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Interview With Ben Stein

Aired June 23, 2003 - 19:43   ET


ANDERSON COOPER, CNN ANCHOR: Today's numbers notwithstanding, stocks have surged this year. Major indices have seen double digit gains. Take a look at this graphic. In fact, since the war began, the Dow is up 17 percent. Nasdaq is up 21 percent. And the S&P 500 is up 18 percent. There are, of course, several reasons for this. Some may be war related. Some have more to do with psychology than with sales performance.
But if this is irrational exuberance, are we just poised for a repeat of the stock market bubble? Let's find out. Joining me now from Los Angeles is Ben Stein, who, like many former Nixon speechwriters, is now a celebrity judge on "Star Search." He's also an economist, whose latest book is called "Yes, You Can Time the Market."

Ben, thanks for being with us.

BEN STEIN, AUTHOR: It's a pleasure.

COOPER: So are we in a bull market? What is going on?

STEIN: We're in a bull market within a much larger bear market. I mean, the Nasdaq Q's, which is the main technology index, are up close to 60 percent from their lows last October. But they're still down 75 percent or close to 80 percent almost from their highs in March of 2000. What is driving this is the most irrational of irrational exuberance.

COOPER: It is a lot of small investors, isn't it?

STEIN: It is being driven by small investors who are hoping to get in on another bubble and sell out at just the right time. They never sell out at the right time. This is a bubble powered entirely by hope. There are no earnings to speak of among the Nasdaq Q's. The price is astronomical by any historical standard. The prices are getting to be way, way, way out of line of any historical measurements. On the Q's and also on the S&P and also on the Dow we're heading into bubble territory. We're not heading into it, we're there.

COOPER: So you think we're at the height of the bubble, if you will? Let's look at the some of the...

STEIN: Well, we're not in as big...

COOPER: Let's look at this graphic again. I mean, the Dow up 17 percent, the Nasdaq up 21 percent. S&P 500 up 18 percent.

STEIN: Yes, but that doesn't anywhere near get you the real story. The real story is that earnings are very, very low, and the multiple of earnings at which stocks are selling are unheard of. I mean, these are unheard of bubble-type metrics. A stock does not get priced because of its color or its pretty pictures on the certificate. It gets priced because of its earnings, presumably. And earnings are terrible throughout the market. And yet the market is racing up. And the Nasdaq has no earnings. You're basically just buying a piece of paper and a story.

COOPER: So what accounts for the exuberance? I mean, is it the war?

STEIN: No, I think people are hoping there will be a dramatic recovery in earnings, but there has never in all history been a recovery dramatic enough to account for this kind of movement, especially on the Nasdaq.

The Dow is high, but it is not insanely high. The S&P is high, it's semi-insanely high. But the Nasdaq is just in super bubble territory.

I'll tell you a little tiny story, Anderson. A friend of mine is refinancing his house in order to put money in tech stocks. So now you have this housing bubble feeding the tech bubble, and we've got two bubbles going simultaneously. When they both burst, as they inevitably will, it is not going to be a pretty picture. It will end in tears.

COOPER: Have you told your friend this?

STEIN: Yes. He doesn't care. He thinks he's going to get rich.

COOPER: Does it ever surprise you or -- short of the movement, the willingness to sort of believe the irrational exuberance, if you will, of small investors?

STEIN: I am astonished at it this time. I don't think there has ever in history been a bursting of a bubble, than the rebuilding of that bubble as fast as there has been now.

Actually in 1929, the market collapsed and then it revived very mightily in '31, and then totally fell apart in '33. Maybe that's what's going happen this time. Maybe we're building towards an even bigger collapse this time.

And to be sure, the bubble in the Nasdaq is not as big as it was in the year 2000, but it is a bubble for sure. And it is a very scary prospect. It might go up further but it's got to pop. There are no earnings.

COOPER: What do people do? I mean, very briefly, if you had to give advice.

STEIN: I would certainly sell out of the Nasdaq in a hurry. I might buy the Dow, the Dow index. Or I might just put it in CDs. But the Nasdaq is a tragedy waiting to happen.

COOPER: All right, Ben Stein, appreciate you joining us. Thanks a lot.

STEIN: Thank you.


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