Why Dow 30,000 and Dow 15,000 Are Both Possible
The main problem with the US stock market right now is that it’s pushing into bubble territory. Now, whether it’s actually a bubble right now or a bubble in the making, we’re not going to know until it breaks.
But when it does break, it’ll break hard. And it’ll break fast.
Then all the Monday morning quarterbacks will look back and say, ‘Aha! I told you it was a bubble.’
Countless experts will trot out some paper or op-ed they wrote to prove that they were ahead of the curve.
Of course, many of these same experts have been writing the same basic paper for years. And the markets have proven them wrong time and time again.
Timing the market is a fool’s game. I don’t try to and neither should you.
I simply evaluate markets based on the available evidence. If the evidence invalidates a hypothesis I have, I abandon the hypothesis and form another based on the latest evidence.
That’s not backsliding, by the way. It’s how analysts are supposed to react to incoming data. A good analyst never lets emotion get in the way of good judgement. That’s a rule I follow as much as humanly possible.
Now, the problem with bubbles is twofold…
Number one, they can go on a lot longer than anybody expects. They seem to take on a life of their own. No one bubble is exactly like another.
Having said that, I think stocks are on a completely unsustainable path right now. I wouldn’t buy the overall market. But I’m not going to give you an exact date when the bubble bursts. That’s like standing in front of a moving train.
I’m not going to tell anybody to short the Dow because it looks bubbly, for example. You could lose a lot of money doing that, and many people have lost money these past few years.
In fact, the Dow could go much higher from here. Could it go to 30,000? I can’t say it won’t.
But there’s an important piece of maths that’s important to bear in mind here…
The Dow has now moved past 25,000. This fact has been celebrated in the mainstream financial press. But behind that fact is a deeper reality. People tend to focus on the 1,000-point markers the Dow attains, but they forget about the more important percentage increase.
What do I mean?
As the Dow moves to higher and higher levels, each 1,000-point increment represents a smaller and smaller percentage change. Going from 25,000 to 26,000 is not like going from 10,000 to 11,000.
When the Dow went from 10,000 to 11,000, that was a 10% gain. But when the Dow goes from 25,000 to 26,000, that’s only a 4% gain.
That is, every 1,000-point gain represents a smaller and smaller percentage increase. If the Dow goes from 50,000 to 51,000, that’s just a 2% gain. A gain is better than a loss, but it’s still only a 2% gain.
The point is, these benchmarks the mainstream press dwells upon are less and less significant. Yes, the Dow could reach 30,000 or conceivably even 50,000.
We live in unusual times where markets are manipulated like never before. That’s not my forecast. My take is that the overall market is closer to the bottom than the top. But where it ends exactly, I can’t say.
What I will say is that in a real bear market, a 50% retracement is not unusual at all. I’ve lived through bear markets in 1974, the late 70s, and the crash of 1987. Not to mention the tech wreck of the early 2000s and the financial collapse of 2008.
That’s why I say the Dow Jones could easily go down 30%, 40% or 50% from here. Again, that would not be unusual based on market history.
I remember when the Dow reached 14,000 a few years back.
The mainstream financial media were cheering. But they forgot that the Dow was at 14,000 14 years earlier. The stock market had basically gone nowhere in 14 years.
When the stock market loses up to half its present value in the next crash, it could very well recover. But the problem is, it could take 10 or 15 years.
Do you want to wait around 10 years just to break even if the market collapses again? Many people literally cannot afford to wait 10 years.
People who are close to retirement, or have to provide for their healthcare, their parents’ healthcare, or their kids’ education, can’t afford to take a 50% hit to their net worth.
They certainly can’t afford to wait 15 years for the market to come back. That’s a good reason not to be 100% in stocks.
Now, it’s true — there’s nothing more difficult or painful than watching other people make free money. I understand that.
You may be sitting at your desk, thinking to yourself, ‘I ran into my neighbour at a recent cocktail party. He said he’s all in stocks, and he bragged about how he’s made all this money. I missed the boat.’
That’s painful, I know. The fear of missing out is enormous. But you need to think of the long term. You need to understand economic history. You need to understand market dynamics and how rapidly markets can crash.
That’s all paper wealth your neighbour’s talking about. It could evaporate tomorrow if the market turns.
Should you have something in stocks?
But you should also have something in gold (and silver). Do you have any? One day you’ll be glad you did.
Moreover, have some cash. With some of your money in cash, you can ride out the storm when the market does go down 50% — or if there’s a problem with the power grid.
To all the bitcoin fans, good luck using your bitcoin when the grid is down. But merchants will accept proven money like gold, silver and cash.
These are tried and true strategies. I strongly recommend them.
I’m even more confident in these strategies now that I see market mania starting to settle in. The Dow only took 23 trading days to soar 1,000 points from 24,000 to 25,000. That’s a record. Meanwhile, fear is at or near record lows.
Dow 30,000? Yes, it’s possible. So is Dow 15,000. I’m not going to say which happens first, but, again, I would say two things…
Number one: Remember, each increment is less important than the one before. A jump from 25,000 to 26,000 is not the same as a jump from 10,000 to 11,000.
Number two: At any time, markets could go down 50%. If you’re retired or anywhere near retirement, that could delay your retirement for years, even permanently.
So diversify. And please have a sound strategy for the years ahead (go here to learn about one powerful strategy I use). Having a sound strategy could spell the difference between a comfortable retirement, and worrying about every penny you have.