Sunday, January 3, 2010

My Prediction Came True - Big Market Recovery in 2009

[Double-click graphic for larger view]

Back in March 2009, I did a posting titled Prediction: Big Market Recovery This Year! That included the above graphic.

At the time of my prediction, the Dow was down at around 7,000. In the graphic, I showed what I thought the "true" value was (the green dots). and I wrote:

"The good news is that the market will probably recover nearly as fast as it dropped. I predict we will see it around 9,000 or more by year end and over 10,000 in a few years."

Well, the Market overachieved. It ended 2009 at 10,428.

I also wrote:

"The bad news is that the high levels of the last decades, and in particular the peak of 14,000 in 2007, were unjustifiably optimistic and will not be seen again for many years."

Later in the posting I added:

"I believe the fundamentals -American workers and industry- are strong and will recover almost as fast as we went down. Markets tend to over-react in crisis -both on the way up and the way down- so, hold on to your hats for the ride up! ...


"I believe President Obama is very smart and intellectually flexible and basically honest.

"I hope he can overcome his work experience in an activist law firm, as a community organizer, and on the left in the Illinois legislature and the US Senate. His entire career has been based on pushing policies that take money from those who earned it and give it to those who (for whatever reason) did not. On the other hand, he has demonstrated that he, personally, is a very hard worker. At Harvard, the law firm, in Chicago communities, and the legislatures, he has demonstrated tremendous intellect and industry and work ethic.

"I want President Obama to succeed because I want to see our country emerge from this economic crisis stronger and more 'mean and lean' to compete better in the globalized marketplace. This 'correction' in our economy was overdue but perhaps it has been overdone.

"I see hope in the availability of more affordable housing (due to the foreclosures), the reduction in energy prices (due to the economic slowdown), the elimination of some unproductive factories and wasteful union work rules (due to bankruptcies and threats thereof) and people willing and anxious to work harder and smarter (due to the reduction in job availablity).

"I do not want all of President Obama's stated policies to succeed. For example, I am worried that the printing of a few trillion (thousand-billion) 'stimulus' dollars will inevitably lead to roaring inflation a couple years from now. Much of this money will go to politically-connected states and cities and companies and unions and will probably be wasted (think of Boston's 'big dig' on steroids and spread over our entire Nation).

"But, I remain optimistic."

Ira Glickstein


JohnS said...

Our opinions of President Obama and the executive branch differ, but that is neither here or there. My question is how have you factored in the effect of government interference in the market place? Historians claim that the great depression of the thirties was extended by President Roosevelt’s interference into the market place. I am not sure I agree; I believe, from personal experience, that his programs were necessary still if historians are correct, Washington’s interference, today, is far more extensive including involvement in the financial market, manufacturing, and undocumented workers, who in a depressed time, reduce employment opportunities for American workers. Beyond these items, we have loosened fiscal controls, which affect the value of the dollar as well as increasing our debt.
I am not ascribing these criticisms to the Obama administration alone, Bush initiated many as well as involving us in two expensive wars; Obama’s administration has just amplified the problems. Returning to my question how do your projections move when extended over the next five years or so?

Ira Glickstein said...

Thanks John for your thoughtful comments. In general, I distrust the ability of government to manage anything well. Most government money, benefits, and contracts go to the politically-connected groups and are used to generate contributions and votes at the polls.

I do not know enough about economics to be sure it would have been better to let AIG and GM and the others "too big to fail" go through bankruptcy, but that was and is my gut feeling. We'll never know because "too big to fail" is synonomous with politically-connected!

As I wrote in my March 2009 posting, and repeated yesterday, "I am worried that the printing of a few trillion (thousand-billion) 'stimulus' dollars will inevitably lead to roaring inflation a couple years from now." Inflation will raise the dollar level of the stock market and drive stock prices up, but their real inflation-adjusted value will drop.

For now, I will stick to my original long-term prediction (green dots on the graphic). The Dow will be between 10,000 to 12,000 in 2010, 12,000 to 14,000 in 2015 and 15,000 to 19,000 in non-adjusted (i.e., inflated) dollars.

Ira Glickstein