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« Want to Measure Sentiment? Here is a New Idea | Main | ETF Update: Back to the Sideline »

May 25, 2010



You do not have a crystal ball,it is wise to say that the unprecedented federal deficit will cripple the United States and that a double dip recession is just around the corner. Just remember those with a crystal ball eat glass! LoL


Gregory --

The Dow 20K thesis will have several legs, but concern about inflation is one of them.

Let us suppose that we expect inflation. Wouldn't it be a good idea to protect our assets somehow?

Most people will live in retirement for many years, and even modest inflation will greatly diminish their purchasing power.

Do you have an alternative recommendation, or is it your plan to specialize in sarcasm?



Gregory - I am giving you a one-time pass on name calling since you have an interesting point.

You are correct in saying that I am not writing to illustrate two sides, as I frequently do in describing short-term trading and market moves, in my face-off series, and in my weekly market assessment.

There is an excellent reason for this, which you will see if you read the article more carefully. I am trying to RESTORE balance, getting people to think about the issue with an open mind. There will be plenty of arguments to ponder on this question. It is too complicated for a single article.

I hope that you will continue to participate in a civil and adult fashion.


Gregory P

Hmmmm, gradual decline? Yeah I really really want to get rich by having my purchasing power eroded. Good thinking. Bring on DOW 20k.

Gregory P

You can delete the comments all you want, you would [name calling deleted- JM]. You have not actually provided a fair balance to any of your arguments, you have just argued the other side and stated Q.E.D You have not provided any proof at all that DOW 20k will happen without some severe inflationary event.

Even a chef has to provide his proof in his pudding. You however just argue that the recipe proves it. Not clever.


Griffin -- I remember the same book. While I was not blogging at the time, my feeling was that the underlying argument and reasoning were very poor.

I would not have raised this topic for consideration in the 1999 era, since every metric I follow showed significant over-valuation in most stocks.

I am not depending upon a chart or a trend for the thesis I am developing, but there are a number of positive long-term forces.

Your comment is interesting -- especially the confidence that there must be a retest.




Goatmug -- I am not talking about any adjustments, just the Dow in nominal terms. People need to think about the gradual decline in purchasing power, and various methods of protection.

Thanks for your helpful observation.



Is that Dow 20,000 adjusted for the decline of the dollar? I might agree with you as long as you don't do any adjustments for purchasing power.


I remember when the DOW crossed 10,000 the 1st time 10 years ago, all these books came out saying "DOW 40,000 by 2010!".

It's really common sense, look at a monthly chart of the DOW since the beginning. During this period of leverage the last 25 years, the DOW has gone from 3,500 to 14,000 back to around 10,000. So for almost 60 years, the DOW was topped at 3,500 and in the last 15 years the DOW has gone from 3,500 to 14,000 back to 10,000.

Look at the chart, it has to go back and retest the 4,000-5,000 area before it can continue higher.

I heard the same arguments for DOW 40,000. Seems they did not work out.


S&P 500 at 1500 by April'11 is possible


Bo -- Did you read the report, or did you read what someone told you the report said?

I look at 12-month forward earnings on the S&P 500. When you look at the report, please explain to me what it says about that specific question.

Also read the discussion in the comments with Mike C.

Thanks for raising this point. I will have to do an article on this topic.



Jpthomas - I can see that you have strongly-held viewpoint and that you are pretty emotional about it. I am happy to have readers consider your observations and draw their own conclusions on the merits.

I do have one request: No name calling. I treat my readers with respect, and I expect the same. I am going to delete comments from those who do not follow this rule.

Fair enough?



Curtis -- you are absolutely correct on the Dow and big bagger focus, especially penny stocks.

Here's something to try on the next person who offers a day opinion. Ask them to name the Dow stocks and see how many they can get.

People have extremely strong opinions even without information or analysis. Is this a great country, or what?

Good comment.


zorch - The blog is not intended as investment advice. Each person is different. With that in mind, you are wise to pay attention to your tolerance for risk. You can reconsider when things are better, as long as you are willing to pay higher prices.

In fact, that is what most individual investors do. It is important to be tracking the right indicators. That will be part of the Dow 20K project.



Jeff, ... From your mouth to God's ears!! ... I just took my 401k out of stocks and converted to cash for the first time in the 18 years of my 401k ... I had nothing to go on other than being an average joe who will need the money in 3 years, thus I've gotten'nervous' about the Dow swinging wildly of late ... I would simply switch back to the market if any real rally is underway PG



What's your response to this arguement: the forward earning forecast is so out of line that it is useless as a valuation metrics? The recent research from Mckinsey shows that sell side analysts have consistently and significantly overestimated earnings for a decade. Also if you use forward earning yield, you will see Greece and Spain has the best value since end of 2009. Would you buy Greece and Spain?

You're an idiot. A depression DID occur and we are still in the midst of it. But for the TRILLIONS in govt. "stimulous" serving as a phony prop, the real economy would show that we are indeed in a depression. Unemployment - true unemployment - is closer to 20% than it is to 10%, and our debt levels as a % of GDP are over 12% with no means or capacity to repay it without devaluing the dollar while further increasing taxes all on top of a non-producing economy here in the US. If that's not a depression, then it certainly is depressing. And if the DOW does go to 20k in the short term, it will only be because of zero interest money that the criminal Federal Reserve keeps channeling into the markets so the banking speculators can drive an empty rally upwards. There are no fundamentals to support current PE's but speculators will continue to speculate.


To me, markets haven't really changed all that much aside from added and unnecessary complexity. The emotions that drive them to new highs remain in the market, until it blows up, resulting in the 100 year (every five years) flood.

The 1920's and 30's were eerily similar to now . China has taken on the role of the US holding massive currency reserves from exports (similar to US holding of gold in 1920's). Debt and complicated investment schemes (what were then complex) ignited the fire to blow up the market and then explode the bubble.

I think Bernanke is ok. He tried his best to be creative and fight deflation. He gets that much. But his political bent and his ties to the current economic theories are not helpful.

Thus, he's just another cog in the financial oligopily that rules the US (I'm particularly sounding like Simon Johnson because the political power of Wall Street is a great concern) and will stop any real reform of our financial system. There's too much leverage in products that create unintended consequences.

It's very tough to make financial predictions. I'm more in the Keynes and Taleb school of trying to avoid too much prediction. There's so little we know.

Even worse, most financial models are based on poor assumptions that don't really reflect the real world (I think Yves Smith nicely wrote this up in her book Econned).

Such a complex topic that I enjoy thinking about it... but leaving it there for the moment.


Steve -- At the moment, my only "claim" is that the news you are seeing has a huge bias. You should keep an open mind since the historical odds suggest that Dow 20K is much more likely than Dow 5000.

It is not investment advice or a suggestion that everyone buy right now. It is meant to restore balance to an unbalanced world.

Of course there are (well-publicized) problems, or there would be no opportunity. I have written about deficits and the likely path forward on several occasions. Try the search box. Just type in deficit and see what you get.

To summarize - the article was to balance risk and reward, and to stimulate thinking. I understand that many people have their minds made up, so I appreciate your question.



I see the claim about Dow 20K, but I am not sure what the rationale is. You referenced run ups after huge crashes, but were they in the context of massive debt and budget deficits as far as the eye can see?

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