8/2/2013 4:45 PM ET|
The return of 'Dow 36,000'
In 1999, a pair of economists secured a certain place in history with a mind-boggling assertion. Today, Wall Street is betting on their forecast.
Remember "Dow 36,000", that farcical piece of bull market baloney published in 1999?
Well, guess what: It's back.
No, I'm not kidding.
Fourteen years ago, economists James Glassman and Kevin Hassett secured a certain place in history when they published their claim that the Dow Jones Industrial Average was heading for 36,000 in short order.
Their book of the forecast, "Dow 36,000 -- The New Strategy for Profiting from the Coming Rise in the Stock Market," published six months before the market peaked, became a best seller.
The two gurus laughed all the way to the bank.
Main Street cried all the way to the poorhouse.
Today, it is like déjà vu all over again. Once again, people on the Street of Shame are penciling in a 36,000 target on the Dow. But this time there is a big difference.
They're not so stupid as to say it out loud. Instead they are using it, in secret, as the central economic forecast on which your grandmother's entire retirement plan is based.
Let's use some basic math, shall we? Oh, and you had better sit down first. Grandma, especially. Make sure her smelling salts are near at hand.
Portfolio advisers everywhere are aggressively marketing as a panacea for everyone's financial ills the idea of a "balanced portfolio" of 60% stocks and 40% bonds. Historic data, they say, "proves" that this portfolio earns an average return of inflation plus 5.3% a year. Based on current inflation forecasts that means nearly 8% a year overall.
That is based on data tracked since the 1920s by New York University's Stern School of Business and other reliable sources, and it is accurate -- so far as it goes.
But here's the problem.
Based on the situation in financial markets today, investors can only earn that "average" return, or anything like it, if the stock market's value absolutely skyrockets even from its current record highs. Mathematically, this "balanced portfolio" can only match historic returns if the Dow Jones Industrial Average rockets to about 36,000 over the next 10 years.
If it doesn't, that portfolio is going to flop, maybe badly, and Grandma and Mr. Paws are going to be dining à deux from the same can.
Every time I point out the flaws in this "balanced portfolio" claim, and the "Modern Portfolio Theory" racket on which it is based, I am greeted with howls of outrage from the vested interests.
Let them challenge the math.
Portfolio returns can only come from three sources: Bond yields, stock dividends, and stock growth. There is no fourth mystery ingredient "X."
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I am still down 67% on my Bank of America investment placed by my advisor back in 2006. Also I still haven't recovered from the GM bankruptcy. I lost a significant amount of my planned retirement funds on those two alone. I was forced to retire early to care for my late invalid wife so that has hurt as well in my Social Security payments and my other pensions. Fortunately I still had a pension besides my IRA set up by my employer. If I didn't have that I would be in really dire straights right now.
Anytime that I hear anyone described as a 'guru' on any topic I hear a distinct sound of my money falling down a rat hole. I no longer trust anyone in making my investments. Frankly I did much better when I invested on my own and even my broker/adviser asked me how I picked my stocks. It was simple really. I chose Low cost/high dividend/high risk stocks but kept individual investments small and diverse. For the two and a half years that I held them I averaged a little over 11% gain on my investments per year until I had to sell out to bail out my parents who had gone bankrupt for the third time. Now I am pretty much in the same boat from trying to save them. Once my mother passes I am planning to vacate this country and go where my dollars that are left to me goes a little bit farther. I am widowed and alone so the world is now my oyster.
But worst of all, Dow 36k will mean a huge widening of the income gap. You think the rich are getting richer and the poor are getting poorer now? That divide will double or triple if the Dow touches 36k in the next 10 years.
It's fake now, why not shoot for the moon? If you can make a buck or two off an inflated market, go for it. Be aware that it can, and will collapse like a house of cards again, and those at the top will win big, the rest will eat it. With the death of pensions that everyone seems to be cheering on, you will need around $450,000 in your Las Vegas 401K plan to equal a payout of $1500 a month for 25 years. Good luck with that. With all the "fees" they hose you with, the 'expert' financial advisors, and wild fluctuations in the market, it is unlikely retiree's are going to live very large in the so called Golden Years. The game is rigged folks.
The United States has an National Debt over around 17 Trillion with an annual GDP of around 16 Trillion. Best case has National Debt for both countries Doubling in 10 years. Best guess would have interest rates far higher in 10 years. Talk of DOW 36,000 should be over considering these factors. Talking Seniors into Stocks via pushing the notion of DOW 36,000 is Criminal.
True, it is rigged. But one thing. With the computer speeds of trading today, what happens if your NOT plugged into the market 24/7? Most people aren't. So THAT means WHEN [notice I said when NOT if] it collapses a la 1929 or 1987, they will have lost a LOT of money, perhaps MOST of it. I keep saying, if you can't AFFORD TO LOSE YOUR MONEY, KEEP IT OUT OF THE GD STOCK MARKET.
the basic flaw in the retirement scenario is that putting money in the market is guaranteed at some
point in time to turn out badly because markets go up and down and those invested never buy
low and sell high they simply stay invested so when the bottom falls out the investor looses and emotionally cannot stay invested..the real trick is to disregard the 50/50 60/40 advice and for
those who have substantial savings do not invest more than 20% and then in only high quality
dividend paying stocks that yield in excess of 4%...then with the rest of your savings you simply
wait until interest rates normalize and that should be within a relatively short period of time at
which point you ladder 10 year treasuries at 4% and above every 6 months for about 2 years
assuming assets of 1 million to invest that gives you 8000 on your stock investments and
4-5% on the remaining 800,000 or between 32,000 and 40,000 for a total of between 40,000
and 48,000 a year. if stocks go down who cares you get the dividends...and the 10 year matures
in 10 years when interest rates will no doubt be higher if history is any indication..add your
social security to the mix and you are at about 70,000 a year..if you are married and your
wife worked its another 25,000 on top of that and if you can't live on 100,000 in retirement
its just too bad...plus the 4% rule says you should withdraw 40,000 a year from principal but
that should probably be 25,000 so as not to deplete your asset pool... now you have 10,000
a month which should buy you a very nice retirement in a very nice place
Once again let's look at this in a historical perspective.
In order to secure power, after being voted into office, Adolf Hitler established a national police force which derived its authority from the federal government level, not the state or local government. Fast forward to 2009, Obama calls for the establishment of a national police force - “a civilian police to match the size and power of our armed forces”. Under the authority of the TSA and the Department of Homeland Security, Obama has established such a police force. Still think we live in a free society?
Now how this relates to the 36000 Dow and the worthless federal dollar.
The question is why establish a national police force? The Federal Reserve Act of 1913 established a policy for a centralized bank that would be called the Federal Reserve Bank, the bank in fact is not a "Federal Bank" but a private bank given the power to regulate the money supply in the US (controlling the nation's money supply). There is no doubt that failed central banking monetary policy was behind the Great Depression. The Federal Reserve, kept interest rates artificially low and printed too much money, and this money created first a tremendous boom and then a bust (the great depression). Obama and the Federal Reserve is setting the stage for the same, and under the guise of "preventing panic" would attempt to suspend Constitutional Rights and establish Martial Law using the DHS and TSA.
Like I said, I was going to warn people about this but the sheep are already being lead around by Obama. - "It's like deja-vu, all over again" Yogi Berra
1.37 X 15,500=21,235
15,500 + 21,235=36,735
A move up of 21,235 to 36.735. That's a 137% increase in the Base Value of the Dow from 15,500.
2.37 X 15,500=36,735
15,500 + 36,735=52,235
A move up of 36,735 to 52,235. That's a 237% increase in the Base Value of the Dow from 15,500.
Now there are always other ways to look at mathematical amounts, I prefer this way. Just as a good way to get a rough idea of what annual return rate it takes to double your money, use the Rule of 72. Whatever works for each investor. Just as long as the math is sound and you understand which concept YOU are using.
It's all Musical chairs, Either way you look at this you loose. A:) trade with the big boys and loose your ****. or B:) invest long term and loose your pants.
Judging from the posts here, this column must be a hangout for people who have lost a lot of money in the stock market. "The stock market is rigged", etc., etc.
Really? It's not very rigged. RIght now, it's at approximately its all-time high. Anyone with a simple buy and hold strategy has done fabulously. Especially if he has been investing regularly in constant dollar amounts.
People wrote about having to watch the stock market 24/7. Why? If you buy and hold, you don't even have to watch once per week. People worry about volatility and "flash crashes". Why? If you don't sell every time the market sniffs, those things don't cost you a penny. And if your strategy includes buying on dips, you'll profit from them.
Some here are ranting about the "big players" manipulating the market, apparently to make gaziilions of dollars off market dips and crashes. Really? Watch CNBC for a while. You get to see the traders on the floor. Watch their mood when the market goes up. Watch it when the market goes down. Those people are LONG, every day, every way. There is no way for MANY people to make a LOT of money when the market goes down.
As for Dow 36000, it's not so unreasonable. For the last 100 or so years, the stock market has appreciated something like 8% per year. Has the world changed so that it will never appreciate at anything close to its historical average? If not, then it's a piece of cake to get there in 10 years.
Buy and hold the averages. Relax and enjoy the ride.
You saw it here first.
Hey Norman West
Keeping MY money where I can get my hands on it when I want to. Since you CAN'T get a decent, safe return without it getting taxed to death or confiscated. And I definitely DON'T trust banks.
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