Dow Jones at 7600 - what I said, right and wrong

Back on November 18, 2008 I made a prediction. I said that in the first quarter the Dow Jones Index will hit 7600. I then proceeded to explain why it will do this and what will be happening. With the Dow having crossed my target I will reflect on what I said then.

“…auto makers are now first in line to ask for their own bailout,… And Congress will likely pony up the money for each of them.”

In fact the auto makers asked Congress for $50 billion dollars. As a surprising move, probably meant to give citizens the impression that Congress has some idea of what it is doing, the auto makers only received $15 billion.

Keep in mind that like the credit bailout, auto makers claimed at the time that the entire amount was needed or they would fail. To date the auto makes have not failed (though they have laid off workers, which was inevitable) nor has the economy though less than all the funds requested have been used.

“So far a 2nd stimulus plan is being conceived, growing from an initial hidden $50 billion, to $150 to $300, and now is being speculated at $500 billion dollars. Nancy Pelosi doesn’t just screw up, she does it with swings to the bleachers.”

House Speaker Nancy Pelosi not only hit the bleachers, she hit it out of the park. The stimulus package is being signed by President Obama today at the eye-popping total of $787 billion. But only Democrats think there is no waste in the stimulus.

“This means that New York City will get crushed this year.”

So far the budget of New York State is so bad that Gov. Patterson is in the process of taxing citizens based on weight. And who knows what will be next, but be assured the State is in severely bad condition.

“President Obama will get inaugurated and the Dow will drop 500 points.”

In fact the Dow dropped every day from the start of 2009. On the inauguration the Dow jones Index dropped 337 points. Not the 500 I expected, but close enough.

“Oil prices should stabilize at around $65 - $70 per barrel to start the year…”

I am completely wrong. They are currently at about $37 a barrel of crude oil. The economic crisis is keeping demand way down, and so far oil is not being used as an alternative investment.

“Gold and precious metals should all increase dramatically in a similar manner to that of 2008.”

As of today, Gold hit $973.80 an ounce. It is within $36 of an all-time high, set last year.

“Growth in China will likely stall as well, especially since the boost from the Olympics will have faded.”

The World Bank has stated that real exports will be down 7.5% in 2009 (at 3.5% versus 11% in 2008) and the growth in that nation will slow to 7.5%, or down 1.9% from 2008.

“Taxes will increase roughly 3% on all income groups.”

Wrong so far, but just wait for it.

“Several mid-sized financials will fail, blame will go to short-sellers and corporate greed.”

Expectations are that this is on the horizon.

“Confidence in the U.S. Treasuries will weaken, and several nations will begin to sell in hopes of buying national debt of England and a few isolated nations.”

Thankfully I am wrong on this so far. I pray to remain incorrect. But there is no reason for any nation to buy Treasuries at below 5%. It’s just not worth it.

“Unemployment will hit a 20 year high, again raising fears of a depression.”

I cannot count the number of times Democrats, and President Obama, have stated we are in or about to be in a depression. Call it fear mongering if you want to be honest, but it’s a daily statement without question.

Unemployment recently broke a 28 year record.

“Iran and Russia will take aggressive stances in the world stage.”

They have been blustering a bit of late. But they have not taken a full-blown aggressive stance. Yet.

“If I am as correct as I was in 2008, then 60 - 70% of what I have said will occur, though not exactly in my timeframe.”

Well looking at it empiracally I would say that I have got it about 55% right so far. The 1st quarter isn’t over yet either. World politics can shift in a minute, so that might push up my percentages at any time. And honestly I don’t what the rest of what I expected to come true. It would mean devestation to millions.

I will stand by a though I made at that time as well though. I expect things to get a bit worse and hold through the second quarter. But given I had no idea what the stimulus package would entail, nor such a enormous wasteful pricetag I will ammend my thoughts.

The 2nd half of 2009 will be just as bad, if not worse than the first half. There is no stimulus in the stimulus package. There is nothing to preserve or create jobs. No sound person would use any of the paltry amounts the stimulus will provide to do anything but save, pay bills, or watch evaporate if gas and/or oil prices move up at all.

At this point I would imagine gold hitting $1150, crude oil eventually getting back to about $60 (mostly through alternative investment speculation and production cutbacks). I fear but expect unemployment to hit 10% by the end of the year. The 4th quarter will be horrible. Inflation will likely run 3% higher. The Dow Jones Index can be expected to drp another 500 and stabilze there over the next few months.

Again I will say that I hope I am wrong. I want to be completely wrong by the end of the year. I want to laugh at what I expected with tears of joy. But I doubt it.

I’m at 55% and we are only in the middle of the 2nd month of the year. With a liberal Democrat President, a Democrat-led Congress that is headed by 2 of the most incompetent (in my opinion) politicians in decades, and expectations of spending that might have been called astronomical only a few years ago.

But we will see. Do let me know what you think.

Surprise! We are still in a bear market.

Let me see if I understand this correctly.

"A jump in unemployment sent stocks sharply lower Friday as investors feared that Americans won't soon deviate from their tightened budgets."

That means that someone thought consumers would go back to spending money, or realistically increasing debt, because the new year started? Or they thought that the $120 a month less in taxes (for only 4 months) President Obama has proposed was going to spur new home purchases? At the same time that nearly every industry in the nation is slashing jobs?

It must be great in the world that some of these economists live in.

We have lost the most jobs in this nation since 1945. That's at the end of WWII, when we scaled back from the massive military supply we needed for the war. And I believe more people had more savings and less debt than today - even adjusting for inflation. And the Government had none of the debt we have today, or will soon have even more of if Congress and President Obama get to spend as they plan on doing.

How could anyone look at the 2nd half of 2008 and not expect consumer spending to continue downwards. To expect the stock market to continue in the bear market that it's been in for months now. I mean what did they expect, President Obama would smile and the world would just step up and buy stocks?

President Obama is a Liberal Democrat. He has said from day one that he will increase the deficit, spending more money than ever before. He has made it explicitly clear that he intends to get even more money from fewer sources, business and the higher incomes. What exactly counts as higher income keeps changing, and getting smaller. And business really loves to have to pay more money as sales shrink.

Let's not forget that with the mismanagement of the Fed and the Treasury (neither of which is President Obama's fault - given) we have wasted billions of bailout dollars, have a line of industries waiting for their turn at the free money ATM called Government, and inflation is the one word no one wants to talk about. And inflation will be the one thing that really kicks everyone's ass.

Of course President Obama will say that the sky is falling tomorrow if he doesn't get to give away all our money. That's polispeak, meaning that he wants to look good at trying something that can't work so he has some political clout before it all falls apart. Then he can point backwards in time and blame everything that fails in his plan on President Bush. Politics as usual.

Of course these "old politics", that President Obama promised to banish, are very good at keeping political clout but horrendous for low wage earners and small business. The stock market knows this. That's why its a bear market. And as we approach the inauguration, I expect even more selling. I mean why have an investment when the taxes on it will cost more than you expect to make in the next 2 or 5 years.

As a stockbroker I learned to look for capitulation in the market. That emotional point when people just give up. That's when smart money jumps in and buys. Except that the emotional selling all happened in September and October. Since the election smart money is selling. And that means things are really going to get worse.

Until there is a reason to buy stocks, the market will continue to slowly slide down. Never in just a straight line, but trend down it will. The Democrat-led Congress will authorize spending in new programs that will not help any one get a job or start a business. The President will come up with plans on how the Government can take care of everyone, while being in every pocket deeper than before. And $1.2 trillion dollars in debt will look like a target to strive for in coming years.

I've said it before and I will again, a Nancy Pelosi and Harry Reid Congress with the most Liberal Democratic President in decades equates to double digit inflation, double digit unemployment, rock bottom consumer confidence, and business bankruptcies all not seen since the Carter Adminsitration - if we are lucky to have it that good.

So who is surprised? Not me.