1. U.S. stocks and mutual funds in 1968. Comfort: The first Baby Boomers had started graduating from college. Those who had excess money were putting it into common stocks and "go-go" mutual funds. The stock market, represented by the Standard & Poor’s 500 Index, had risen at 12.4 percent a year from 1963 through 1967. The future looked rosy in a "guns and butter" economy in which the government declared it could afford both a war in Vietnam and a "war on poverty" at home. Dash of reality: The S&P 500 Index compounded at only 1.9 percent for the three years 1968 through 1970.

2. Japanese stocks in 1989. Comfort: Japanese companies were obviously moving toward world domination, taking over many markets formerly owned by U.S. rivals: automobiles, consumer electronics, semiconductors, optics. This was a classic "new era" in which many people thought price-earnings ratios for stocks had become irrelevant. For Japanese workers who could choose how their retirement money would be invested, the choice was obvious: Japanese stocks. Dash of reality: Japanese stocks have suffered huge losses since 1989. From the start of 1990 to the end of 1997, Japanese investors lost 50.3 percent of their money in large-cap stocks and 76.3 percent of their money in small-cap stocks. U.S. investors lost 45.3 percent of their money in large-cap Japanese stocks and 73.8 percent in Japanese small-cap stocks. (The differences resulted from the changing relationship between the yen and the dollar.)

3. Gold in 1980. Comfort: For decades until the mid 1970s, the official price of gold was $35 an ounce. Suddenly set free to fluctuate, gold rose for several years, then suddenly shot up to more than $800 in 1980. Gold was widely regarded as a "sure thing" that would keep its value, no matter what. Financial planners urged their clients to load up on gold coins and gold-mining stocks as a hedge against inflation. Dash of reality: Inflation soared in the 1980s, but the price of gold dropped like a rock. Gold’s price fell to $375 in 1982. Since 1990, gold has spent most of its time under $400 and early this month was quoted at $286.

4. Oil and energy stocks in the late ‘70s and early ‘80s. Comfort: The world was obviously in an energy crisis, and shortages were expected to send the price of crude oil to at least $50 a barrel by 1984. Energy stocks and oil-drilling ventures were regarded as "can’t miss" investments as the United States sought to gain some independence from OPEC, the feared cartel of oil-producing countries. Dash of reality: Oil prices never reached the magic $50 target, and over-eager energy ventures toppled many investors.

5. The Japanese yen in early 1995. Comfort: Japan’s huge surplus of exports was supposed to keep the yen going up in value for at least the next decade. The yen peaked at a value of 1.25 cents (or about 80 yen to a dollar) in 1995. Many people believed the yen might become the world’s benchmark currency. In 1996, the Federal Reserve Bank of San Francisco published a paper entitled: "Will the yen replace the dollar?" Dash of reality: The U.S. dollar has soared recently while the yen has dropped sharply. The yen was recently quoted at 0.69 cents, or 144 yen to a dollar. That’s a drop of 45 percent in about two years.

6. The U.S. stock market in mid-1998. Comfort: The U.S. economy is by far the strongest in the world, with only a ghost of inflation. Millions of baby boomers are in their peak saving years, pumping hundreds of millions of dollars into 401(k) and other retirement plans every month. Demand for U.S. stocks simply exceeds supply, and "it’s obvious" to many people that the future looks bright. Dash of reality: It’s possible the bull market will continue setting new records for many years to come. But it’s also possible that U.S. stocks may have reached their last peak this millennium. We could be in the first stages of a long, vicious bear market.

 

 

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