

Ms. Magoo's Bull

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I s there an ophthalmologist in the house?

If so, we've got a critical emergency that requires your immediate attention. Nothing less than the fate of the economy and the future of the Republic may hang on the outcome of your efforts.

For that powerful eminence, Alice Rivlin, vice chairman of the Federal Reserve, Mr. Greenspan's second-in-command, has been suddenly rendered visually challenged!

Her unfortunate condition was revealed quite accidentally less than a fortnight ago. At a symposium on Social Security sponsored by the Business Roundtable, she gave short shrift to the suggestion that an overheated stock market was kiting the economy, insisting she doesn't "see" anything that "might be characterized" as "frothy markets" or "a bubble economy."

For Ms. Rivlin to confess not being able to see speculative excess on the financial front is by no means the same as being unable to read the fourth line down on an eye chart. We're talking serious blur here -- like not being able to see the Washington Monument from three feet away.

Perhaps, we thought, she was putting us on, indulging in a little ocular jocular. But further investigation confirmed that she wasn't kidding: Those dazzling displays of speculative frenzy that light up the Street, day in and day out, courtesy of a million palpitating Internet day traders, are a total haze to Ms. Rivlin.

How we sympathize with her! To be deprived of the thrilling sight of a Net.B@nk soaring from 75 to over 241 in less time than it takes to say "crazy," or of an Ameritrade appreciating eightfold so far this year alone, or of a Charles Schwab enjoying so steep a rise that, as a friend of ours observed with awe and wonder, one Schwab is now worth two Goldmans.

Conceivably, Ms. Rivlin can discern a single line, like that uncoiling itself in the accompanying chart, which we've stolen from our friends at International Strategy & Investment. It shows the comparative performance of IPOs, as represented by S&P's new-issues index, and the market as a whole, as represented by the S&P 500. The gap between the IPOs and the general market is a pretty fair indicator of speculative intensity and, need we say, it's at a record high and climbing with the speed of light.

The idea of a Ms. Magoo helping to guide monetary policy between the Charybdis of inflation and the Scylla of deflation is at first blush somewhat disconcerting. However, on reflection, we concluded it might not be cause for alarm after all. For, as luck would have it, the vice chairman's failure to perceive a bald-faced bubble staring her in the face assures her complete fidelity to the Fed's brave new mission -- making certain the bubble doesn't burst.

And a worthy mission it is. For the stock market, as we keep saying -- and at the real risk of boring ourselves and, even worse, boring you, we'll say again -- is supplying an enormous amount of the juice for this fabulous economy of ours. Joe Carson, fine fellow and estimable economist (the first is demonstrably true, the second an evident oxymoron), who labors for Deutsche Bank Securities, has a neat way of quantifying just how much juice it's supplying.

To wit: If the bull market increases the financial wealth of us fat and sassy citizens by even a mere 10% this year, that sum would be sufficient to pay for all the federal, state and local individual income taxes collected for '98; plus, all the money spent last year on private education; plus, 16 million cars, SUVs and kindred vehicles; plus, a 20% down payment on five million homes -- all that, and there'd still be enough left over for $100 billion in walking-around money.

Forget about what they say, in their hearts, Alan Greenspan, Alice Rivlin, Robert Rubin, Lawrence Summers and other less-celebrated stalwarts who fashion economic policy are vividly aware of the stock market's key role in keeping the expansion alive and well.

Truth be told, they're obsessed by the awful knowledge that if the stock market goes, the economy goes and likely the world as well. Even more important, the next election goes. All by itself, this last is reason enough to explain their unwavering devotion to the sacred cause of seeing the bull remain in fine fettle and full roar.

F inally.

We rubbed our eyes in disbelief -- but it was true. They were buying the ... cyclicals. Dust-covered stuff, like aluminum and farm equipments and coppers. Egad, even coppers!

What in the world, we marveled, has gotten into investors? Why, so long in the wilderness, the pitiable objects of neglect, to say nothing of scorn and disdain, have these abject stocks abruptly gained a measure of favor and, for that matter, exactly whose favor have they abruptly gained?

The answers to these burning questions are not so easy to pin down. But the dictates of our miserable trade required us to take up the hunt. For along with Kosovo, Darryl Strawberry's errant uncle, the discovery that there are other solar systems out there just like ours except they're populated entirely by value players -- last week's big news was Wall Street's stunning rediscovery of the 99% of the market that isn't high tech or Web or even big-cap.

And our resolve to find those elusive answers was only strengthened by the fact that the resurrection of the cyclicals and the sightings of life among the small caps was accompanied by other quite remarkable phenomena. Breadth, which has been in a profound and prolonged bear market, started to show signs of improvement. New highs not only began to exceed new lows but did so by successively greater margins. Meanwhile, new highs, out of the blue, were palpably more numerous over new lows.

To begin with, we can confidently assert that the buyers of Alcoa and Caterpillar and Phelps Dodge and their ilk were not the blithe spirits ensconced in front of their PCs, visually prowling the chat rooms, poised to buy or sell at the drop of a rumor. Pure and simple, these virtual addicts could never bring themselves to purchase so much as a share of stock in a company that actually makes something, earns money and, worst of all, pays a dividend.

Besides, as the bounding recoveries of at least some Internet stocks late in the week after suffering a swooning session or two suggested, their loyal fans hadn't lost faith but were very much alive and clicking.

Up & Down Wall Street, Part 2