DOW DEFIES ANALYSIS.

Byline: Gregg Fields Knight Ridder Newspapers

The stock market's meteoric rise in the 1990s has set records, created trillions of dollars in wealth and cemented America's position as the world's economic superpower.

Nevertheless, there are a couple of things that economists, analysts and computer programs can't determine about why the Dow Jones industrial average has relentlessly marched to a level higher than 10,000.

Why did it happen? Can it continue?

On one side of the debate are those who contend the U.S. stock market is simply a speculative bubble waiting to burst, not unlike Japan's in the 1980s.

On the other hand, some contend that the world has changed. Stocks might seem overvalued when weighed by traditional scales, such as price of the stock measured against the company's earnings, known as the P/E ratio. Some contend, however, that in an Internet world where the future of technology, speed and efficiency have no limit, there's no need to abide by the old school's rules.

``I think we have the opportunity, particularly with technology, to mushroom to 15,000 in the next few years,'' said Andrew Horowitz, a Hollywood, Fla., investment adviser. ``And I believe 20,000 by the year 2008 is realistic.''

He likened the stock market to rock music in the 1950s. ``They said it wouldn't last, that it would warp your mind,'' he said. ``But the capital being created is real. The opportunities are real.''

Horowitz belongs to a sizable coterie of individuals, including Federal Reserve Chairman Alan Greenspan, who contend that the U.S. economy went through a pivotal economic transformation in the 1990s.

Everything from corporate downsizing to rapid automation made the economy more productive than it had been. The nature of how Americans work also changed. Roughly one-third of the largest 100 companies in America are involved in technology and telecommunications, double the proportion in 1975.

``Productivity numbers continue to surprise Wall Street on the upside, and that's extremely bullish for stocks,'' said Todd Salamone, trading manager for Schaeffer's Investment Research in Cincinnati. The firm is predicting the Dow will hit 11,500 by year-end.

But not everyone believes the world has changed as fundamentally as some seers suggest. ``I don't even like the term `New Era,' '' said Dave Orr, economist for First Union, the banking concern.

In his view, the expansion of the 1990s has resulted from a rare confluence of three events: plunging energy costs, sharply lower interest rates and soaring stock prices.

He believes all three trends are about to reverse. ``We have had an extraordinary dose of good luck, and this is in the process of ending,'' he said. ``The important thing about the 1990s being great is that the 1970s and 1980s were just awful.''

He doesn't believe the U.S. economy will significantly benefit from the painful recovery that appears to have begun in emerging markets in Asia and Latin America.

``My impression is,'' he said, ``better be careful about what we wish for. These markets being in the doldrums has given us a boost.'' Imported goods have been cheaper, holding down inflation.

What has clearly bolstered stock prices, although in a way that is difficult to document precisely, is investor psychology. In the 1990s, consumers no longer have cause to fear oil shortages, inflation or the Cold War.

In fact, a few have even suggested that the pattern of expansion followed by recession has been altered into what Greenspan once termed ``a virtuous cycle'' of sustainable growth. ``There are those who say we're over economic cycles,'' said Earl Foster, a Miami money manager, who adds that he's not so sure of that.