Paul B. Farrell: Today, all investors, Main Street and Wall Street only see today’s closing prices, quarterly earnings, year-end bonuses. There is no long vision of an American Dream in our destiny.

By Paul B. Farrell, MarketWatch

“New-Millennium Dow: 49,200 by 2013!” That was the headline for my early January 2000 column.

“Carnage! Record plunge! Wall Street weighs market’s future!” The Wall Street Journal’s headlines screamed at me the third trading day of the new millennium. Hey, tell me what’s happening? Fear set in. Anxieties. My heart beat faster. Is this it? The big crash? Quite a dramatic opening.

Then suddenly I bust out laughing. Hey, these financial journalists are just doing their job. And they’re good. These guys sell news by hitting emotional hot buttons, hyping late-breaking stories. And it worked. Today fear. Tomorrow hope. News is entertainment in the New Millennium.

A week earlier, in a late December column, dot-com insanity had become a dangerous virus consuming America’s 95 million investors … Wall Street was red hot … stocks roared … the top 19 funds of 1999 had totally irrational returns from 179% to 323% … investors laughed at 30% index-fund returns … expected 100% plus returns to continue indefinitely … early retirement was all the buzz.

Paradigm shift: Great American Dream triggers death of optimism

Something profound and historic happened during the New Millennium transition, as we left behind the manic New Economy dot-com ‘90s and the 20th century’s era of wild, irrational exuberance that reminded us of the Roaring Twenties, the Crash of 1929 and the long Great Depression … we also left behind the optimism driving the American Dream. That dream died in the New Millennium transition.

The future, the economy, the markets — investors had been optimistic with abandon. We had a vision that was projecting prosperity for decades ahead. Then suddenly, a great fear set in, we became short-term self-centered thinkers, our vision of the future died.

Before that shift in our destiny 13 years ago, Investors Business Daily really had predicted the Dow 49,200 for 2013. Other optimistic gurus had a vision for America projecting way out to 2047. Yes, these pundits and economists kept a long-term perspective and saw America’s future headed into a prosperous new century and beyond.

All trends were uplifting, hopeful, promising, all reflected not just in our faith in the technology revolution and new economics of the ‘90s but in so many exciting forecasts that gave meaning to the New Millennium Dow that were reported on that third trading day of 2000.

We were a powerful nation with a long-term vision of our meaningful destiny, believed in the promise of the American Dream, shared an optimism that was made us one. Listen:

• 15,000 by 2005: Deutsche Bank economist Ed Yardeni, quoted in Barron’s.
• 18,500 by 2006: Prudential’s chief technician, Ralph Acampora, quoted in Fortune.
• 41,000 by 2008: Harry Dent, author of “The Roaring 2000s: Building The Wealth And Lifestyle You Desire In The Greatest Boom In History.” Wired magazine quoted 41,000 as a peak with the market not bottoming till 2022. Dent has since published “The Great Crash Ahead” and “The Great Depression Ahead.”
• 21,200 by 2010: Sheldon Jacobs, publisher of the popular No-Load Fund Investor newsletter hedged his optimistic bet in small type: “But it won’t be smooth sailing. There will be three major bear markets before then.” But long-run, it was optimistic.
• 30,000 by 2010: In an interview, Barron’s noted that back in 1989 Frank Jennings, manager of Oppenheimer Global Growth & Income Fund, had successfully predicted the Dow at 10,000 within 10 years. His new Dow 30,000 assumed an “exponential gain of 11% a year.” Later in 2000, Jenning’s optimism was reinforced with the publication of “Dow 36,000: The New Strategy for Profiting from the Coming Rise in the Stock Market,” by James Glassman and Kevin Hassett.
• 49,200 by 2013: Investor’s Business Daily made this forecast based on an assumed 15% annual growth rate, which was the actual average gain of the Dow from 1982 to 2000, so at the time, it made sense.
• 100,000 by 2020: Charles Kadlec, chief strategist at J. & W. Seligman, used an 11.1% annual appreciation in his book “Dow 100,000: Fact or Fiction.” That was before Bill Gross’s single digit New Normal returns.
• 120,400 by 2025: InvestmentNews reported that Yale economist Roger Ibbotson made this prediction based on a 10% compounded growth rate through 2025. A quarter century earlier, when the Dow was around 600, Ibbotson had successfully predicted a 10,214 Dow by 1999.
• 153,000 by 2023: This was another mathematical extrapolation of Investors Business Daily’s long-term market projections out to 2023.
• 700,000 by 2047: And for best in over-the-top optimism: Back in 1997, in their 50th-anniversary issue, the editors of Kiplinger’s magazine looked ahead to their 100th anniversary in 2047 and came up with this astronomical forecast.

Today, all bets are off: Kiplinger’s New Math of 10% annual economic growth is history, later confirmed by Pimco’s New Normal. Yes, eventually it may reverse, put Kiplinger’s back on course to Dow 700,000 by 2047. But don’t bet on it.

Recently Bloomberg Markets asked, “Is U.S. economic growth over?” Citing economist Richard Gordon’s research on economic growth, the magazine warned global growth “will slip below 2% in 2013,” then keep falling to the historic 0.2% level by 2100, depressing the Dow with it.

Why did America’s dreamy optimism peak in 2000, then die?

Yes. the dot-com market mania peaked in early 2000. Then nosedived. On March 20 my headline read: “Next Crash? Sorry, you’ll never hear it coming.” Actually we heard the crash, but quickly fell into denial. And when people cannot face the truth, suppress it, their spirits turn fearful, outwardly brash, but weakened inside, defensive, open to threats.

And at that moment in our history, the American Dream, our optimism bubble blew up, died … and has yet to return. We collapsed into a 30-month recession: The Dow dropped from 11,722 in 2000 to 8,235 and lost eight trillion in market cap by 2002.

And in those few months after the Dow’s January 2000 peak, Wall Street turned against itself, shifting from optimism to negative condemnations from leading financial minds, exposing a layer of evil, hidden, a darkness driving Wall Street, propping up the ‘90s technology revolution, shattering our faith and optimism in the American Dream. Listen:

• Forbes: Famed contrarian money manager David Dreman remarked that “the average analyst forecast was wrong by 40% between 1982 and 1990 and didn’t get any better in the ‘90s, in fact, they got worse. The average analyst consensus forecast was off 48.7%.” In fact, the “inaccuracy of these forecasts shows how dangerous it is to buy or hold stocks on the basis of what analysts predict.”
• Wall Street Journal: To the sophisticated investor, “it is no longer news that analysts’ recommendations may lack objectivity,” but “what isn’t as widely known: The pressure that negative analysts feel is often from their own clients, institutional investors. One analyst who did issue a sell signal and wound up in ‘the doghouse’ said, ‘You make a lot of friends when you say buy a stock, but not when you put out a sell.”
• BusinessWeek: “Wall Street research reports are more sales documents than disinterested analyses. Most professional investors understand this and treat research accordingly,” but Main Street investors never get it, till it’s too late.
• Forbes: Economist Gary Shilling warned that “Wall Street analysts, often appearing on TV business shows, have spurred you to buy stocks for years, and correctly so in this long bull market. But what will their advice be worth if we head into a full-blown bear market? Less than zero; they’re paid to be bulls 24 hours a day, 365 days a year.”
• Newsweek: “How much research do Wall Street analysts actually do? You should not take Wall Street research too seriously. … Remember to laugh the next time someone tells you that the stock market is a rational place and that big-money investors know what they’re doing.”

All that and more filled my March 20, 2000, column: “Next Crash? Sorry, you’ll never hear it coming.” Few listened.

Since then, nothing feels quite right. The optimism that energized the great American Dream now seems just wishful thinking, a child’s fairy tale that vanished in 2000, along with projections of Dow 49,200 for 2013, and a Dow 700,000 in 2047.

Today, all investors, Main Street and Wall Street only see today’s closing prices, quarterly earnings, year-end bonuses. There is no long vision of an American Dream in our destiny.