Academic

Dow 100,000?

By Gordon Smith, Christine, Hurt, Vic Fleischer, Fred Tung, Lisa Fairfax, David Zaring

Remember this book?

Sure, bad things will happen now and then, but ultimately the Dow Jones Industrial Average will end up at 100,000 in the year 2020. In other words, "two decades of above-average economic growth with price stability."

Or this one?

To a growing number of analysts, it's not a question of if the Dow Jones Industrial Average will blast into the financial stratosphere, but how high it will go.

Or the most publicized of the genre:

Most books that predict a sky-high stock market make their forecast either by extrapolating the trend line of the market's recent past or by looking at the demographics of the baby boom and the vast amounts of retirement funds chasing stocks. In Dow 36,000, James Glassman and Kevin Hassett see a bright future for stocks, but rather than looking at external factors, the two base their prediction on the intrinsic value of equities and their ability to generate cash.

These were bubble books, published in the late 1990s when the Dow was still below 10,000. This is the chart for the past five years ...

So today the Dow returned to levels we haven't seen for years, and Wall Street is sounding like a monster that cannot be satiated:

"It's hard to be bullish based on monetary policy or bailouts alone," said Chris Johnson, president of Johnson Research Group, in Cincinnati. "It doesn't address the fundamentals of the stock market, which have some very deep problems right now."

"The bailout plan was needed but more needs to be done to fix things, and we're not even sure a rate cut will be enough," a trader at GFT Global Markets says. To many Wall Street veterans, a painful, long recession unlike anything the U.S. has suffered in decades seems increasingly likely, with the fallout likely to spread to other countries.

That last sentence sounds ominous, but "Wall Street veterans" don't have a good history of predicting the long term. See the aforementioned books if you need a reminder of that fact.

Full post as published by Conglomerate on October 06, 2008 (boomark / email).