Dow 20,000 in 5 years?

[Grieve]

Just like the extreme left/right political split in this country right now, I don't know if there has ever been such a wide gulf between commentators/"experts" who think the markets are either about to plummet to new lows, or zoom up to new highs.

Of course being a sunny optimist, I'm in the latter camp, so I like the article below suggesting the US market could soar 89% higher over the next 5 years...

http://www.marketwatch.com/story/market-...ry_popular

[Vanraw]

Ill have to read this. Too tired right now, but my gut feelinguyen is again flatish this year. Perhaps a Dow hitting 14k but it won't stay. 20k in 5 Years? I guess could happen, but what part of the game is going to raise it that High?

[Grieve]

Company earnings are at an all time high, but P/E ratios have sunk very low due to the recession, Europe, deficit, China fears, and so on. As the world economy improves, those P/E ratios should go higher, and of course company profits should go up even more (if they can do this well in a bad economy....) So I don't think it's out of the question at all. It all really hinges on a global recovery and no really major shoes dropping to throw the US back into recession.

[Vanraw]

I honestly think that for the DOW to go 20k in 5 years we will need another bubble. Which based on history, we will have one. The question is what will it be? My guess is tech.

[Slamz]

I think we are currently in a bubble -- a government bubble. If the economy is $14.5 trillion and the deficit is roughly $1.5 trillion, doesn't that mean we are roughly in a 10% bubble?

Politics aside, I do worry about what's going to happen as we start to draw down our current level of spending. I don't see where we can keep doing it indefinitely, but the deficit alone is as much as 10% of GDP. The Army is apparently going to cut back by 80,000 troops -- that's kinda like hearing about some big corporation laying off 80,000 people. I don't think there's a choice, but that is 80,000 less job openings.

- Marine Corps dropping about 20,000 troops
- "New round of domestic base closures" -- that usually decimates the town they were in
- Navy cutting a total of 16 new ship build orders over the next 5 years

Again, I'm not suggesting we should not cut the military budget, but from a standpoint of "what's the future of the economy", I see hundreds of billions of dollars in jobs that will be leaving the economy as we start trying to back out of the "government bubble".

[Kiefer]

I think that the military budget is a third of the government bubble. I think of the broken window theory of economics when I see the military being used as an economic argument. I think a military is necessary for defense purposes and the reasons for having a military should stop there. When we produce reasons for the military budget on economic grounds, than we are doing something wrong.

[Slamz]

The real point I'm getting at is I think we're going to see the economy take a trillion dollar dive as deficit spending gets reeled in. All these government jobs (troops, ships, planes, plus all the other branches of government) are going to crash, as they have been paid for with deficit spending.

So, far from thinking we're going to see a 20,000 Dow in 5 years, I think we're going to see a continual struggle as the economy tries to absorb these losses.

I mean, imagine if they really refused to raise the debt ceiling and the government literally had to yank $1.5 trillion out of the yearly budget overnight. $1.5 trillion/year vanishes from the economy? We'd implode. I don't think it's going to be THAT bad as they will try to spread the cuts out over a large number of years but I think it's going to be a drag on the economy for a long time.

[Zirak]

I mean, imagine if they really refused to raise the debt ceiling and the government literally had to yank $1.5 trillion out of the yearly budget overnight. $1.5 trillion/year vanishes from the economy? We'd implode. I don't think it's going to be THAT bad as they will try to spread the cuts out over a large number of years but I think it's going to be a drag on the economy for a long time.

Or they could stop doing base-line budgeting and freeze the budget so there are no more automatic increases to every line item every year.

[Slamz]

Yes but then how long does it take the economy to catch up to current spending? I think the question is how much debt can we continue to wrack up.

If we can wrack up enough debt to simply freeze the budget and let the economy catch up, then there's no need for big spending cuts and maybe we'll see that 20,000 Dow after all -- no government bubble burst.

If we'd crash and burn with that plan (too much debt / people stop investing in the dollar / Euro suddenly looks really good? maybe this is far fetched) then we have to do some pretty giant cuts and that's the government bubble burst and we might be really happy to see the Dow stop falling at 8000 as literally $10 trillion over 10 years is lost (in the form of yanked deficit spending).

[Vanraw]

I think we are already seeing the impact of public job loss due to spending cuts. But, I agree it is going to continue. Just stopping the wars alone will impact allot of defense contractors. One of the biggest areas of job loss is in the state, conunty and city government jobs whos budgets have already hit the skids.

[amins]

Military Income is a joke. Don't factor that in in terms of "jobs". It's all the tech and maintenance that's expensive.

[Slamz]

Military Income is a joke. Don't factor that in in terms of "jobs". It's all the tech and maintenance that's expensive.

Nevertheless, they are cutting 100,000 military personnel, so that's 100,000 people that could have been in the military that will instead be competing for other jobs.

Also figure the military is probably going the same direction as agriculture and manufacturing -- where you used to need 100 people to do a job, you now need 10 people with really good equipment. When they need to cut $50 billion from the budget, they will probably cut personnel by $100 billion and increase equipment purchases by $50 billion. Fewer people in better gear.

[Dharus]

I think those military job losses come from no pulling reserve personnel (who have other jobs hopefully) and recruitment policies. I don't know for sure but sometimes those numbers aren't apples to apples.

[Vanraw]

Agree on the military reserves to a point. But the biggest hit will be in military contractor reductions. But we need to start taking the medicine and stop spending so much.

As far as bubbles, it might be energy again. Right now OIL and oil futures are being horded with expectations of some sort of Iran / US war or action.

Then again it might just end up being an investment bubble. The DOW is nearing record levels. Corporate earnings are high, but unemployment is high. And on top of that, there is a massive amount of investment dollars that are going to start leaving the market as the baby boomers are going to be drawing from investments and even removing money in the market to interest based secure investments.

In the end the market must settle to the powers of supply and demand. That is to say, the cost of a share of stock and its multiples are not governed by earnings, but interest in buying the stock. If and when serious money starts to leave the market, prices will have to be impacted.

Keep in mind that as the baby boomers retire, there will be 60% of our population retired and no longer adding productivity to the economy, but more importantly no longer investing in the economy or the market. In addition, retired people stop spending at the same levels as when they are working and earning income.




for the past 20 years or so, all our bubbles are market makers driving prices

[Grieve]

I'm long oil - I think there will almost certainly be military action in Iran, it just depends on when. Seems to be looking more like October than spring or summer right now...maybe later if Obama can convince the Israelis to hold off until after the election.

Other than that, I think we're due a pullback in the next few weeks. But I think it will be shallow, and we'll see new highs after that...depending on what happens with Iran.