Thread: Sabrin: Tues. market drop only a hiccup

03/2/07 - Posted from the Daily Record newsroom


Sabrin: Tues. market drop only a hiccup

Friday, March 2, 2007

The stock market's nosedive Tuesday was just a "hiccup," says Murray Sabrin, professor of finance and executive director of the Center for Business and Public Policy at Ramapo College in Mahwah.

Investors can generally count on a return of about 10 percent a year from stocks because that's been the average return of the Dow Jones industrial average from 1903 to 2006, he says. When the return goes above or below 10 percent, it regresses to the mean -- returns to 10 percent.

The lesson for long-term investors, Sabrin suggests, is that they should save -- because they can double their money in 7.2 years.

"That's not a bad way to build wealth," he said.

If people start saving 10 percent of their income at age 21, they will become millionaires, he pointed out.

Sabrin, the Libertarian gubernatorial candidate in New Jersey in 1997, spoke to the Financial Breakfast Club of Morris County in Morristown on Wednesday.

Another optimistic sign he pointed to: The third year of a presidential term is usually favorable for stocks because presidents try to boost the economy to win votes for their party.

The average stock-market return during such years since 1927 has been 20 percent. Eighteen of those years have been positive, only two negative.

Declining price-earnings ratios are also a positive sign, he added.

Still another good sign: gridlock in Washington. When neither Democrats nor Republicans have the upper hand, the economy benefits -- and that is the situation we have now, Sabrin noted.

"Hopefully, nothing will get done."

He recommended that investors dollar-cost average (invest regularly and gradually) and own a diversified portfolio.

He owns stocks, money market funds, natural gas, power plants, real estate, gold coins and silver coins. But he is wary of long-term bonds because of the threat of inflation.

Because the Federal Reserve is ever ready to print new money, it feeds inflation, which caused the recent housing bubble and other excesses, Sabrin said.

He expects the dollar to continue its decline. "The long-term trend of the dollar is for it to reach zero -- like Germany in the 1920s. It's scary."

And he argued that the three major totalitarian societies in the 20th century -- in Nazi Germany, the Soviet Union and China -- came after periods of hyperinflation.

Sabrin is also worried that the "level of federal spending is greater than the government's revenues." He called for an end to the government trying to solve all of society's problems.

The consumer price index understates the inflation rate, he went on, and he believes the true rate to be 5 percent or 7 percent -- which one can see in the climbing cost of housing, health care, utilities, education and taxes.

That's one reason that corporations have been prospering, Sabrin said: They have been giving small raises, arguing that the inflation rate has been low. (Although unions have in general lost their power, he argued, unions representing public groups, such as teachers, remain strong.)

Why are taxes in New Jersey so high? someone asked.

"New Jersey tries to solve everyone's problem with a program," Sabrin answered. He called for a limit on government intervention -- and for nonprofit agencies and philanthropy to carry more of the burden.

Governor Corzine is "interesting" and "smart," Sabrin said, adding that in his budget address, Corzine spoke of a "safety net for seniors."

Sabrin scoffed that senior citizens are the wealthiest people in our society. Besides, if people have an income of $500,000 but don't save anything, "They shouldn't come to me in their old age and say they need money."

As for Corzine, "He makes Christie Whitman look like a conservative. He wants to spend money on everything. He's a prisoner of his ideology."

Sabrin started his talk by saying he had good news and bad news. The good news: President Bush will leave office in 2009. The bad news: He will remain in office until 2009.

Sabrin said he voted for Bush in 2004 because Bush had talked about a "humble foreign policy" and no nation-building.

Today, he favors Rep. Ron Paul of Texas for president in 2008.

http://www.dailyrecord.com/apps/pbcs.dl ... /703020378

I agree -

Sabrin started his talk by saying he had good news and bad news. The good news: President Bush will leave office in 2009. The bad news: He will remain in office until 2009.