Altucher: Dow to 20,000
Taking Eddie’s advice, I have been reading a bit of James Altucher the last few days. I have to say, it is pretty tough to deny the man’s intellect, entrepreneurial skills or knowledge of markets. The brain brawn it takes to get a CompSci degree from Cornell and then a Master’s in the same major from Carnegie Mellon is a couple of light years away from my three card monte approach to making a buck.
That having been said, I would still take a nascent girl scout to FUBAR this guy in a throw down. I doubt he could punch his way out of a wet paper bag with scissors in his hands. Still it is worth the while to hear his opinions on markets and boy does he have a doozey out on the table right now.
According to Mr. Altucher we could see the DOW rise to 20,000 over the next 18 months. Though I did a double-take when I first read the article, I have to admit there is a method to his madness. Specifically, the note on QE2 effect not yet having been felt.
Take a look, if you haven’t already...after the jump.
not so serious
LOL. We're all going to be billionaires!!!!
...and spending $100K on a loaf of bread... :D
This guy is by far my favorite "blogger." Absolutely hilarious, and makes some strong arguments that are difficult to refute in most of his stories. I gotta say even with his points here, though, 20,000 points is a little absurd in the near term (1-2 years). Time and time again, we've seen huge cash flow into the economy from the government and it produces little results. Innovation is a little broad to be a "bullet point."
His assessment of lag relative to economic stimuli is akin to the same inference towards fed policy affecting monetary policy (6-18 mos.). I'm as guilty as the next guy of looking at $600B and failing to see the result, but he's right. Time will tell the impact of the massive amount of capital infused into the market and its propensity to generate activity. It can set on the BS indefinitely, but not likely.
I'm unsure at the moment the impact to inflationary pressures and reduction in purchasing power equal to any improvement to revenues that translate to moves in the industrial averages.
a+ for quoting the rza
+1
I'm literally laughing out loud
certainly possible, but I'm clinging to the new normal, just too many potential issues to deal with plus a multiplier effect of 10? that is ridiculous, closer to just over 1.0 more likely.
checked out this guy's blog... it is awesome
like the blog and don't think the prediction is realistic unless it follows inflation levels that illi mentioned
this guy is smoking crack. if there is any lag to the effects of monetary stimulus it is because it takes time for banks to loan out the money, the money has to circulate, then get loaned out again, ad naseum. that argument is not valid right now, because there is no demand for loans, not in the aggregate. the private sector is deleveraging, flow of funds data clearly proves it, monetary policy is ineffectual in this kind of environment. the only economic benefits from qe2 are wealth effects (minimal and mostly accruing to the rich) and driving down the dollar (a dubious "benefit", but perhaps necessary in this environment).
as for companies holding that much cash, most of it is overseas, and the reason they do not want to spend it is uncertainty. the uncertainty is not just economic, it is political, it is not something that will just go away because the market rips a few points. it is things like skyrocketing costs of providing workers with healthcare (not trying to make this a political argument, just stating a fact), lack of end demand, raw material inflation, etc. the healthcare issue also applies to his temporary workers argument. look at countries like japan or spain that have an overprotected labor market and long-term stagnation, tons of temporary workers at the expense of full-time positions, maybe that should be telling us something. as for companies buying back their stocks, that just confirms my argument, companies generally prefer to allocate capital towards growth and investment, and only in the absence of viable growth opportunities will they choose to repurchase their own shares. as for large caps being undervalued when compared to small and mid caps, perhaps it is the other way around? small and mid cap valuations have been driven up because so much private equity money is chasing them. pass the pipe, bro.
Well said. For example, how long has it been since QE1? Why aren't we at DOW 20,000 already then? The money multiplier only works if an economy is growing. If it is contracting or flat, there won't be loan demand to spur the multiplier effect. All you will see is dilution to the capital base, or in a deleveraging scenario, a reduction in the extent of deleveraging (thus, the $600B has already taken effect because it's on the balance sheets of someone and not being lent out). It just went to plug up holes and stave off deflation. Monetarists who think printing money spurs growth are retarded (Milton Friedman did not believe this, btw, even though he is often linked to it; his views were much more sophisticated and similar to Fisher's). Keep in mind that the multiplier effect works in reverse too, and there's a hell of a lot of money going to money heaven...QE2 is merely sending enough bills back to stave off deflation.
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