Coming Soon: DOW 10,000
I do not have a crystal ball and cannot predict the future. Yet there is now in place a full alignment of “the correlation of forces,” driving the US economy forward. Thus I am going to predict that the DOW will be above 10,000 by October. What’s more, it will stay above 10,000 throughout 2004.
Did Y2K Cause the Recession?
There is an interesting theory claiming that Y2K helped precipitate the recession. Remember that it began March 2000 when the Dow and Nasdaq peaked. What happened was that in preparation for Y2K, corporate America compressed four years of IT budgets into one year. Instead of spending $200 million on IT a year, Citibank for example spent over $800 million in 1999 alone.
Thus, for the next three years, 2000-2002, IT budgets remained a fraction of what they normally would have been. Finally now, they are getting back up to speed — and so are tech stocks. We all know the Nasdaq is up over 20%. But have you been watching the Goldman Sachs Internet Fund lately? It’s up almost 60% for the year (i.e., in the last five months).
The Correlation of Forces
Al Qaeda on the run, victory in Iraq (albeit with a messy cleanup), low-low dollar, low-low interest rates, low-low inflation, front-loaded tax bill, looser credit rules (re secondary source collateral for business loans), high productivity, lower labor costs, solid consumer confidence and optimism, creative energy and ingenuity exploding — it’s all there, ready to roll, folks. All 16 of the Lipper Stock-Fund Indexes are up for the year (except for gold), nine of them in double digits — and this economy is only emerging from slumber, just starting to build up a head of steam.
Read My Lips
The bottom line is that there is No Way José that GW is going to make his Dad’s mistake. The American economy is going to be Moving and Grooving for a year or more before November 2004. There is as much chance that the Democrats can pull a repeat of 1992 as Al Sharpton has of being their nominee.
Rational Exuberance
Sure, a lot of things could go wrong. Even weak and confused, Al Qaeda could still pull off a major hit (but not a series of them). China could recover from the SARS crisis and continue to suck jobs out of the US, prolonging a “jobless recovery.” All kinds of disasters are imaginable. Yet right now the rational odds are for America’s economic revival. I think you can bet on it. Frankly, the one thing I’m queasy about is that I’m being too cautious. Stay above 10,000 for 2004? I won’t be shocked if the DOW is at an all-time high — that’s above 11,722.98 — by Election Day.