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Business Q and A -- Will Reishman Investing and the stock market -- 'I'm afraid the bullish talk coming from Wall Street is doing a tremendous disservice to the public' Will Reishman, 54, grew up in West Virginia and graduated in 1968 from the University of Notre Dame as a Danforth fellow. He began his career in the financial business as a commodity broker in 1976. He moved to Medford with his wife, Pat, and three daughters in January 1989. During his time here, he was associated with several New York Stock Exchange member firms before striking out on his own in 1999. He recently opened a branch office for the California brokerage Euro Pacific Capital. Q: You consider yourself a bear when it comes to the stock market. Why and how did you arrive at that perspective? I confess, I'm a bear. The transition for me began in 1998, as valuations reached levels that were unsustainable. They kept climbing until finally the bubble burst. We are now in a major bear market, following a massive bubble, especially in technology, telecommunications and Internet stocks. Our markets reached the highest valuation levels ever, far eclipsing the 1920s and even Japan's 1980s bubble-market. Unfortunately, such New Era manias require grinding bear markets to finally break the extreme overconfidence built up during the preceding bull market. Overvaluation that plagued us in March 2000 hasn't gone away. Stocks have fallen, but corporate earnings have fallen much further. In fact, the United States is now experiencing the greatest profit collapse since World War II, a decline this year of 67 percent. I'm afraid the bullish talk coming from Wall Street is doing a tremendous disservice to the public. The average investor needs to stay very conservative to avoid suffering further, and possibly sizable, losses. Q: What course of action would you recommend to investors under current conditions? The first rule of investing is, Don't lose the money. During bear markets, most stocks go down. It's critical to preserve capital, so you can take advantage of true bargains in the future, and meanwhile enjoy more peace of mind. We often hear Wall Street's mantra, "You're in it for the long haul. Hold on, it'll come back." After the top in 1929 at 382, the Dow didn't get above 200 till 1950, and not back to previous highs until mid-1954. Things may unfold more rapidly this time, but it's likely to take years for the bear to run his course. Another key indicator of value is dividends. At previous market bottoms, the average Dow 30 stock paid 6 percent. Today, it's less than 2 percent. Until there's lots of 4 and 5 percent payouts from major industrial corporations (not just utilities), hold onto your cash. The real key now is to preserve purchasing power. Another component of the bubble has been an overvalued U.S. dollar. Investors should consider ways to protect their cash from the possibility of a steep decline in the dollar. When you go to spend or invest that money, you want it to have retained its purchasing power. Also, be very careful not to get talked into some fancy mutual fund that's "almost as safe as a money fund, but pays more." There's no free lunch, and those higher returns may come with an unacceptable level of risk. This is because another huge hangover from the burst bubble is bad debt. There's lots of it, and it's finding its way into enhanced yield products. Advice: Just say no. These funds are an accident waiting to happen, as bankruptcies accelerate next year. Keep your safe money safe - in plain vanilla CDs, Treasury bills, and Treasury-bill funds. Unfortunately, even many money market funds have a lot of garbage paper in them and are not nearly as safe as 10 years ago. Q: The state is in a budget crunch. What would you recommend to the Legislature's Emergency Board? Well, I'm not sure I can help much. But, if I were in their shoes, I certainly wouldn't raise taxes a dime. We're in what could turn out to be a tough recession. No way do you increase the tax burden on working folks or businesses struggling to stay afloat. Republicans should commit to resolving the budget crisis by reducing spending, make it their platform and go to the electorate with it in 2002 if necessary. In the short run, based on the principle of doing the least harm, they should agree to an across-the-board roll-back in spending for the entire budget, possibly exempting classroom-related expenditures, but not administrative, in the kindergarten-through-12th-grade budget. Long term, we need to look at fundamental changes in the mission of state government. As examples: The Oregon Health Plan is a fiscal time bomb, and is part of the reason the budget crunch is going to be so severe. It must be scaled back more in line with its original purpose. The Oregon Public Employee Retirement System also looms as an enormous burden that must be reduced. Q: How would you overhaul the state's tax/revenue system? Since state revenue is derived largely from income taxes, it is especially vulnerable to economic cycles. We enjoyed the virtuous part of the cycle in the 1990s. Gov. John Kitzhaber and compliant GOP legislators foolishly projected that experience into the future and agreed to program increases, for the Oregon Health Plan for example, that are no longer affordable. Quite simply, some Oregon statesmen and women must have the vision and courage to move the state toward significant dependence on a consumption-based tax of some kind. Unless that occurs, Oregon's state revenue will continue to be volatile - which makes government planning difficult. Mail Tribune Home | Ottaway Newspapers, Inc. | Dow Jones & Co., Inc. | Privacy | Contact Us Copyright � 2001 Mail Tribune, Inc.