Why the Dow Could Be at 10,000 By Year's End
Companies can and will improve, even without real growth in GNP.
I think we're close to the bottom -- maybe another 3-5%, but that's it.
In 2008, the market only traded below 8000 for 2 days -- and that was during an economic and financial cyclone.
The bigger downdraft in February was because of a fear of nationalization/socialization and a president who was thought to be bent on destroying Wall Street (or at least acted that way). This was on top of the continuing economic and financial cyclone: Remember that in February, General Electric (GE) was going to go out of business along with several major banks. Medium-term corporates were at 10% and junk was at 25-30% yields. It was impossible to raise capital.
Today, fixed-income yields have been cut in half; capital raises have been in the hundreds of billions; no important enterprises appear to be going out of business (General Motors (GPM) doesn't count). Obama & Co. have calmed down and seem to understand the importance of the capital markets.
Specifically, the financial cyclone is under control and manageable. I'm not saying things are great, but it's more of a fog than a whirlwind -- and much better than it was in the fourth quarter of 2008.
We're still in an economic mess, and it will be years before things are really good. But medium- and large-sized companies are generally putting themselves in position to improve earnings without any real growth in the GNP. I think we'll see 20% plus improvement in aggregate earnings in 2010. After second-quarter earnings, I believe the market will soon start discounting this, which will lead to a charge to 9500-10,000 by year end.
The most significant wild card, though, is this new talk about a "second stimulus." This scares me because it will lead to a massacre of the dollar. Don't they realize that we haven't spent 90% of the first stimulus package? Talk like this could lead to 7700-7800. I don't see the actual second stimulus happening, however, as Obama is already losing his juice.
Second earnings are just noise -- they don't really matter; guidance -- maybe a little bit.
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