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Waiting for 'Dow 36,000'

Interview by Carlos Lozada
Sunday, March 8, 2009

Remember "Dow 36,000," the 1999 bestseller that promised a "wealth explosion" as the stock market scaled ever higher? Co-author Jim Glassman went back to his only-in-Washington career as a financial columnist, media executive, technology maven, think tank scholar and, most recently, Bush administration point man in the global war of ideas. As for the Dow, well, we know where that went. Glassman sat down last week with Outlook's Carlos Lozada to explain why Barack Obama will disappoint the world's expectations, why al-Qaeda doesn't get the Internet, and why he still thinks the Dow will hit 36,000 -- he's just not saying when. Excerpts:

So, 10 years ago you predicted that the Dow would reach 36,000. Now it has fallen to its lowest level since 1997, and 6000 seems more likely than 36,000. On behalf of investors and readers everywhere: What happened?

I think that people who read my columns would consider me a level-headed person who doesn't get upset, either way, doesn't have tremendous enthusiasms. But it's true that in 1999 Kevin Hassett and I wrote "Dow 36,000," which really made two points: The more important was that for investors who could put their money away for the long term, stocks were a much better investment than bonds. A lot of other people have said that, but we really made the case for stocks.

The second point was that based on our calculations, we believed that stocks would rise to roughly 36,000. We said in the book that it is impossible to predict how long it will take for the market to recognize that Dow 36,000 is perfectly reasonable, but then, of course, we did take a guess.

You said three to five years.

Obviously that hasn't happened. I think the question investors are facing now is, "Is history a guide?" In "Dow 36,000" we looked at history in, I think, a completely reasonable way and said a) you ought to be in the stock market and b) stocks are very much undervalued.

So, does history still prevail? My conclusion is that it does and that the basis of "Dow 36,000" is a good one and people should be in stocks for the long term. But I think reasonable people can differ about that today. We face a really scary time.

Would you be willing to hazard a guess on where the market will be three to five years from now?

No, and I think if there was a mistake in "Dow 36,000," it was that we in that one sentence did hazard a guess. We sort of said two different things: It's impossible to predict when this is going to happen, and then we said, well, we'll predict it anyway.

Do you still think it will hit 36,000?

I have no doubt about that. I think that is absolutely true. But I'm not going to tell you what date.

Do you ever regret having written the book, or regret the title? Do people come up to you at cocktail parties and say "Oh, yeah, Dow 36,000 -- how's that working out for you?"

Yeah, people do say that. There is no doubt that people -- especially people who haven't read the book -- think this is some sort of wild-eyed book that was part of the high-tech boom and so forth. Kevin and I usually joke that we really wish we'd called the book "A Treatise on the Declining Equity Risk Premium." I have to say, I don't really regret it. I think if people read the book, its examination of the nature of investing is right on. I think it's exactly right.

Just not the number.

I think the fact that the book title is a number -- as things have turned out, maybe a calmer title might have been better.

But you don't feel the need to apologize to someone who read your book, went in and got creamed?

Absolutely not.

At the end of the Bush administration, you served as undersecretary of state for public diplomacy, leading U.S. efforts against terrorist ideologies. How do you think you did on that?

I think we did pretty well. The undersecretary for public diplomacy has a broad portfolio, which includes traditional means of engaging the foreign public, such as cultural and educational exchanges. These we do very, very well. But what we haven't really done very much of is what some people call the war of ideas. . . . This is a tremendously important battle, and it's not just a military battle, as [Defense] Secretary [Robert M.] Gates has said. I only had this job for seven months, but I think we got on the right track.

What has the war in Iraq done for the war of ideas?

I think ultimately the war in Iraq will be beneficial to the war of ideas in the sense that a functioning democracy that we hope will be stable and prosperous now exists in the Middle East, and is showing other nations and other people what a democracy looks like. Now, you can argue that was a great cost in American lives and American treasure and it wasn't worth it. I would disagree with that, but I think that's a legitimate argument.

In your Senate confirmation hearing last year you said that "the problem is that the majority of people in the world have never met an American." How much of the problem is that people do know America but don't like it?

The question of why people don't like us is a very complex one. Part of it is they don't like our policies. Part of it is they don't understand our policies but then when they do understand them they don't like them. The third is -- and this is the one I think we can actually work on -- that they feel we don't respect their point of view, that we get out the megaphone and we yell at them: "Here is what we believe; here is how wonderful we are; listen to this, world!" That is the approach that I tried to get away from.

You also said that al-Qaeda is "eating our lunch" in getting its message out on the Internet.

Al-Qaeda is not eating our lunch anymore. Al-Qaeda is stuck in Web 1.0. What al-Qaeda uses the Internet for is to exhort, to educate, to train, and it's effective in that sense. But what the Internet is being used for today is something that much more involves criticism, dialogue, conversation -- the kinds of things al-Qaeda cannot stand. Al-Qaeda is basically a cult, a death cult, and it exploits young people. So like any cult trying to exploit new members, it needs to seal those people off from the outside world and then batter them with its message. The Internet is pretty good in doing that, because you can reach people from all around the world, but once you kind of open up the Internet space to other voices, the whole system breaks down. So Web 2.0 is anathema to al-Qaeda. . . . I think we have technology on our side if we use it the right way.

What do you think the presence of Barack Obama in the Oval Office will do for the war of ideas?

Obama's presence is very helpful. The world is very excited about President Obama, there is absolutely no doubt about that. But I do think there will be some disappointment because there is anticipation a) that President Obama will solve all the problems in the world, and b) that his foreign policy -- I don't think it's going to be all that much different from what we've seen.

Would you have wanted to stay in the job under Obama?

Yes.

Did it ever come up?

There were a lot of people advocating my staying, including Newsweek. But did it ever come up, like, did I ever have a conversation with anybody about it? No.

How did your stocks do last year?

I took a major hit last year, about the same as the market as a whole. I plan to start buying again soon. It is hard to resist stocks like GE at $7 a share with a dividend of 40 cents.

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