BULLS & BEARS: Where Weebles wobble, investors see opportunity

April 18, 2005

Remember the toys back in the '70s called Weebles? They were little egg-shaped people weighted so they would always stand upright. The manufacturer's advertising slogan was, "Weebles wobble, but they don't fall down."

The stock market has wobbled like a Weeble for six years.

For stocks, the first quarter ended with a thud with the Standard & Poor's 500 down about 3 percent and the NASDAQ down 8 percent. The price of oil went up more than 25 percent during the quarter, which pretty much explains why stocks dropped.

If you look at a 10-year chart of the Dow Jones industrial average, the first time the index crossed 10,500 was in April 1999. Here we are, six years later, still stuck at that level.

In those years, there have been a few snippets of market excitement. But with the exception of the year or so after 9/11, the stock market has hardly wobbled five or six hundred points off the 10,500 level.

The stock market always wobbles, but generally the wobbling has an upward trend. Six years of treading water is an unusually long time. The only other post-WWII period that exceeded this one in length was the 1970s.

Back in the late '60s and the '70s, the stock market bobbed around about 12 years before finally exploding upward for a 12-fold gain that ended in 2000. What constrained the market back then, and are there any similarities to today?

The first half of the great 12-year wobble under presidents Johnson and Nixon was marked by Vietnam, the oil embargo in 1973 and political malfeasance that culminated in Nixon's 1974 resignation. Those were exciting times for newspaper reporters.

The second six years under presidents Ford and Carter weren't nearly as exciting, but oil prices started rising in 1974 and for six years provided some fireworks.

The fireworks culminated at the end of 1980. In September that year, Iran and Iraq went to war. In December, oil hit $40 a barrel and by Christmas the prime lending rate was 2 percent. In those last six years, the price of oil had jumped fivefold and there was talk at the time of paying $100 for a barrel oil.

During that bleak period, corporate America had really tightened its belt and job growth was non-existent; but the earnings of the S&P 500 actually grew 40 percent. Headlines, however, were grim and only fools were bullish on the U.S. economy.

The fools were right, though. Within six years, the price of oil had dropped to $7 and the stock market only a fool could love had blasted up to a 300-percent gain!

Let's look for similarities to our recent six-year wobble. At the beginning of 1999, oil was $11 and as of today has gone up fivefold. Recently, a CNBC ticker scroll across the television reported Goldman Sachs thinks an oil-price-spike to $105 is likely.

Job growth? How many times in the last six months did you hear the term "jobless recovery"? But in the last three years, corporate America has tightened its belt, productivity has soared, and earnings for the S&P 500 have roughly doubled.

Now I'm not foolish enough to think oil will go back to $11 and the market will triple this time. But I'd bet you my SUV for your hybrid that oil will drop to $40 before it hits $100 and that the next 3,000-point wobble on the market will be up, not down.

Dave Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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