Why the Dow 36000 Forecast Was Right

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Journalist James Glassman and economist Kevin Hassett took to these pages in March 1998 to dismiss concerns of a stock market bubble and offer a rationale for why stocks could still go a lot higher. That was already sticking their necks out. But then they stuck them out further, arguing—with many qualifications—that over the long run the Dow Jones Industrial Average could go to 35000. Their simple policy advice: Buy a diversified portfolio of stocks, and don’t put too much money in bonds. Over the long run, stocks offer a higher return without significantly greater risk. Their basic rationale, which depended on investors gradually coalescing around their view, was that stocks had to rise as the market risk premium came into line with empirical reality.

Later, in 1999, they stuck their necks out even further in a best-selling book titled “Dow 36,000.” In it, their very rough guess on timing was five years. The left hated them, in no small part because Mr. Hassett is a prominent conservative economist. The right liked them, partly for the same reason. On balance, it is probably fair to say that the book was viewed as somewhere between outrageous and absurd.