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June 02, 2011 at 09:50 AM
“One of my colleagues at the American Enterprise Institute told me never to tie the Dow to a specific date,” former Washington Postcolumnist James Glassman told us in February. “I wish I had gotten the advice sooner.”
He was speaking about his much-derided "Dow 36,000," published in the go-go years of 6,000 sq. ft. McMansions, no income and something called CDO “tranches.”
We all know how that worked out, but we now have another prognosticator willing to go on record with wildly optimistic predictions of near-term market returns. MarketWatch columnist James Altucher is making a case for the Dow to hit 20,000 in the next 12 to 18 months. We’re sure Glassman and Harry Dent (and so many others) wish him luck.
“The market fell like a brick on Wednesday,” Altucher writes. “People can’t handle any piece of bad news without saying ‘this is the big one.’ We have visceral memories of May through July 2010, just a year ago. We have visceral memories of 2008, when it seemed like no end was in sight. Nobody wants to be caught trying to catch that knife with their mouths like in a circus act. You get cut up that way, and the blood isn’t pretty.”
But it’s not going to happen, he writes, noting with grandeur that “Even God took one day to rest.” It’s a simple pullback on the road to riches, he argues, riches that will continue for some time.
Here are Altucher's reasons why:
1) QE2 has not started. "What?" You might say, "I thought not only [did] it start last November, it’s about to end." Not true at all. Federal stimulus takes six to 18 months before even one dollar hits the U.S. economy in a meaningful way. So expect that $600 billion or more to start hitting toward the end of 2011.
2) Then why is the market going up? One major reason is because we are in the third administration of George W. Bush. The tax cuts got extended. This signaled that Barack Obama was going to pay lip service to his constituents while still keeping an eye on the stock market. The guy wants to get re-elected, after all.
3) Multiplier effect [editor’s note: Ugh].Once the stimulus hits the economy, it’s not just $600 billion. It’s probably more like $3 trillion. How come? Because when you buy that coffee with $1 at the local deli, what does that deli guy do with it? He buys a newspaper. And then that guy buys a doughnut. The multiplier effect is up to 10. To be honest, I’m more worried about a bubble in 2013 then I am worried about a economic slowdown.
4) Nonfinancial companies are at their highest cash levels ever. Almost $2 trillion dollars. They were hoarding the cash just in case bad times were going to happen again. Guess what? They didn’t. But what good is that? Well…
