Why Dow 36,000 Is Probably A Fantasy

"Talk about throwing the bull" (Books, Sept. 27) reserves its harshest criticism for Dow 36,000, by James K. Glassman and Kevin A. Hassett. The authors appear convinced that there is no current stock market overvaluation, and on this point they have considerable support. But their thesis is much broader. They maintain that the risk premium for U.S. equities, which has historically averaged about 7%, has been reduced in the 1990s to 3%, thus causing the surge in equity market valuations. And, since 200 years of historical data show no greater risk in the long term for holding equities than bonds, Glassman and Hassett argue that rational investors will act on this knowledge and, in the aggregate, invest on this basis in the future. That is, they will price equities on the basis of getting the same return as they could achieve from long-term U.S. Treasury bonds. As a result, equity values will soar upward, with the Dow at 36,000 on the horizon.

Would that it were so simple. Yes, there is much compelling evidence in favor of the superior long-term real performance of U.S. equities over alternative investments. But individuals live and spend in the near and medium term. Many will not have the staying power for the equity market--through all the down phases--a staying power that appears to be required in order to make Dow 36,000 a reality.

Angelo Tarallo

Ridgewood, N.J.

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