Could the Dow hit 20,000?

One investor says the pieces are in place for the market to go sky high.

By Kim Peterson Jun 2, 2011 3:21PM
Image: Arrow Up (© Stockbyte/SuperStock)Could the Dow Jones Industrial Average (INDU) hit 20,000 within 18 months? That's what the hedge fund manager and investor James Altucher thinks, and it's got a lot of people talking today. That's a long way to go for the Dow, currently at 12,273.

One reason Altucher is bullish is because the Federal Reserve's second round of quantitative easing hasn't really started yet. Last November, the Fed said it would buy $600 billion in long-term Treasury bonds, hoping to juice the economy by unleashing new money.

Federal stimulus takes six to 18 months before one dollar of it means something to the economy, Altucher writes. He expects that $600 billion to make an impact toward the end of this year.

Altucher's also optimistic because President Barack Obama extended the tax cuts he inherited from his predecessor. Altucher even calls Obama's presidency the "third administration" of George W. Bush. "This signaled that Barack Obama was going to pay lip service to his constituents while still keeping an eye on the stock market," Altucher writes. "The guy wants to get re-elected, after all."

Not everyone shares Altucher's optimism. The following video features experts talking about the "June gloom" hitting the economy.

Post continues after video:
Keep in mind that Altucher loves to be provocative. This is the same guy who says kids shouldn't go to college (they should start businesses instead) and that people shouldn't own homes (they should rent instead). But people listen to what he says, because he's widely regarded as a very smart investor with a good grasp of the economy.

Another reason he sees the Dow at 20,000 is because of the multiplier effect from the stimulus. He thinks $600 billion will turn into $3 trillion because dollars will get spent over and over again. "When you buy that coffee with $1 at the local deli, what does that deli guy do with it? He buys a newspaper," Altucher writes. "And then that guy buys a donut. The multiplier effect is up to 10X."

A fourth reason is that non-financial companies are hoarding cash to the tune of about $2 trillion. They don't want to get caught in another financial crisis, and so they're holding on to their money.

And many of those companies are spending it. Share buybacks are at their highest levels in history, Altucher writes.

Companies are also hiring lots of temporary workers, another positive sign. In every recession in history, companies have hired temp workers first before going full-time, Altucher writes.

Corporate profits are at their highest levels ever, he adds. Even in the recent recession, cash levels in corporate America increased every quarter. And here's where Altucher gets to the math behind his prediction:
Analysts expect S&P 500 earnings to come in at $95 next year. What if (as usual) they are too conservative and the number comes in at $100. Slap in a 20x multiple (could happen when the stimulus kicks in), and we have an S&P 500 at 2,000 and a Dow probably at 20,000.
Stocks are ultra-cheap now, he says, with even Apple (AAPL) trading at 12 times forward earnings with $65 billion in cash and no debt. Microsoft (MSFT) is at 10 times forward earnings. "These are high market-cap companies," he adds. "By the way, all the major indices are market-cap weighted. So if the big guys go up, the indices go up. All of these big guys can easily double or triple."

96Comments
Jun 2, 2011 8:58PM
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Turn off the presses and kick Wall Street and the hedge funds out of the oil markets, then, we will see how the markets perform. Investors ( ie: rich elite) have been pouring easy, essentially free money (yeah and on our tab) into commodities instead of investing it to help out main street and the economy , neither of which they could care less about.  Mainstreet ends up being screwed, twice over .  First they never see any of the trillions of dollars the fed has poured into the economy.  Then we end up paying higher prices for oil because of the billions that investors pour into the commodity futures.  After the housing market crashed thanks to them, oil is the only cash cow they have left.  We get stuck with the higher prices for oil and everything else that oil drives (just about everything).   The markets are being propped up by the fed and the bubble  gets bigger and bigger.  As long as main street gets ignored  it is not sustainable and the next crash will make the last one look like a walk in the park.  I hope Wall Street self destructs and goes down the tubes,  they deserve it after all the suffering they have caused. Unfortunately they will take the economy and country down with them and as long as they can save their own necks they will not care, the same as our bought and paid for government. I wish I had been born 20 years earlier and I would not have to see it  happen.  I  feel sorry for my kids and grandkids, they will never know the kind of life I had, it is gone.  
Jun 2, 2011 9:38PM
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Fat, lazy Americans sitting around complaining about how terrible we are doing.  Turn on the TV, rip open a bag of chips, and prop up your swollen, chubby legs.  You have no one to blame but yourselves you miserable pack of whiners.  Instead educate yourselves, innovate solutions, and sell your ideas to the world.  Our collective gene pool is better than ever; our resources are vast; and our society is free. 
Jun 3, 2011 12:28AM
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All I hear anymore is that George Bush left the economy a disaster and Barack Obama should be impeached.  What do you want from puppets?  Everyone seems to complain so much lately that it doesn't matter if you complain because no one is listening.  Get a grip!  Our country is as strong as you and I make it.  Go out and buy something.  We can all take an active role in spurring the economy without any of them.  We didn't get a bailout and we can argue to no end that it was unjust to give big companies one.  Bottom line is that we will have to save their useless "****'s" again.  I know that both sides will take credit for the recovery, but we know who is really responsible, "US".  We the people have the power don't forget who you are, you American you!  Are you an American or an American't?
Jun 2, 2011 10:54PM
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Of course it can.  Unfortunately, the DOW is not a proper indicator of the state of the economy, it's simply the result of the manipulation of billionaires who herd uniformed "investors" into a pen where they can be fed upon.  Wallstreet is owned by organized crime and it will do what they want it to do to transfer more of the wealth of the masses into their accounts. 
Jun 3, 2011 12:13AM
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What are we talking about dow at 20000. The Dems did this the Gop did that. People both parties do not care they are all professional politians who need to stay employed. How many of our fellow Americans lost their jobs,Homes,retirement funds,cannot afford health insurance,cannot afford college for the children,how many children go hurgry every nite in this country of ours and Dems and Gop are all still in office doing nothing and have no common sense solutions to our problems. And we the American people allow them to talk down to us as if we are simple common people

who do not know any better. It turns my stomach when they speak about cars that need to get 35 mpg by 2015 when we had a car in 1967 that got 50 mpg. They do not care why because they are all the same and are all in bed with each other. We need a President for the people by the people not a President who for their party.

Jun 2, 2011 8:45PM
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Why do you post this crap?  "One" investor said this?  I'll bet I could find one guy to say Jesus is going to come back in October!  Wait, I think that has been said.
Jun 2, 2011 4:38PM
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Altucher is an idiot; paid, bought, and sold out by the elite secret society bankers.
Jun 2, 2011 7:59PM
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The question should be "Could the DOW hit 2,000?"
Jun 2, 2011 11:14PM
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Invest in Stocks Bonds Money Markets all to risky. Invest in Fortune cookies. Open them up do not read the fortune read the other side so you can learn Chinese.
Jun 2, 2011 9:31PM
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As the prices of food, gas, clothes, etc.,  goes up..... so does the price of the stocks. 

You think the big investors care about inflation?

Jun 2, 2011 4:41PM
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Dow 20k in 18 months? Can I get some of whatever he is smoking? Not that I would not love to see it but I can't see this economy heating up to that extent in a year and a half. The average Joe and Josephine are really hurting. Real unemployment is probably close to 15% and inflation rate on the goods folks have to buy regularly (food, gas, heating fuel, etc) is pushing double digits in some cases.

Of course the Gov't doesn't measure gas and food in the CPI. What a joke. You can't put an ipad in your gas tank and you can't eat a flat screen TV.

I would say its as likely the Dow will be 10k in 18 months as 20k.

Jun 3, 2011 7:40AM
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Sure, the Dow will be at 50,000, maybe even 100,000, just as soon as our Dollar isn't worth enough to buy what a nickle can buy now.  Want to save some money at the Federal level?  Let's get rid of the penny, and probably the nickle and the dime too, and round everything off to a quarter, and we can probably get rid of the half-dollar too.  All that QE-2 did was devalue our Dollar even more than it already was, which has hurt the little guy far more than those of us well-off enough to take big risks down at the Wall Street casino.  I have heard that one possibility under consideration at this point is QE-3, since it seems apparent that QE-2 has not yet had the intended effect..

I also just heard that the world industries are going to have to produce more minerals in the next 30-40 years than in the last 10,000 years combined, just to keep GDP growth alive.  I have also recently read that the world will have to produce twice as much energy in the next 40 years than it has in the last 4000 years too, or a whole lot of us are going to be walking to work soon.  The same general numbers are true of food production too, even though GMO crops are suffering from rapidly diminishing yields, while chemicals necessary to grow GMO crops with are in increasingly short supply and, in the case of the herbicide Roundup, have been recently found to be very dangerous to humans.

In fact, a key component of plant growth, phosphorus, is also in increasingly short supply, while the runoff of fertilizers to our oceans in general are raising the acidity of our oceans and killing marine life.  It has already been forecast that virtually all commercial fish will be nearly extinct by 2050 if we can't get a handle on agricultural chemical runoff, thereby further depleting world food resources.  Fresh water is also in increasingly short supply as world population continues to grow at an out-of-control rate, and is already predicted to exceed 9 billion in just 40 years too.

Frankly we all live on a planet that is around 8000 miles in diameter and all of our available resources come from the crust, which is only 6-7 miles thick.  70% of our planet's surface is covered by oceans, most of which are too deep to mine resources from.  I hate to have to say this, but the party called economic growth that benefits everyone is most likely rapidly coming to an end.  It would be great if we could produce one last hurrah before the cows come home, perhaps a strong economy that benefits everyone enough to substantially pay down their debts before the last big crash comes, but the way that I see it, that chance is becoming less with every passing day.  Right now we have less than 15,000 days to figure-out how to feed 50% more people than we can feed now, and how to accomplish such a goal with virtually no oil, primary raw metals, or phosphorus left to use while coal and natural gas supplies are already dwindling by then too.

I sure am glad that I'll be 93 by 2050, as by then what happens to everyone else probably won't make a whole lot of difference to me anyway.  It sure was fun while it lasted.  Perhaps we can learn to run farm tractors, cars, trucks, trains, and jetliners by solar, wind, or water power?  Maybe we can create enough fuel to meet our needs from used cooking oil too, though I wouldn't count on it either.  Someone is eventually going to have to starve to even produce cooking oil or ethanol.  Maybe we can someday learn to consume what we produce locally and substantially give-up on the idea of global free trade that got us into this mess in the first place???   

Jun 2, 2011 8:38PM
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I am starting to think they pick these stories by throwing darts at a board with the days work on a large cork board.  Blind folded of course. Wall Street is living on barrowed time. The bums that did not get fired yet, are just coasting until the other foot drops. The Fed is going to be credited for the reason we are all in soup lines.  My fear is that the government will be robbing my 401k Roth Savings Trust soon.
Jun 3, 2011 3:53AM
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I really think the market will be at 9,000 by the end of the year.  Watch the finical channels on TV.  They are all talking about most companies being over valued at this point by 30 - 60 percent.  Most of those guys are starting to sort some of these stocks.  Sort Apple is what I heard last week.  Who would think about sorting a company like Apple?  Well if a bunch of them sale their stocks and purchase sorts then it could free fall.   I just love these Obama believers on here.  Go ahead duds buy all in ASAP!  I have been investing in the stock market for over 30 years with my own money.   I can remember when the dow was at 2500 in the 1980s.  I didn't take a 40 percent hit like most of you when things tanked last time because I saw it coming.  The red flag I saw was when our government had to start barrowing funds on 30 day notes.  I sold it all and paid everything off.  Even my home which most people will tell you not to do because of the interest rate tax right off. My mortgage rate was a little less than 4 percent.   My home is my savings account and as I look at it it's safe and insured if it was to burn down or blow away.    I'm saving 4 percent each year because I'm not having to pay that.  For me right now I'm setting on the side lines 100%.  You may be a Vegas player but I'm not.  Let's let the wheel spin and see what happens in the next couple of months.  Let me know how you do!   All I can say is good luck!   You better hope that the US gets a grip on their budget numbers very soon.  As of right now they are not even paying all of the bills just to keep the government running at this point so that they don't run out of money.   Think about it.  City are laying off cops, fire fighters and others,   State are cutting back on education and other items.  Companies are not hiring.  It's because we have farmed everything out to over seas.  The people to blame for this is the same people that are still running our country.  The president is not really the one to blame.  He is just a puppet that brings some idles to the table some times.   We need to not re-elect everyone of our leaders.  Replace them all next time around.  Bring our high paying jobs back to the US.
Jun 3, 2011 12:31AM
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The Dow may very well hit 20,000, but it will be in 4 to 7 years, not in 18 months.  And it will be only after QE5, QE6, or QE7 have caused hyper-inflation that makes everything more expensive.

This is just another completely useless, rosy story that MSN has churned out to the masses to try to convince everybody that Obama should be re-elected.  MSN went to the trouble to dig up some delusional guy who's telling everybody the economy's in such tip-top shape that it could shoot the Dow to 20k -- while he completely ignores sky-high unemployment, a sky-rocketing national debt, more foreclosures on the way, bankrupt government pensions, and an economy (or government or both) that is so lame that big government (and its sanctioned institutions) actually has to buy its own bonds!  And when Obamacare kicks in, it will cause the economy to tank even more as people change their behavior and medical costs skyrocket even worse.  People always change their behavior in response to socialism – and socialists always fail to account for it in their delusionally optimistic predictions of “savings.”  Big government never makes anything cheaper or more efficient.  Obamacare certainly won’t be the one-in-a-million exception.

 Even if the Dow were to magically hit 20k in 18 months, it would be just another stupid bubble that would only serve to prove that the masses are as dumb as ever – dumb enough to elect Obama again!

 

Jun 3, 2011 6:02AM
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The Fed is not the one to get the economy going by printing and dumping worthless money onto the market, while the wealthy continue to rape the Govt. and taxpayers to the tune of " Trillions " of dollars and then hide this " ill gotten gain " in foreign, secret bank accounts and not pay taxes on the trillions of dollars that they have stolen from the American Govt. and American taxpayers !  The only thing that will get the economy going " again " are " JOBS " in America for Americans !  Create 15 to 20 million American jobs for legitimate Americans, who pay taxes on income and buy American made products, made in America and then you will see a real, substantial, sustained economic recovery and American growth and a stock market that may just hit 20,000 .

And increasing the " Federal Debt Ceiling " is going to accomplish only one thing,  the further slide into American Govt. and American citizen taxpayer bankruptcy,  via further American Govt. borrowing, printing of worthless dollars and the further fraudulent " sacking " of the Social Security Trust Fund and Medicare Trust Fund, by not only " Big Wealthy Businesses, Corps., Individuals, but by our own elected Federal Government congressmen/women and outside/foreign interests !

And the really sad thing about all of this is, the fact that it has been allowed to happen for over 50 years by our own Govt. and our own elected congressmen/women !

Jun 3, 2011 3:47AM
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Kim,

 

If he wants to say a 20,000 dow that is fine. But you lose creditability when you give a guy like that a forum.

Jun 2, 2011 9:44PM
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I remember back in the late 80s or early 90s an expert predicting that the DOW was going to hit 5000 and many people scoffed at the idea.  However, at this time in our history, I think that our country is close to default and if Obama gets 4 more years, we will be the late, great USA and we will be back in a terrible depression which I also remember.
Jun 3, 2011 8:20AM
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Did Obama pay for this article to be published? It's much more likely that the DOW will hit 5,000 by the end of the year before it hits 20,000! Interesting that this article comes out two days after a major hit on the DOW... and as it is posed for many more losses! I think MSN and the White House might have some connections... hopefully they aren't sending each other pics... Weiner pics
Jun 2, 2011 9:13PM
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Idiot

Maybe the Dow will hit 30,000, while housing goes further down and no real jobs are created. 20% of the USA is unemployed or taking petty work for cash. And many people that are working are working worthless jobs that pay nothing. The only people here benefitting are the wealthy. Dow 20,000 in 18 months - Why write this.... oh wait thats right to get attention with  a lie. Like our American Politicians. 

WJH 
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