Bull! What 21st Century Investors Need to Know About Financial Cycles, A History of the Boom and Bust, 1982-2004

528 Pages·2004·3.44 MB·English

by  Maggie Mahar

B

BULL!

a history of the boom and bust,
1982–2004
maggie

mahar

To Raymond, who believes that everything is possible
— Contents —
Acknowledgments vii
Prologue

Henry Blodget xiii
Introduction

Chapter 1—The Market’s Cycles 3
Chapter 2—The People’s Market 17
Beginnings (1961–89)

Chapter 3—The Stage Is Set 35
(1961–81)
Chapter 4—The Curtain Rises 48
(1982–87)
Chapter 5—Black Monday (1987–89) 61
iv Contents
The Cast Assembles (1990–95)

Chapter 6—The Gurus 81
Chapter 7—The Individual Investor 102
Chapter 8—Behind the Scenes, 123
in Washington
The Media, Momentum,
and Mutual Funds (1995–96)
Chapter 9—The Media: CNBC Lays 153
Down the Rhythm
Chapter 10—The Information Bomb 175
Chapter 11—AOL: A Case Study 193
Chapter 12—Mutual Funds: 203
Momentum versus
Value
Chapter 13—The Mutual Fund 217
Manager: Career
Risk versus
Investment Risk
The New Economy (1996–98)
Chapter 14—Abby Cohen Goes to 239
Washington; Alan
Greenspan Gives
a Speech
Chapter 15—The Miracle of 254
Productivity
The Final Run-Up (1998–2000)
Chapter 16—“Fully Deluded 269
Earnings”
Contents v
Chapter 17—Following the Herd: 288
Dow 10,000
Chapter 18—The Last Bear Is Gored 304
Chapter 19—Insiders Sell; 317
the Water Rises
A Final Accounting
Chapter 20—Winners, Losers, and
Scapegoats 333
(2000–03)
Chapter 21—Looking Ahead: What 353
Financial Cycles Mean
for the 21st-Century
Investor
Epilogue (2004–05) 387
Notes 397
Appendix 473
Index 481
about the author
credits
cover
copyright
about the publisher
— Acknowledgments —

M
ore than a hundred people contributed to this book, sharing their expe-
riences, their insights, and their knowledge. I would like to thank the many
who agreed to be interviewed, often more than once, including Gail Du-
dack, Bob Farrell, Byron Wein, Henry Blodget, Richard Russell, Steve
Leuthold, Ralph Acampora, Jim Chanos, Jim Grant, Jay Diamond, Abby
Joseph Cohen, David Tice, Bill Gross, Peter Bernstein, Marc Faber, Jean-
Marie Eveillard, Marty Whitman, Ralph Wanger, A. Michael Lipper, Don
Phillips, Fred Sheehan, Jeremy Grantham, Maureen Allyn, Mark Headley,
Clyde McGregor, Bill Fleckenstein, Martin Barnes, David Shulman, Lau-
rence Tisch, Steven Einhorn, Nassim Nicholas Taleb, John Di Tomasso,
Jim Awad, Jim Bianco, Paul Saffo, Robert Shiller, Hank Herrmann,
Charles Biderman, Rick Ackerman, Bob Davoli, George Noble, John
Collins, Edward Wolff, Bob Nurock, Charlotte Herr, Elizabeth Rivera, Lise
Buyer, Jonathan Cohen, George Kelly, Stephen Roach, Neil Barsky, Bill
Seidman, Arthur Levitt, Senator Jon Corzine, Joseph Stiglitz, David Ruder,
Bert Ely, Harold Bierman, Allan Sloan, Jane Bryant Quinn, Mark Hulbert,
Kate Welling, Jeff Madrick, William Powers, Herb Greenberg, Dave
Kansas, Jonathan Weil, Ed Wyatt, Steven Lipin, Joe Nocera, Doug Hen-
viii Acknowledgments
wood, Shirley Sauerwein, Jim Tucci, Ed Wasserman, Gary Wasserman, and
Michael Malone.
Many reporters and financial writers contributed to this book. Since
this is both a social history and a financial history, I turned to the media for
a record, not just of what happened, but of what investors thought was hap-
pening during the Great Bull Market of 1982–99. In many ways, the media
served as a mirror for investor sentiment, and sometimes as a lamp, illumi-
nating the facts. I am indebted to the many reporters who kept that record
and have tried to acknowledge that debt in my endnotes.
I also would like to thank Barron’s for giving me the time and space
to explore so many aspects of the financial world, in depth and in detail, in
the stories that I wrote while working there from 1986 to 1997. During
those years I learned much of what I know about both Wall Street and
Washington.
I developed many of the ideas in this book in the late nineties while
writing for Bloomberg News and Bloomberg Personal Finance. I especially
want to thank my editors at Bloomberg Personal, Chris Miles and Steve Git-
telson, for giving me the opportunity to explore themes that were not al-
ways popular at the time: market timing, bear markets, value investing, the
importance of dividends, the dangers of the trade deficit, and the fallibility
of the Fed.
From the time I began thinking about this book, Mary Bralove, a for-
mer Wall Street Journal editor and loyal friend, has proved the best sound-
ing board a writer could have. When I began writing, she became my first
reader. Since then, she has read and reread the manuscript, bringing an ed-
itor’s eye and a reader’s ear to the unending challenge of smoothing the nar-
rative while keeping the argument on track. Or, as she would put it, turning
spirals into straight lines. I could not have had a better reader.
Gail Dudack also became a collaborator. She provided many of the
charts for this book, and her remarkably lucid and often prescient analysis
has helped me focus my ideas.
Jim Chanos generously lent me his “New Era” files, a wonderful collec-
tion of often funny, always telling clippings that he kept as a personal
record of a financial mania.
Susan Chace, Fred Sheehan, Bob Farrell, Gertrude Hughes, Steve
Leuthold, Allan Sloan, Gail Dudack, Maureen Allyn, Jeff Madrick,
William Powers, and Michael Klotz all read sections of the manuscript and
provided valuable suggestions.
Acknowledgments ix
Johanna Piazza, Gregg Wirth, Chian Choo, Viken Berberian, Charlie
Katz-Leavy, John Giuffo, and Carol Dannhauser did an admirable job fact-
checking a manuscript filled with facts.
Most of all, I want to thank my family—Emily and Michael and Ray-
mond—for their warm support and absolute faith that I could finish this
project.
Last, but far from least, I would like to thank John Brockman, my
agent, and Marion Maneker, my editor. Without John Brockman’s pro-
fessional integrity and encouragement I never would have gotten past
Chapter 1.
Without Marion Maneker’s faith in the manuscript, I never would
have arrived at Chapter 21. A writer himself, he is a writer’s editor. I partic-
ularly want to thank him for the role he played in shaping this story. He
recognized, before I did, the importance of financial cycles as the underly-
ing theme of the book. I also want to thank Edwin Tan for smoothing the
path to publication with such diplomacy, efficiency, and finesse.