The Bottom Line

Bulls, bears and goats

Deirdre McMurdy November 10 1997
The Bottom Line

Bulls, bears and goats

Deirdre McMurdy November 10 1997

Bulls, bears and goats

The Bottom Line

Deirdre McMurdy

The best place for equity investors during the most recent bout of market turmoil was Mongolia. On Oct. 27, while Hong Kong, New York and Toronto suffered

triple-digit losses, the Mongolian stock exchange rose 6.4 per cent.

Despite the massive shock to investors elsewhere, last week’s shakeout was in many ways an efficient and badly needed market correction—or, in the words of Alan Greenspan, chairman of the U.S. Federal Reserve Board, a “salutary” event. For months, pundits have been split between those who predicted that markets were

about to run out of gas and those who argued that the dazzling ascent would continue. In the end, both views were vindicated.

There was a severe one-day correction on Oct. 27, followed almost immediately by a dramatic recovery.

Throughout the 1990s, the bulls and the bears have bolstered their pronouncements with impressive research. Historical

data have been gathered and sifted. Economic trends have been dissected and debated. Sophisticated computer programs have transformed the market into a veritable fraternity, tracking the alpha, beta, gamma and delta of every stock.

It is a comforting exercise to search for coherent patterns in something as raw and powerful as the stock market. But probably the most accurate reading of its temperature comes from informal indicators.

The most familiar of those is the Porsche/reservation/reno index. As during other market peaks, there is now a long waiting list for German sports cars—not to mention the new Mercedes sport utility vehicle. It is virtually impossible to get a table at hot Bay Street restaurants without reserving far in advance. And Toronto’s most affluent neighborhoods resonate with the hammer thuds of starter-mansion upgrades.

More evidence that demand for stocks outstrips supply lies in the flurry of corporate spinoffs and initial public offerings.

One sign of an excessively heady market is the long waiting list for German sports cars

Over the past several months, any brandname company with extra assets on hand has spun them off into separate, publicly traded entities. Among them: BCE Inc., Gulf Canada Resources Ltd. and George Weston Ltd. In the first eight months of 1997, $8.5 billion in new public offerings came to market in Canada.

Yet another sign of an excessively heady market is the proliferation of stock-picking contests such as the one sponsored by the Fort Worth Star Telegram in Texas. It pitted the portfolio choices of its mascot, a steer named Rusty, against several local investment analysts. Between January and Au-

gust, Rusty’s stocks were up 43 per cent, while the local experts were up 32 per cent and the Standard and Poor’s 500 stock index was up 23 per cent.

On the subject of bears, bulls and steers, traders often pronounce that “the goats are coming” when a stock or a market is about to be stampeded by retail investors. Goats, after all, will eat tin cans and almost

anything else they can find. The recent proliferation of these “goats” on Wall Street is perhaps the ultimate sign that markets were overheated.

Wall Street has become one of the hottest tourist attractions in New York City. People are jostling to have their pictures taken with the bronze statue of the bull on the corner of Broadway and Wall Street. Early every morning, tourists begin to line up—not for tickets to the latest musical, but for the 3,000 passes to the trading floor issued daily by the New York Stock Exchange.

To accommodate the crush, the exchange has spent $2.8 million to expand its visitor centre. Even the relatively obscure New York Mercantile Exchange has spent $1 million for an exhibit hall and two public viewing areas at its new facility.

Probably the most revealing informal indicator of an overheated market surfaced in the midst of last week’s market mayhem: the fact that Mongolia actually has a stock exchange.