Dow's Best Start in a Decade

Everything's up for debate in the new normal. One day we're up, one day we're down. One day I'm asking about a 6,000 Dow...today, I'm pondering it at 15,000. It seems the world has become inherently volatile, but then you talk to a trader and he tells you that there is no volume. One day it's $40 to fill up your gas tank, one day it's $65. Everybody is feeling the shocks and jolts of the changes around us but nobody can say why for sure.

As the closing bell rung last night, the DJIA had concluded it's best start to a year, since 1999.Again, this information is a tale of two cities, two decidedly different sides of the exact same coin. Having risen 6.4 percent in the first three months of the year, the index of 30 large companies gained 742 points during the rush.

Measured against other first quarters, that's the largest point gain since 1998 and the second best on record.

So can the Dow shoot to 15,000 or even higher? We know full well that both exuberance and fear reach irrational levels pretty quick once the markets begin moving. It seems that the bulls are on the attack and the ghosts of Jordan are blooming with the presence of Rose.

Bulls vs. Bears: Not Just a Chicago Thing



Daaa Bears


The last run up like this was in '99...you mean when the tech bubble popped? Yes, the Dow is up. QE2 doping is at its East German female swimming apex. Oil prices and global instability are pumping money into American equities. Emerging markets are looking more and more inflationary. This is all horseshit. The unemployment numbers are still lousy. Going from 8.9 to 8.8 is not an improvement. The economy still sucks. The dollar's in the toilet. We're going to see the Dow split in half like Jay Cutler in the crunch...


Daaa Bulls, Daa Bulls, Da Bulls


The economy has been handled well. We have averted the greatest crisis since The Depression. Consumer confidence is coming back. QE 1 and 2 got us through the tough times and are now being withdrawn. The economy is on fundamentally sound footing. The Dow reflects the underlying strength of our industrials sector, minus the pessimism. Europe is in deep trouble. The BRICs are facing the maturity issues of growing economies. The world is reminded why it needs America...


So who is right? Which camp do you fall into? Most importantly, how is your money, hedging your mouth? I am certainly hesitant to recommend anyone buy into the rally at this point. That having been said, I can admit having been wrong in similar situations many times before. I called the tech bust, for example, the problem being I was two years early and left a pile of cash on the table.

We have all learned to be more calculated gamblers over the past few years, but the question still remains: Do you know when to hold'em...and when to fold'em? What's the right play? Where's the Dow headed?

Comments (17)

 
Apr 1, 2011 - 11:44am

I have been pondering this myself as well. I happen to believe that this uprise is due to all of the excess liquidity instead of "better numbers". I have trouble believing these numbers (especially when unemployment gets revised upwards each week).

It comes down to more concrete evidence of a shitty situation as opposed to a recovery (as Midas mentioned, levitation tricks occurring on almost no volume scare the living shit out of me). That being said, I can still see stocks getting another boost if the Bernank presses Ctrl + P again after June.

 
Apr 1, 2011 - 11:51am

Midas, wow, you actually gave the bulls perspective for once.

For the record, I took another WSO members suggestions and went long XLE about a month ago and short IYK (as a hedge). Now I wish I had put more $s into the trade.

I also picked up some more GOOG when it dropped to $566...so no huge gains here, but I feel much more secure about these gains than the run up in my mostly long portfolio of equities run through a money manager...

 
Apr 1, 2011 - 4:37pm

If we're going to gauge the health of the economy, looking to the Dow doesn't make a whole lot of sense, as it's extremely flawed--because it's price-weighted, which brings up all sorts of technical issues. A better indication would be the S&P500, since it accounts for a bigger market share of all U.S. companies. Up more than 300 points in the past year. So, based on that--I'm cautiously, moderately bullish. There will still be growth, just not as strong as the bounce off the bottom of the recession.

Metal. Music. Life. www.headofmetal.com
 
Apr 1, 2011 - 4:42pm

Well, most people who work at banks are forced to be long-term investors by compliance and holding period policies.

So people like me are pouring money into relatively boring dividend stocks that have inflation exposure.

-European oil majors largely maintained their dividends through the great recession and are paying 4-5% right now.

-A number of utilities and MLPs with boring balance sheets are paying 5+%.

-Same with a handful of pharmas.

-Same with a number of healthcare and office REITs.

If I can get 5% inflation-adjusted fairly safely with a cash payout every quarter, that's still a pretty darned good deal. Why would I want to pull out other than to have a fund on the side amounting to ~20% of my portfolio that I can put in when prices drop? Meanwhile, I will collect my dividends, laugh when I see $5.50/gallon at the gas station, and continue shoring up my dividend income for the day I do not need to work anymore.

 
Apr 1, 2011 - 5:58pm

I can't believe how people don't get how simple this is. If the recovery holds, equities go up. If the recovery fails, the Fed prints more money and equities eventually go up.

You can argue all you want about timing, and yes, there could very well be a significant correction after QE2 is done before the markets clamor for QE3, but for the long-term investor this is not an issue.

 
Apr 1, 2011 - 7:32pm

alexpasch:
I can't believe how people don't get how simple this is. If the recovery holds, equities go up. If the recovery fails, the Fed prints more money and equities eventually go up.

You can argue all you want about timing, and yes, there could very well be a significant correction after QE2 is done before the markets clamor for QE3, but for the long-term investor this is not an issue.

Agree with this logic, but can the Fed really implement QE3. The FOMC is looking more hawkish this year, and we have Ron Paul chairing the watchdog committee. I'm just not sure they can get away with it anymore after June.

looking for that pick-me-up to power through an all-nighter?
 
Apr 2, 2011 - 6:51pm

<span><a href=/finance-dictionary/what-is-london-interbank-offer-rate-libor>LIBOR</a></span>:
alexpasch:
I can't believe how people don't get how simple this is. If the recovery holds, equities go up. If the recovery fails, the Fed prints more money and equities eventually go up.

You can argue all you want about timing, and yes, there could very well be a significant correction after QE2 is done before the markets clamor for QE3, but for the long-term investor this is not an issue.

Agree with this logic, but can the Fed really implement QE3. The FOMC is looking more hawkish this year, and we have Ron Paul chairing the watchdog committee. I'm just not sure they can get away with it anymore after June.

That's why I think QE2 will actually stop, too many idiots think the recovery is real. Then housing will double dip, treasury yields will start rising because no one will buy new issuances, and the stock market and commodities will decline. After a few months of pain, the Fed will do QE3. Yields will probably continue to go up as velocity goes up, and we could spark an inflationary spiral. Best case scenario, we can get a faux-confidence in the dollar like we've been having and monetize less quickly than a run on the dollar would imply.

 
Apr 2, 2011 - 1:12am

Hey look I can do Bernanke's job too:

File > Open "Money.pdf"

CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P CTRL+P

Wall Street leaders now understand that they made a mistake, one born of their innocent and trusting nature. They trusted ordinary Americans to behave more responsibly than they themselves ever would, and these ordinary Americans betrayed their trust.
  • 1
 
Apr 2, 2011 - 1:29am

The biggest risks to the world recovery are now
1) a revolution in Saudi Arabia. Watch King Khalifa in Bahrain. If the Kingdom falls to Shiism, that is the first domino.
2) the euro falls apart. Self explanatory.

None of these things can be solved by QE, because they are out of control of the Fed. #2 is under control of the ECB yes, but the ECB is not the Fed, they are much more conservative and inflation hawkish.

 
Apr 20, 2011 - 10:45pm

BeetJuice:
The biggest risks to the world recovery are now
1) a revolution in Saudi Arabia. Watch King Khalifa in Bahrain. If the Kingdom falls to Shiism, that is the first domino.
.

I know I'm kind of late to the party, please forgive me.

A revolution in Saudi Arabia will not happen any time in the forseeable future, speaking from my analysis and experience. Anyone familiar with its people knows that they're happy with (almost) everything. The only people that are touting injustice and demand a revolution are the shi'ites (Iran-backed, at that!), who make up a very tiny minority in the Eastern Province, that have nearly no political power whatsoever. The only thing they've done to Saudi Arabia is contribute to its problems by always inducing unrest and trying to create problems between tribes (shi'ites are known the world over to be quite problematic). Please keep in mind that the small shi'ite protest that happened in March aren't the first. Shi'ites have held demonstrations many times before, which never had any direction or specific goal/demand, which adds to the statement that their main goal is to spark unrest.

Bahrain falling to Iran-backed shi'ite rule is more likely since the majority is shi'ite (who also generally happen to be poor, less educated, and are extremists compared to Sunni muslims).

Greed is Good.
 
Apr 2, 2011 - 1:40am

the dow(us markets in general) are poor excuses for markets! The only thing the dow is a reflection of is the feds balance sheet. There is literally no volume, just the fucking algos at work.

economic recovery? sure if its defined by low wages, time-extensive high-unemployment, inflationary energy and food prices, low consumer confidence, no access to credit, massively exceeding deficit, crushed profit margins for small and mid-market businesses. WHAT A FUCKING JOKE AMERICA HAS BECOME. But hey we can inflate our way out of it! print on bitches.

 
Apr 3, 2011 - 2:13am

Economic globalization is a beast we don't just yet completely understand.

"The higher up the mountain, the more treacherous the path" -Frank Underwood
 
Apr 3, 2011 - 3:12am

If QE3 does arrive I don't think it will be the FED buying up treasuries. More likely from an array of foreign markets. Japan put $183 billion yen into equities a couple weeks back in addition to lowering the IR. China's $586 billion stimulus has found its way into western balance sheets via pent up demand for machinery/durable goods. Who knows what ingenious idea the EU will think up next.

Making money is art and working is art and good business is the best art - Andy Warhol
 
Apr 3, 2011 - 3:07pm
"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.
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