Thanks to Jason over at Smith Barney for sending me over the link to this
looney old Barrons stock strategist’s prediction that the Dow Jones is going to hit 18,000-20,000 within the next 12 months.
I’m sure glad I know this, because now I can go ahead and dump any of those crap “conservative” investments I’ve been holding on to and go “all in” on the stock market! I mean heck, if it’s going for nearly a 100% ride in the next year, that’s the place to be!
Are You Ready for Dow 20,000?
By JONATHAN R. LAING
DESPITE THE BEAR STEARNS BAILOUT AND THE FED’S rate cut, a sense of foreboding is still abroad on Wall and Main Streets. Few investors feel good with an economic slowdown gathering force, the dollar in the dumps and contagion threatening to hit financial sectors previously unscathed or not even suspected of being at risk.
This in mind, we contacted James Finucane, a 67-year-old stock strategist who now works as a consultant in West Lafayette, Ind., home of Purdue University (“modest cost of living, a great brew pub and incomparable high-school hoops,” he gushes). Among his talents: pool hustling. He was the 1961 National Student Unions pool champ, representing Notre Dame.
He also has been great at calling stock-market lows, including that reached in the week after the October 1987 crash. “Lows have always been easier for me to call than tops. I was premature in seeing the 2000 stock market high, for instance,” notes Finucane, who long labored in Chicago at Stifel, Nicolaus.
Finucane argues that financial crises invariably yield spectacular buy points, and that we’re at one now.
To him, we’re now at yet another extraordinary low, especially with the unprecedented actions taken by the Fed of late to offer liquidity to investment banks and to commercial banks stuck with mortgage-backed securities of uncertain value. In fact, he foresees an explosive rally, with the Dow rocketing to 18,000 to 20,000 within a year from its current 12,361. The climb, he says, might begin imminently or take a few months of backing and filling before the market takes off.
Finucane argues that financial crises invariably yield spectacular buy points, especially when they reach crescendos. He points to calamities such as the 1970 Penn Central bankruptcy, the 1984 failure of Continental Bank, the 1994 Mexican peso devaluation and the 1998 collapse of the Long Term Capital Management hedge fund. Each time, important lows were made either simultaneously or within a month of the crisis.
He concedes that the latest crisis, which began last summer with the subprime-mortgage meltdown, has been “like a forest fire,” spreading throughout the debt market, sometimes jumping fire walls to spring up in unforeseen areas. Yet he’s now confident that the “panic lows” in the Dow, posted on Jan. 22 and 23, when it sank as low as 11,508, will hold. To him, the Bear Stearns bailout was a crescendo event.
Certainly, the news is hardly encouraging these days, with scary economic and market headlines like those for Alan Greenspan’s recent assertion that the current financial crisis is the worst faced by the U.S. since World War II. A nasty recession impends or is already here. But crisis lows are always accompanied by hair-raising rhetoric and dire economic forecasts.
Finucane has long kept score, carefully cataloging predictions made at past economic inflection points. He points out, for example, that Greenspan contemporaneously described the Long Term Capital collapse in 1998 as the worst crisis he’d seen in his lifetime. Time magazine wasn’t being intentionally ironic when it called the ad hoc government group cobbled together to grapple with the 1994 Mexican peso crisis the Committee to Save the World. Financier George Soros was just as downbeat after the 1987 stock-market crash as he is today, each time predicting a depression.
Why is Finucane bullish? For one thing, he observes that “governments and central banks have a clear incentive to promote growth, so to bet on a prolonged slump is to bet against the government, markets and human nature.” He also takes comfort in a host of technical factors, including liquidity. Money-market cash, for example, has soared to $3.45 trillion, versus $2.2 trillion at the market low in March 2003. And U.S. domestic equity funds have seen a record nine consecutive months of net outflows, a skein that probably will hit 10 months when the Investment Company Institute releases its February numbers. The previous record was eight months, following the 1987 stock-market crash. The Conference Board Consumer Expectations Index is at a 17-year low. The Reuters-University of Michigan Consumer Confidence Survey is at its worst level since 1992. The American Association of Individual Investors finds small investors more bearish than they’ve been since 1990. And on and on.
What make these statistics all the more telling is that, by Finucane’s reckoning, investors in 2003 had suffered more pain and yet were less fearful. By March 2003, for example, they’d endured 36 months of mostly falling prices, including 90% wipeouts in some top tech names. Retail sales had buckled in the run-up to the invasion of Iraq. United Airlines had filed for bankruptcy protection the previous December, the month in which McDonald’s reported its first quarterly loss in 37 years. Industrial production was punk. Many forecasters warned of a double-dip recession close on the heels of the 2000-2001 recession.
In Finucane’s estimation, months of stock liquidation and cash buildup, horrible sentiment and a bailout that could alter investor psychology have lit the fuse for an explosive rally. It will be ignited by one of those mercurial shifts in mood from abject fear to tentative confidence and, finally, wanton greed. “The setup is perfect,” he asserts, using a pool-hall term. And he’s confident that investors won’t end up behind the eight ball.