by Archie M. Richards, Jr., CFP^®
July 15, 2002

The market's continued weakness is painful. But keep smiling through your tears - and keep holding your stocks. Here are reasons to be optimistic:

1. Since March 2002, the interest rate on ten-year Treasuries has fallen from 5.3 percent to 4.6 percent. Cheaper borrowing costs enable corporations to invest more in their businesses and grow faster.

2. Most corporate managers are upright and well-intentioned. The others are cleaning up their financial statements. (About 40 years ago, the federal government enacted laws and regulations to suppress unfriendly buyouts. Good companies, which create genuine value, thereafter found it difficult to buy bad companies run by sleazebags who pay themselves excessively and give only the appearance of creating value. Sleazebags executives have become harder to replace. When you come across a social or economic problem, you'll usually find a misguided government policy at the root.)

3. The amount of money being produced by the Federal Reserve is ample for stimulating economic growth. (Most of our money consists of bank deposits. The Fed creates that money out of nothing. How it does so we'll leave to another day.)

4. For the last five months, commodity prices have held steady. A key commodity, oil, is amply available in Russia. As we buy more from there, the price will fall. (Russia's oil reserves are about equal to those of Saudi Arabia. Russia has done more than the Saudis to combat terrorism. The U.S. should tell the deceitful Saudis to kiss off.)

5. A popular Iranian cleric has resigned his post in protest of the country's leadership. The overthrow of Iran's government comes ever closer. Iran is the motherland of terrorism. After the revolution occurs, terrorism will be greatly weakened.

6. A slew of new technologies coming to market will revolutionize human life. Computers will understand and speak many languages. Production will become much more efficient. Improved modes of communication will link smart people to the rest of us more conveniently and cheaply. Automobiles will become safer, cheaper, and easier to drive. Methods of seeing through metal will make terrorism all the more difficult. Human health will be much improved at far less cost. New technologies invariably move the stock market higher (although the market moves first).

7. The declining dollar is said to be bearish, but it isn't. The Euro is strengthening partly because the European nations are rejecting socialism and adopting policies more conducive to economic growth. Even some African nations are joining the party. Welcome to the modern world, guys! The larger markets you provide will benefit everyone, including the U.S.

8. President Bush blew it when he raised tariffs on steel. But the ruckus raised by other nations surprised him. I doubt he'll make that mistake again. In the long run, cutting tariffs helps everyone. On that score, permitting China to join the World Trade Organization was a marvelous thing.

9. The disappointing stock market has become front page headline news. But this is no reason to sell. Pessimism does not cause stock prices to fall.

Instead, pessimism is greatest when stock prices are at their lows. As the prices rise, sentiment improves. When prices are at their peak, the sentiment is most optimistic.

What will cause the prices to rise? The collective guesses of millions of people about favorable news that won't become known until 3 to 6 months later.

Prices are low now because, 3 to 6 months from now, business news will probably be unfavorable. When prices start rising, the business news would probably start improving 3 to 6 months thereafter. Stock prices generally move ahead of the news.

Sentiment does not lead stock prices. It parallels them. If you wait for investors to turn optimistic, you'll be too late. The rise in prices off the bottom will be a surprise.

The unfavorable headline news about the market is no reason to sell stocks. In two years, stock prices will be a great deal higher than they are now. Treat the headlines as an opportunity to buy.