Dow to close 2011 at 13,000 or above

Flagpole:

You express 2 desires that are in direct conflict with each other.

1. You want the market to go up.

2. You want to buy more shares at lower prices.

Which is it? If you are really a long term investor, then you should be very happy about the current situation, and its possible duration. You might have another 10yrs of nothing (think 1968-1981), after which its probably reasonable to assume the market will be cheap as chips, and will start to rise, possibly for 20yrs. This would make for an extremely comfortable retirement for you.

So why do you want it to go up?

Flagpole wrote:

The stock market is undervalued right now.

Jeremy Grantham disagrees with you. He says the S&P is worth "no more than 950". Which means at current price of 1176 it is 23% OVERvalued.

Applying a similar measure to the Dow results in a fair value of 9,078.

Nearly your entire investing lifetime has been in a stock market bubble (since 1994). You obviously have no concept of what fair value is on a historical basis.

Here's another nice chart to show you have no idea what you're talking about when you try to speak about valuation.

. The market as a whole has rarely been this expensive.

Of course, this all has little to do with what the market will do in the next 3 months. But it has everything to do with what the market will do in the next 10 or so years.

Buffet bought himself a nice dividend in a company that won't be allowed to go bankrupt.

I didn't say anything about August. I said SEPTEMBER-DECEMBER, and that remains true taken as a 4-month period.

coach d wrote:

Actually, Flagpole, over the last 50-60 years, August has been the worst month of the year.

flaggylite wrote:

Buffet bought himself a nice dividend in a company that won't be allowed to go bankrupt.

If it's not the Fed put or more government "stimulus" to "save" the economy, it's investors like Buffoon, whose ideology and closed door conversations compelled him to rescue another zombie bank, lest the consequences of not doing so spelling political disaster. Extend and pretend. Earnings are at the peak of the cycle and stocks are overvalued, but to guess where we'll be at the end of 2011 or 2012 is foolish. I still think the broad market and financials (I've been short) are vulnerable here once we work off the O/S sentiment, but the Dow could see a 9-handle on it and then and only then will the Fed pull out all the ammo, monetizing anything and everything higher (We're on the precipice of a double dip as I indicated the other day, so more shenanigans may be needed to prevent it rather than properly restructuring our debt).

"As of last week, the S&P 500 has declined to the point where we now expect 10-year total returns averaging about 5.7% annually on the index. This is certainly higher than the 3.4% prospective return we observed earlier this year, but is still a prospective return more characteristic of market peaks than of long-term buying opportunities. Wall Street analysts continue to characterize stocks as cheap on the basis of completely specious approaches like "forward operating earnings times arbitrary P/E multiple," or worse, "forward operating earnings yield divided by 10-year Treasury yield." Unfortunately, despite a few anecdotal successes, there is no correlation between "valuation" on these measures and actual subsequent market returns.

There are numerous reasons why these toy models based on forward operating earnings are misguided, but the four most important ones today are 1) forward operating earnings presently carry the embedded assumption that profit margins will achieve and indefinitely sustain the highest profit margins observed in U.S. history; 2) the duration of a 10-year Treasury bond is only about 8 years, while the duration of the S&P 500 is about 42, meaning that any given yield increase implies 5 times more loss for stocks than it does for bonds, and there is no reason in the world why investors should treat those risks as equivalent; 3) the current conformation of evidence strongly suggests the likelihood of an oncoming U.S. recession, and forward earnings expectations tend to be stunningly off-base in those instances, and; 4) the norms typically applied to forward operating earnings are artifacts of the recent period of bubble valuations, and use norms for "trailing net" as if they are equally applicable to "forward operating." In fact, the correlation between forward operating P/Es and other normalized P/Es having far longer history suggests that a forward multiple of even 12 is quite rich."

Flagpole wrote:

Second, Buffet just bet on Bank of America. That's huge for BOA and of course the Dow. Buffet is often ahead of the curve when calling a bottom (which I think he's done here), so it's possible the 13,000 won't hit until April 2012, but for fun I'm calling it December 2011.

Like Buffet called the bottom in Goldman and GE? He obviously has hopes the warrants will pay off, but they have a very long life. When you consider he's guaranteed to get 6%, unless BofA completely folds, he doesn't really need the warrants to make a decent return. He almost gets a free ride on the warrants, which is a lot different than the position of the average common stockholder. He is clearly more optimistic on the common stock than some, but he also placed himself in a very different position than the common stockholders with this deal. If we are to believe Moynihan (which I don't) that BofA really doesn't/didn't need capital, than BofA and the stockholders got the short end of the stick. If you watch/read enough CNBC etc. you would almost believe this was some kind of patriotic "investment in America" when it was really nothing more than deal tilted towards Warren Buffet and his interests.

The average of sept-dec??? There couldn't be a less meaningful statistic. Nobody here has ever lived through an economic situation the US faces the next several years. The bulls pointing to strong corporate earnings couldn't possibly be more short-sighted. You might want to consider asking gecko for some advice. On top of everything he mentions, we have an unprecedented debt problem to deal with. It cannot get better until it completely melts down, because our political system will not allow that to happen. Their idea of fixing the problem would be like a family that overspends by $3000/month reducing their spend by $100 and spending their time applying for new credit cards.

Not a chance in hell the DOW closes anywhere above 10k by years end. Wake up everyone. We're going south from here.

Almost at 12,000

Flagpole wrote:

I have not made any short-term predictions for 2011 due to very murky waters...until today...so for entertainment purposes only, here's the prediction:

The Dow will close 2011 at 13,000 or above. That's about a 16% climb from today's 11,200 area.

Enjoy.

You are a freakin' bore.

Flagpole wrote:

I have not made any short-term predictions for 2011 due to very murky waters...until today...so for entertainment purposes only, here's the prediction:

The Dow will close 2011 at 13,000 or above. That's about a 16% climb from today's 11,200 area.

Enjoy.

Weren't you off by quite a bit last year? Why post this?

______________

I think grantham is a great writer and investor, but blind allegiance to this '10 year average of earnings' is silly. 2008 was a complete outlier - The banks lost so many billions that the year completely wrecked the value of adding up 10 yrs of earnings.

I would be very interested to see what that chart would look like with some kind of normalized number for 2008 - say earnings down 20% instead of whatever it was - 100%?

Forgetting earnings, which are an opinion anyway, by price to sales, the market is not cheap, not expensive. That is probably a better way to look at the market than by earnings, which are manipulated and volatile.

The Quantity Theory of Money, upon which monetary economics and its theory of inflation rests is:

MV = PQ, not P = constant * M

In case you have not noticed the V thing, the velocity of money has fallen through the floor (but you must have known that, right, because you know enough about economics to post strong comments). So show exactly how the Price level, P, is going to rise, or why Q/M, output per dollar of Money (M1, M2 etc), then divided by Velocity, V, is going to climb rapidly?

The Fed would like the typical coordination with Fiscal policy but that has not been feasible for a while now. Thus, even overly aggressive monetary policy is the result of TeaPary-inspired (constrained, may be better) Republican (non-)actions.

ericAvery wrote:

flagpole, I'd be curious to hear your reasoning behind this prediction?

It's the economy stupid.

Of course 2008 earnings were bad. But the years surrounding 2008 were artifically good (hence 2008), so it would be a huge mistake to just disregard 2008 results. I have buddies that work in the corp finance groups at a few large companies, and when 2008 hit, they were given specific instructions to find every possible future writedown in throw it in with the bad 2008 results. Everybody's results were going to be bad, so the logic was to lump all the bad stuff together and therefore make furture years look better than they otherwise would. I'm sure many companies took the same approach. Knowing this, you'd be crazy to assume 2009, 2010, and 2011 were normal results.

It's funny that you mention "some normalized number". That's kinda the point of the 10-year average. I agree with you, blind allegiance to anything is a bad idea, but the 10-year P/E ratio isn't a bad metric to follow. It has a very good track-record of predicting results over the following 10 years... much better than most metrics.

my memory works wrote:

Flagpole wrote:

I have not made any short-term predictions for 2011 due to very murky waters...until today...so for entertainment purposes only, here's the prediction:

The Dow will close 2011 at 13,000 or above. That's about a 16% climb from today's 11,200 area.

Enjoy.

Weren't you off by quite a bit last year? Why post this?

Wasn't off by much at all last year...16 trading days, and of course the market went UP when I said it would, while tons of people in that particular thread said it would go DOWN.

Anyway, it's just a general sentiment on where the market is and where I think it should be. If I end up being wrong, so what. I think a lot of you are afraid to be wrong. That's not a fear I have.

Pay attention wrote:

I'll split the difference and say we'll be closer to 12,000.

Nearing 12,200 as I type. Still 2 months to go and anything can happen.

Pay attention wrote:

Pay attention wrote:

I'll split the difference and say we'll be closer to 12,000.

Nearing 12,200 as I type. Still 2 months to go and anything can happen.

I knew someone would bump this thread up on a big Dow day.

The things I mentioned back in August are still all in place...companies are making money hand over fist and have been for a year now. The GDP just grew by the biggest margin in a year, and Catepillar is planning to do some serious hiring (others will follow).

The Dow SHOULD hit 13,000 before the end of December, so I'll stick with that prediction, but the current crop of investors are not educated when it comes to the economy, and they act on fear way more than ever before, so who really knows what will happen.

Assuming no unforeseen catastrophe, if you look at what companies are doing right now and HAVE BEEN DOING, the Dow should easily hit 13,000 in the very near future. Now, could we have a sluggish 2012? Perhaps. Not willing to call that just yet.

Man, Obama wins easily now...weird ad from Cain, craziness and inability from Perry, hypocrisy and people not wanting to vote for a Mormon for Romney, and now the GDP improving, the Dow rising, and Obama is in his element when campaigning. He was on Leno the other night, and questions from Leno that would have made Bachmann cry, Obama answered in his very casual upfront style. That dude is a PRESIDENT. Got bin Laden. Guided from afar to get Gaddafi (however you want to spell it) with no troops on the ground and no American lives lost. Recession ended. Stocks up. Banking no longer on verge of collapse. Going to get troops out of Iraq soon. No Republican has a chance.

Man, Obama wins easily now...weird ad from Cain, craziness and inability from Perry, hypocrisy and people not wanting to vote for a Mormon for Romney, and now the GDP improving, the Dow rising, and Obama is in his element when campaigning. He was on Leno the other night, and questions from Leno that would have made Bachmann cry, Obama answered in his very casual upfront style. That dude is a PRESIDENT. Got bin Laden. Guided from afar to get Gaddafi (however you want to spell it) with no troops on the ground and no American lives lost. Recession ended. Stocks up. Banking no longer on verge of collapse. Going to get troops out of Iraq soon. No Republican has a chance.

I am impressed with your ability to call things out. I agree that unless Obama does some very stupid things over the next six months, he will get his second term and it will be in a landslide. The Republicans don't have a clue....

The economy starting to move is going to be a big boost, along with the silly flat tax proposals that won't pass muster under closer scrutiny.