WHERE TO LOOK IN '96

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AFTER A 30% YEAR IN STOCKS, WHAT NOW? I POSED THIS question during the annual portfolio-management conference at our dining-room table. This is the time to weed out unproductive assets, of which we had several. As my wife pointed out, if stocks had a 30% year, what happened to ours? Don't blame me, I said; blame the Turkey Fund.

If we had been long in corn instead of Turkey, we would have been up 59.8%, as corn outperformed the Dow Jones industrials by nearly double in 1995. Zero-coupon bonds did even better, up 63.1%. At least we avoided coffee beans, down 43.8%, and Taiwan equities, down 30.6%. So there are some reasons to be thankful, and just as many to be sorry.

A lot of the talking financial heads who failed to predict the big rise in U.S. stocks last year have resurfaced to forecast a modest rise in 1996. The expert consensus seems to be that stocks will advance 10% this year. That is not exactly a startling bit of augury: a 10% annual gain is about average for stocks in this century.

The best guess of the analysts is that the 30 companies in the Dow Jones industrials will earn a combined $347.50 per share in 1996. If these 30 stocks sell for an average of 171/2 times earnings, we might even see a 20% gain in stocks and a 6000 Dow in 1996. But this is where the doubts creep in, owing to the sluggish economy and the silence at the cash registers.

Jim Grant, the puckish editor of the Interest Rate Observer, is a doubter. He observes that people are buying too many mutual funds and too few suits. This explains why Wall Street had a great year while malls had a lousy Christmas. After pouring $100 billion--plus into stock funds last year and having been maxed out on their credit cards to begin with, investors had nothing left for clothes, says Grant.

Lousy retail sales lead to disappointing earnings, which sooner or later lead to lower stock prices, so Grant expects that the owners of stocks will have less to show for their investment than the owners of suits. Wall Street money manager Marty Zweig, a chronic pessimist, sees the current situation more optimistically. He thinks the sluggish economy will keep interest rates low, which in turn will drive stock prices higher, at least for a while.

Here are a few suggestions from Wall Street luminaries as to where money can make the most of itself in 1996:

Foreign stocks, with Japan, Europe and the Far East leading the pack (source: Michael Metz, Oppenheimer & Co.). The U.S. market did better than most foreign markets in 1995, so a turning of the tables is widely anticipated. Japan is stimulating itself out of a long depression with interest rates near zero. What could be more stimulating than that? Japanese companies missed the personal-computer bonanza, but they may be catching up with new products that turn the dumb TV into a smart PC.

Gold. A sluggish U.S. economy won't do much for gold, but billions of Asians are heading for the jewelry stores. They have cash in their pockets and not many places to spend it, and they do not necessarily trust the local currency. So they are buying gold, which will tend to drive up the price.

Housing and home-furnishing stocks. The theory here is that lower mortgage rates will put more people into houses, and they will have to fill the rooms with rugs, lamps, chairs and couches.