slip through the cracks.

  To pay bills you need an income. Rents, mortgage payments and taxes are high. U.S. economic data shows that the component of national income that comes from stocks has soared. When an immigrant cook paid sub-standard wages living with nine others in a crowded room pays his share of the rent a part of his wages indirectly comes from stock earnings.

  I came across an illuminating piece on stocks in the Chinese-language China Press a few days after the Dow went through the 10,000 point ceiling on March 29. The piece was sent out by the New China News Agency and was clearly written by a well-informed economist.

  The paper was founded almost a century ago in New York city by poor Chinese laundry and restaurant workers who were fascinated with economics. Later they threw their support to the Chinese Communists and a lot of them got into trouble during the McCarthyite period of the 1950's. Now it is a sturdy paper with lots of reporting, news analysis and ads. The paper's news people never lost their fascination with economics and in my opinion do some of the best economic analysis in this country -- unfortunately inaccessible to the general readership. Consider the following:

  In the 1920's only 5% of American households owned stocks. In 1995 40% held stocks.

  Over the last ten years the number of stockholders has increased 380%. Home ownership only increased 55%. Last year stocks made up 25% of family assets. Fifteen years earlier it only was 8%.

  Economists cite four reasons for this:

  (1) The baby-boomers (born between 1946 and 1964) have invested their retirement funds in stocks.

  (2) People are less fearful of stocks than they were in the past. According to Stanford Nobel prize winner economist William Sharpe because so many more people own stocks, the risk is more spread out. And therefore there is less risk to the individual.

  (3) Money supply grows; interest rates and inflation are down. The result: stocks go up. Economists say that during the last ten years low interest rates accounted for 80% of investors' returns and corporate profits for only 20%.

  (4) Continued economic growth. Economists say the relationship between stocks and the entire economy has been getting closer and closer. Another Stanford economist (judging from the Chinese form of the name it could be macro economist Thomas Sargent) said:

  "At present the wealth generated by the stock market is very closely connected with [general] economic growth... Some economists say during the last eight years of continued economic growth firms have maintained their profits without raising stock prices. Fed Chairman Alan Greenspan has said that because of huge increase in use of computers and electronic technology productivity has gone way up. This is the main reason for the economic growth."

  While warning that the "bubble" clearly could burst at some time the article also says it could go on for another ten years.

  The first reason given explains why just about all Americans benefit from the stock market impelled growth. Any one who has a job will discover from the first paycheck that taxes, social security and maybe a special pension fund will be deducted. If President Clinton's proposed social security reforms go through then all three funds will be deeply involved with stock markets. If the latter should go kaput then, to use former President Bush's phrase America will be in "deep doo-doo."

  I don't think they will.

• Prediction:
  The American bull market will continue.

• Outcome:
  Like my prediction on the end of post-modernization I shall evaluate this prediction no. 9 on January 4, 2000.

I am a globalist. But, whatever position one has on the controversial globalism issue, the reality is that all current economies have now been bound into the global economy. I would go further and say: inextricably bound.

Here are some more numbers from the same China Press but from the April 12 issue. Despite the fact that the three Chinese territories (Mainland, Taiwan and Hong Kong) were hard hit by the Asian financial crises -- the Mainland was also hit even harder by enormous floods -- they ended up together as the Mt. Everest in foreign exchange reserves: US$ 329.1 billion.

Japan was second with US$ 222.5. Mainland China has US$ 145.5, a US$ 510 million increase over 1997.

The roots of the global economy are trade. Its trunk is the American dollar. Its two great branches are the Japanese yen and the German mark (now its child, the euro). Moving up very fast, however, is the Chinese yuan. If America remains the center of the global economy East, Southeast and, soon enough South Asia are going to make up the biggest chunk by far of the trading circle surrounding America.

That means the roots of the magical wealth-generating power of American stock market offerings are going to be disproportionately in Asia, less so in Europe. Maybe that's why we're now seeing our new foreign war no longer in Asia (Korea, Vietnam) but in Europe (Kosovo). And that's why President Clinton is so anxious to get China into the World Trade Organization (WTO). And why the Japanese government calls for its immediate admission. And again why an American senator whispered in Prime Minister Zhu Rongji's ear that Congress would in the end support entry.

A few more numbers from another China Press article of April 12. Last month oil prices had fallen to their lowest level in in 12 years. This month, as an oil scene observer said, oil prices are "rising, bursting, flying." In California, as we Californians know this. Here they have risen 43.11 cents in just one month.

Why? If our local media blamed it on the big Richmond oil fire, the China Press experts fingered the real source: a new OPEC power that has for the first time effectively cut production way back. But, in my view, in the background hovers the figure of President Clinton. Why? Because in a few months time he is going to unveil a big new Mideast peace package which is going to cost a lot of money. All who use gasoline in the world are going to pay for that plan.

And that means all the Americans who now benefit from the seemingly endless bull market will also pay. What's worth more to them: lower oil prices or higher share dividends? The answer is obvious: the latter.

So as people elsewhere in the world were paying US$ 1.25 for a liter of gas we paid the same for a gallon. My prediction is that, some grumbling aside, we Americans will also pay through the nose for gas --- so long as the bull market bubble keeps floating in the air casting beautiful prismatic colors from its gossamer skin.