Bull!
Page 51
6. That year, Goldman would promote two more women to partnership, bringing the total to three by year-end.
7. Martin Mayer, The Fed: The Inside Story of How the World’s Most Powerful Financial Institution Drives the Markets (New York: The Free Press, 2001), 317.
8. Abby Joseph Cohen, interview with the author.
9. Michael Ellison, “Abby Cohen: Mother of All Optimists Stands Firm. Wall Street Loves Her,” The Guardian, 24 October 1998, 24.
10. Michael Ellison, “Abby Cohen.”
11. Abby Joseph Cohen, interview with the author.
12. Roger Lowenstein, “Bottoming Out? A Bearish Strategist Says It Isn’t Happening Yet,” The Wall Street Journal, 6 September 1990, C1.
13. Kate Welling, “Bullish but Not Ranting: Investment Strategist Abby Cohen Tempers Her Optimism,” Barron’s, 12 June 1989.
14. Pat Widder, “Will 3000 be a launching pad or a roadblock for the Dow?” The Chicago Tribune, 16 July 1990.
15. Abby Joseph Cohen, interview with the author.
16. Alan Abelson, “Up & Down Wall Street,” Barron’s, 23 December 1991.
17. Jack Egan and Edward Baig, “Is the Bull Back?” U.S. News & World Report, 25 February 1991.
18. Roger Lowenstein and Craig Torres, “Market Milestone: At 3000, Dow Reflects a Very Different Rally from One Last July,” The Wall Street Journal, 18 April 1991; Craig Torres and Douglas Sease, “Further to Go? Stocks Aren’t Cheap but Market Could Keep Barreling Ahead,” The Wall Street Journal, 15 April 1991.
19. Douglas Sease, “Dow’s Drop Seen as Temporary Setback,” The Wall Street Journal, 25 November 1991.
20. Terence P. Pare, “Investing for Hard Times,” Fortune, 30 December 1991, 74. After all, Cohen pointed out, corporations buying back their own shares accounted for “as much as 3.2% of that return,” and at the end of 1991 the buybacks were not likely to continue. By then, companies were far more interested in issuing shares than in buying them.
21. Abby Joseph Cohen, interview with the author.
22. Jonathan Laing, “Stay Relaxed: Abby Cohen Says There’s No Bear in Sight,” Barron’s, 30 August 1999.
23. Antony Bianco, “The Prophet of Wall Street: How Abby Cohen came to be one of the most closely watched forecasters on the planet,” Business Week, 1 June 1998.
24. Bill Seidman, interview with the author.
25. Bill Seidman, interview with the author. For an entertaining history of Seidman’s career in Washington, see William Seidman, Full Faith and Credit: The Great S&L Debacle and Other Washington Sagas (New York: Beard Books, 1993).
26. Bill Seidman, interview with the author.
27. Justin Martin, Greenspan: The Man Behind the Money (Cambridge: Perseus Publishing, 2000) 2 ff. “To help make ends meet,” Martin explains, “Rose [Greenspan’s mother] took a job in the domestic department at Ludwig-Bauman, a furniture store…in the Bronx. Following the divorce, Herbert [Greenspan’s father] became very distant. Visits to his son were infrequent at best” (2).
28. Bob Woodward, Maestro: Greenspan’s Fed and the American Boom (New York: Simon & Schuster, 2000), 55.
29. Interview with the author.
30. John Cassidy, “The Fountainhead,” in The New Gilded Age: The New Yorker Looks at the Culture of Affluence, edited by David Remnick (New York: Random House, 2000), 37.
31. John Cassidy, “The Fountainhead,” 31, 32.
32. Justin Martin, Greenspan, 128–29.
33. John Cassidy, “The Fountainhead,” 31, 37.
34. Bob Woodward, Maestro, 16, 21, 24.
35. Bob Woodward, Maestro, 28.
36. Leon Levy with Eugene Linden, The Mind of Wall Street (New York: Public Affaris, 2002), 154.
37. Of Greenspan’s 24 consecutive cuts, James Grant observed: “The Federal Reserve’s…cuts in short-term interest rates from 1989 to 1992 brought to mind the 24 major printings of a runaway best-seller whose publisher had initially expected to sell only 2,000 copies. It did not burnish the publisher’s reputation for commercial judgments.” The Trouble with Prosperity: The Loss of Fear, the Rise of Speculation, and the Risk to American Savings (New York: Times Books, 1996), 197.
38. Martin Mayer, The Fed, 220.
39. William Seidman, Full Faith and Credit: The Great S&L Debacle and Other Washington Sagas (New York: Beard Books, 1993).
40. Maggie Mahar, “Shooting the Messenger,” Barron’s, 7 May 1990.
41. Maggie Mahar, “Shooting the Messenger.”
42. James Grant, The Trouble with Prosperity, 206.
43. James Grant, The Trouble with Prosperity, 206.
44. The survey, done by Sindlinger & Co, was published in Investor’s Business Daily.
45. Greenspan would be the survivor. As Justin Martin notes in Greenspan: The Man Behind the Money, “Despite a deteriorating relationship with Clinton, Greenspan still wound up getting renominated in 1996. Clinton became another president in a long line who simply didn’t have a choice…. Republicans made up the majority in Congress now. An election loomed in 1996, and they weren’t about to let the president select a new Fed chairman without a fight” (211).
46. Charles Gasparino, “The Soaring ’90s: Behind the Investing Giants and Stocks That Marked a Decade; Analyze This,” The Wall Street Journal, 13 December 1999, C1.
47. Andrew Bary, “’Net Queen: How Mary Meeker Came to Rule the Internet,” Barron’s, 21 December 1998, 23.
48. Heather Green, “The E Biz 25: Visionaries,” Business Week, 27 September 1999.
49. Heather Green, “The E Biz 25: Visionaries.”
50. Interview with the author.
51. Interview with the author.
52. Joe Nocera, Frontline, PBS, September 2001.
53. Interview with the author.
54. Interview with the author.
55. Both the report that Quattrone tried to steal Meeker from Morgan Stanley and that she claimed responsibility for having brought Netscape to his attention appeared in Peter Elkind’s “Where Mary Meeker Went Wrong,” Fortune, 14 May 2002, 68.
56. Dave Kansas and Molly Baker, “Did Netscape Mania Reflect Frothy Market? Maybe Not,” The Wall Street Journal, 11 August 1995, C1: “Certainly in the past the occasional red-hot IPO hasn’t tended to signal much about the overall market.”
57. Heather Green, “The E Biz 25: Visionaries.”
58. Byron Wien, interview with the author.
59. Janice Maloney and James Aley, “So You Want to Be a Software Superstar: Beyond the Valley of the Geeks,” Fortune, 10 June 1996.
60. Interview with the author.
CHAPTER 7
1. Maggie Mahar, “The Great Pension Raid,” Barron’s, 2 December 1991, 8.
2. In 1991, when the insurance fund covered pensions up to $27,000, median household income was roughly $30,000. If an employee retired before age 65, the insurance fund guaranteed less.
Private-sector employers funded the insurance pool; as of 1993, they paid $19 per worker per year if their pension was considered to be “fully funded”—more if it was underfunded. (See Mark Trumbull, “No Taxpayer Bailout Needed for Pensions: Federal Pension–Insurance Agency’s Financial Problems Can Be Resolved, Experts Say,” Christian Science Monitor, 11 February 1993.
Nevertheless, there were times when retirees fell through the cracks of the federal insurance program. For example, if a company went bankrupt, an employee who had been offered a “supplemental” retirement package in exchange for retiring early might well find that the federal insurance did not cover the supplement. See Maggie Mahar, “The Great Pension Raid,” 8.
3. William Wolman and Anne Colamasca, The 401(k) Hoax (New York: Perseus Publishing, 2002), 46.
4. Wyatt, “Pension Change Puts the Burden on the Worker,” The New York Times, 5 April 2002, C2.
5. In The 401(k) Hoax, Wolman and Colamasca provide the numbers on the share of unionized workers covered by defined benefit plans in 1998, and argue that while “unions have always gotten m
ore flak than companies for the way they administer pension plans…there is no serious evidence that their misdeeds are more flagrant than those of the bosses. Call it the ‘Hoffa effect.’” (161).
6. In 2000, the Employee Benefits Research Institute estimated that 30 percent of all U.S. workers had no employer-sponsored retirement plan, 20 percent were covered by defined benefit plans, and 50 percent were covered by defined contribution plans.
7. 401(k) investors were now committing 56 percent of their savings to stocks. See Ellen Schultz, “Personal Finance (A Special Report): Identifying the Issue, for Your Benefit, All Those Corporate Extras Are Going to Get a Lot More Complicated,” The Wall Street Journal, 9 December 1994, R25.
8. Ellen Schultz, “Tidal Wave of Retirement Cash Anchors Mutual Funds,” The Wall Street Journal, 17 September 1995, C1.
9. Maggie Mahar, “You Must Buy Stocks,” Barron’s, 20 May 1996, A12 (quoting from Federal Reserve numbers).
10. Jennifer Postlewaithe, interview with the author. The investor’s name has been changed to protect her privacy.
11. Shirley Sauerwein, interview with the author; and “Behind the Movers of the Soaring ’90s: A Wall Street Journal Roundup,” compiled by Mitchell Pacelle, Randall Smith, Rebecca Buckman, Greg Ip, and Susan Pulliam, The Wall Street Journal Europe, 14 December 1999, 17. The Journal reported on Sauerwein’s investing in 1999; in 2002, the author followed up on her story.
12. The Collected Writing of John Maynard Keynes, vol. XII, Economic Articles and Correspondence (Cambridge: University Press, 1983), 108. Jeremy Grantham, chairman of Grantham, Mayo, Van Otterloo & Co., quoted Keynes on this point in a letter to his investors, August 12, 2002.
13. Earl C. Gottschalk Jr., “Personal Finance (A Special Report): Planning for Retirement: On Your Own, Companies Are Giving Employees Investment Control of Their Retirement Money; That Can Be Good—or Bad,” The Wall Street Journal, 9 December 1994, R19.
14. Thomas Frank, One Market Under God (New York: Anchor Books, 2001), 41.
15. Fred Kelly, Why You Win or Lose (Burlington, Vermont: Fraser Publishing, reprint edition, 1995).
16. Malcolm Forbes Jr., as quoted in Dean LeBaron and Romesh Vaitilingam, with Marilyn Pitchford, Ultimate Book of Investment Quotations (Oxford: Capstone Publishing, 1999), 173.
17. For an excellent summary of inflation-adjusted returns from various investments from World War II through 1991, see Barton Biggs, “Are Stocks Everyone’s Best Friend?” Barron’s, 23 March 1992.
18. Maggie Mahar, “The Great Pension Raid.”
19. Maggie Mahar, “The Great Pension Raid.”
20. As a result of the Retirement Protection Act of 1994, passed in January of 1995, if a pension fund was 150 percent funded, it would lose its tax break if it continued to add to its pension.
21. In 2001 a Profit Sharing/401(k) Council of America survey reported that 18 percent of 401(k) plans had more than half of plan assets invested in company stock. Meanwhile, the average 401(k) had 39 percent of its assets invested in company stock, down from 41 percent the previous year, Steve Leuthold reported in his Investment Insight, December 2001, 52–53.
22. Mary Williams Walsh, “8 Billion Surplus Withers at Agency Insuring Pensions,” The New York Times, 25 January 2003, 1. By 2003, the insurance pool’s own surplus was shrinking, and there was talk of raising the premiums that corporations paid to keep the fund going. In the worst-case scenario, observers expected that the government (i.e., taxpayers) would bail the fund out.
23. Gary Wasserman’s story is based on interviews with the author. (Note: Gary Wasserman is the older brother of Ed Wasserman, who appeared in Chapter 1.)
24. Bill Fleckenstein, interview with the author.
25. Wasserman took a loss on a small position in Internet stocks, but by then his portfolio had already paid for his son’s college education.
26. According to “Equity Ownership in America 2002,” a report done jointly by the Investment Company Institute and the Securities Industry Association, an estimated 14 percent of all shareholders made their first equity investment in “1999 or later”: 16 percent from 1996 to 1998; 26 percent from 1990 to 1996, and 44 percent before 1990. The report is available on SIA.com.
27. Maggie Mahar, “The New Investors,” Barron’s, 30 August 1993, 8.
28. Maggie Mahar, “The New Investors,” 8.
29. For a fuller discussion of the Fed’s rate cutting, see Jim Grant, The Trouble with Prosperity: The Loss of Fear, the Rise of Speculation, and the Risk to American Savings (New York: Times Books, 1996) 197, 239.
30. Maggie Mahar, “You Must Buy Stocks,” Barron’s, 20 May 1995, 12; and Maggie Mahar, “Sitting Tight,” Barron’s, 29 July 1996.
31. Maggie Mahar, “You Must Buy Stocks.”
32. The survey “Equity Ownership 2002,” showing when various groups first began buying stocks, was published jointly by the Investment Company Institute and the Securities Industry Association. See table “Who Owns Stocks?” Appendix, pages 463–64.
33. Michael Malone, interview with the author. Portions of the interview were quoted in Maggie Mahar, “You Must Buy Stocks,” and Maggie Mahar, “Sitting Tight.”
34. Maggie Mahar, “The Case of the Vanishing Investor,” Barron’s, 10 October 1998, 8. The story quotes the Securities Industry Association on the percentage of trades by individual investors in 1985 and 1988.
35. Maggie Mahar, “The Case of the Vanishing Investor,” 8.
36. “1991 had been a disaster for the real estate market in most areas,” Business Week reported in the autumn of 1992, and in 1992, despite the fact that mortgage rates stood at 19-year lows, “residential real estate in California and much of the Northeast remains a picture of despair,” the magazine noted, citing prices down “by as much as one-third” from their highs in the eighties. (Larry Light, with Nancy Peacock, Sandra D. Atchison, and Dori Jones Yang. “Real Estate Slump? What Real Estate Slump?” Business Week, 28 September 1992, 119.)
37. Maggie Mahar, “The New Investors.”
38. Peter Bernstein, interview with the author.
39. David Craig, “Sunny Outlook for Recovery Encouraging,” USA Today, 2 January 1992, 1.
40. Maggie Mahar, “The New Investors,” 8.
41. The Merrill Lynch Baby Boom Retirement Index, prepared by Dr. Douglas Bernhaem, Stanford University, and sponsored by Merrill Lynch & Co., 1994.
42. A 1993 survey of upscale boomers with incomes of $50,000 or more showed that they were saving, on average, more than $6,000 a year. (Maggie Mahar, “The New Investor.”)
43. Peter Bernstein, interview with the author.
44. Typically, 401(k) plans offered three stock funds for every bond fund. Investors who tried to spread their money evenly wound up putting three-quarters of their money into stocks. (Robert Shiller, Irrational Exuberance, New York: Broadway Books, 2001.) Meanwhile, many employers matched contributions with company stock—and in many cases, employees were not allowed to sell that stock for a fixed number of years. Finally, over the course of the nineties fixed income alternatives like GICs, Treasuries, or TIPS became rarer, as did opportunities to invest in “asset allocation funds” that allowed a value manager to go into cash or bonds when stocks became pricey. For a fuller discussion of how the most popular growth funds of the nineties tied a fund manager’s hands, see Chapters 12 and 13.