Why the Dow could hit 26,000 by 2016

New claims of a looming crash make no sense. Here's why the market will soar in the next 2 years.

By Traders Reserve Mar 6, 2014 3:27PM

Image: Arrow Up (© Nicholas Monu/iStock Exclusive/Getty Images)By Jamie Dlugosch

 

Market observer Harry Dent claims that the Dow Jones industrials ($INDU) will rally to 17,000 within the next few weeks -- before it disastrously plummets to around 6,000 by 2016. Dent makes his case in a new book, "The Demographic Cliff."


Sounds like fun times for investors -- but it sounds like book shilling to many of the rest of us.


Let's address several important points that explain why Dent is so terribly wrong. The U.S. government, the Fed, Wall Street and the big Banks are "all-in" on the stock market right now. They can't and won't allow a serious collapse in the markets.


Ask yourself this question: All those billions of dollars the Fed printed since 2009 . . . where did that money go? It didn't go to consumers. It funneled to interest-free loans to Wall Street firms, banks and corporations -- so that in the end that money wound up in the stock market.


How else can you explain a market that has risen in value despite billions of dollars in net outflows by retail investors from 2009 to 2013?


Investors who bailed on the stock market over the last few years will eventually realize that the stock market is the ONLY realistic place for them to grow their money at a pace fast enough to have a secure retirement and to outpace inflation. Investors will come to realize that CDs, savings accounts, annuities and even bonds are all the new "mattresses" thanks to the Federal Reserve's zero-interest rate policy.


Dent's prediction sets the stage for what he is calling a "dangerous period" for investors. Talk about an understatement. I think it is rather his very claims that are dangerous for investors, not the current market environment.


What basis does Dent have for making such a sensational prediction? It's not much. He argues that aging demographics in the U.S. mean we cannot sustain current market and economic activity. That is, we cannot rely on younger folks' spending to fill the gap of the older generation.


Oh, I see. Another in a long line of doom-and-gloom predictions based on the baby boomers retiring.


Do people really take this stuff seriously? I suppose they do or these sorts of predictions would not be made.


Here's my crazy, but not-really-so-crazy prediction: The Dow will hit 26,000 by the end of 2016.


No evidence for a crash ahead

Let's go back to Dent. One of his arguments for a crash seems to be a cursory review of the current economic state and its anemic response to massive amounts of stimulus.


While the recovery has been slow to materialize, it has indeed arrived. What did Dent expect? These things take time. The lack of fireworks-style growth in the aftermath of those messes should be no real surprise.


And things really are not so bad out there. Current economic data, absent this horrendous winter, has been very positive in the early months of 2014. The Federal Reserve has started to remove stimulus. It wouldn't do that if there was one scintilla of evidence suggesting a Dow-6,000-style crash was on the horizon.


Skeptics will rightly note the Federal Reserve would be the last to identify an environment fertile for a crash, but nonetheless the conditions that would precipitate a crash are simply not present.


If this is a bubble, as Dent claims, in the same vein of the roaring 20s, then I missed something. It's just not going to play out the way Dent sees it.


Economic growth and pent-up demand

Instead it is far more likely that the Dow hits 26,000 by the end of 2016. It will happen more easily than you might think.


All it takes is greater-than-expected economic growth. The experts have us growing at a 3 percent clip in 2014. What happens if growth comes in closer to 4 percent this year?


I'll tell you what happens -- the Dow jumps 20 percent and closes the year within a hair of 20,000. We’ll get stuck on that psychological barrier, but it won’t take long to bust through.


In 2015, that 4 percent growth inches higher to 5 percent. That will be enough to push the Dow up another 15percent to close at 22,600 by the end of 2015. Then, if growth continues at a 5percent clip, a bull market rally will send stocks up another 15percent to 26,000.


There you go, and I wouldn't bet against us.


The housing crash and financial crisis has created immeasurable pent-up demand. It won't take much for us to hit a 5 percent growth rate. That is far, far more plausible than the garbage Dent is pushing.


We base this assessment on the exact opposite scenario to the one that Dent predicts.


Baby boomers will keep working

Here is a more rational assessment of the Baby Boomer population. It's been called the "me" generation, which rings true: it's defined by early adopters of technology, exploration, restlessness, desire. This is not a rocking-chair generation.


Who says this generation wants to retire? More and more of those who are able are working right up till the grave. That's a good thing for future economic growth. In addition, there is plenty of population available to replace those workers supposedly about to become dependent on the state.


When baby boomers do finally kick the bucket, the U.S. will see one of the largest generational transfers of wealth.  Ever.


Gen X and Gen Y become the new wealthy generation in America.


Harry Dent, Dow 6,000 is so 1990s.

 

More from Traders Reserve


 

Tags: $INDU
134Comments
Mar 6, 2014 4:10PM
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Well the Fed could take it to 100,000 if it wanted.  Doesn't mean that's a good thing.  Your dollars would become even more worthless.  The stock market is no longer based on the profitability of individual companies--it's a propaganda tool for the Statists.
Mar 6, 2014 5:02PM
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FUNNY THEY KEEP SAYING THAT THE ECONOMY IS DOING SO GREAT BUT EVERY WHERE YOU READ SOMEBODY IS LAYING OFF HUNDREDS OF PEOPLE NUMBERS DON'T ADD UP
Mar 6, 2014 4:06PM
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Coo Coo.26,000 ?  I think even if you put forth the most rosy of senerios you can't get to 26,000 in 2 years.  Unemployment drops to 4%, nad CDP growth of 4%, even then you don't get the S&P 500 to a PE of 30 which is what a 26,000 DOW would have to mean.  So let's not get crazy stupid here.  The the economy starts to hum we could see ... 18 or 19 in two years.  Do I see that happening?  No.  But no way we will see 26,000 in two years.
Mar 6, 2014 4:28PM
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The Market may go up - and the Market may go down - But I'll be in it - Why ? Because that's where the money is !
Mar 6, 2014 4:37PM
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" The U.S. government, the Fed, Wall Street and the big Banks are "all-in" on the stock market right now. They can't and won't allow a serious collapse in the markets." ???  Soooo... He openly admits that markets are being manipulated by the Federal Reserve and wall street bankers. And that markets are driven not my normal free market supply and demand principals ???? How does pointing out the fact that it's a rigged game supposed to give me any comfort as an investor ? And, the question must be asked. If the Fed and Wall street actually have the power to keep markets from crashing. Why do we have markets crashes ? Are they allowed to happen by design ? Are they allowed to happen so the elites can profit from these crashes ? Why do they happen at all ????
Mar 6, 2014 4:22PM
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Sure, It was at 6000. Now it's 16000. Why not 26000, 36000, 46000... ? When "investment" banks can get free money, they can take it to any level they wish. With free money, banks could drive up the price of used toilets to $1,000,000 or more each simply by buying them all up and putting a million dollar price on them. But It's still just an old toilet. It's all a fake and a fraud. and so is the dow.  

Mar 6, 2014 4:37PM
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I kept investing during the down times of the stock market.  I had friends/family telling me to bail, get out now, don't invest in the stock markets.  Well who is the fool now??  I am doing even better in my 401K and personal investments, my 401K value has almost tripled!!   I am not an expert at investing.  The woman I invest with has over 40 years of experience/education.  She told me to hold on, keep investing, Wow! She was spot on!.
Mar 6, 2014 4:22PM
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I remember working on the floor of the Amex in the mid 80's when Merrill Lynch started handing out buttons that said 4000 by 2000 (year).  The Dow was around 14 or 1500 and was at an all time high coming off the stagnant 70's.  I don't know it it will be in the next 3 years, but one thing is for certain, the Dow will hit 26,000 in a relatively quick period of time. 


The greatest possible deterrent to this would be to continue to have trillion dollar defecits.  If Washington could just manage to have a small deficit for the next couple of years(less than 100bil) and you get growth at an average of 4% per year, the overall defecit to GDP ratio will be a mere drop in the bucket.  Throw in an adjusted corporate Tax rate and this could turn out to be the greatest period of economic growth this country has ever seen. 


For those of you who were burnt during that 3 year blip now known as the great recession, sorry but you sold at the bottom.  Either get back in or stop whining about how the whole world is going to hell in a hand basket.  Didn't happen in 29, aint happening now.

Mar 6, 2014 5:21PM
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My lord what kind of bullshlt is this? The government is having to and has been pumping over twenty billion dollars a week just to keep it from collapsing. It cannot gone on forever. This country has well over 18,000,000,000,000 (that's trillion) in debt. Does anybody or can anybody understand just how much debt this is? If we were to pay one thousand dollars a day it would take over eighty five million years to pay off the debt. If you tied a roll of one hundred dollar bills to the bumper of your car and drove 70mph it would take you over two hundred years of driving to pull off enough bills to pay off the national debt. Dollar bills stacked would go to the moon and back three times. It's over folks. It is just a matter of time before it all comes crashing down. No entity can survive this kind of debt.
Mar 6, 2014 5:23PM
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There still is no jobs and companies are still closing the doors in this good old USA. The economy has gotten worse,wake up!
Mar 6, 2014 4:03PM
Mar 6, 2014 4:42PM
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won,t happen because I have never seen  financial advice so wrong as it is on this MSN site.

when the Dow is rising MSN  puts opinions and stories lines on here to reflect it, but when the Dow suddenly starts to drop then they pull the positive storys and put negitave storys on and tell how the market will crash,  and blame it on everything,   "Fed buying 10 billion less bonds" this month and people are scared,  then 2 hours later the markets rising, going into positive territory and now they pull those opinions and think of positive ones,  MSN financial experts are a day late and a dollar short *

Mar 6, 2014 5:02PM
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Markets are not markets if they are manipulated by a small group of powerful people, as you described. The economic numbers you support are manipulated by the same corrupt small group. Change the CPI back to its original calculation and the QE party is over as well as this ridiculous overbought stock market. There are more unemployed/underemployed people in this country than ever before, and margin debt is at an all time high. Thank Alan Greenscam, who changed the CPI calculation in the 80's, the rest of those corrupt central bankers and Treasury Secretaries for the destruction of the middle class. The taper will continue because inflation is on the rise regardless of a manipulated CPI number, the reset that will evolve from this corruption is what is needed to change the path of America.
Mar 6, 2014 4:38PM
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The Fraud on Wall Street is unreal the 17 trillion dollar deficit is unreal heading for 26 trillion the Government/Wall Street/JP Morgan  forgot to mention that,..control the Debt control the people.
Mar 6, 2014 4:11PM
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The government and their financial elite masters still can't handle the truth that their financial deregulation and foreign job shipping model failed in 2008, and that corporations and stock markets were in the process of collapsing to their real value. Since then they've intervened continuously and heavily trying to patch up Humpty. But the model is still failed and will always be.

Mar 6, 2014 5:19PM
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Harry Dent doesn't have a history of being very accurate. He has a history of "correcting" his predictions after the fact and then claiming it's because of unknown factors influencing his model. No kidding Harry, unknown factors? The same "unknown factors" that get everyone else's predictions wrong too? I like his basic premise on generational population dynamics as a general market predictor but wouldn't bet much on anything he has to say.
Mar 6, 2014 5:29PM
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 Investors will come to realize that CDs, savings accounts, annuities and even bonds are all the new "mattresses" thanks to the Federal Reserve's zero-interest rate policy.-- Ya, so throw your principle  into a market and risk all your principle. Throw it into a bond fund and when the rates go up the bond fund value will go down. Right? Sounds great. Here is an example. ACAS was paying a nice 10% and then they dived and I think were down to 4 dollars from 20 and also cut off the dividend.   I think a lot of average American people would be happy with a nice 5-6 percent CD rate which probably will never happen again. The rate of compounding interest over 40 years (and keep adding to principle)  really was enough to provide a good retirement. All shot to hhhhhhhh now. 
Mar 6, 2014 5:52PM
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" More and more of those who are able are working right up till the grave."  My mother worked until she was 79 (in banking).  At that point dementia took over.   Nope ... we boomers are going to "retire" and enjoy the fruits of our labor.
Mar 6, 2014 5:49PM
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"where did that (QE) money go?"

 

The Fed bought mortgaged back securities and gov't debt...basically propping up the two entities that created this mess in the first place!  Did this create yet another housing bubble or just prolong the last one for a few more years?  What happens when the US Gov't has to pay market based interest rates for it's debt instead of the artificially low one produced by QE?

Mar 6, 2014 4:46PM
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Only a complete fool would think the market and this country are not heading for a death spiral.
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