Is James Glassman Really That Crazy, Why the Dow Potentially Has 60%-170% More Upside & Why Contrary to Michael Moore’s Views, Markets & Capitalism Worked Better Than Ever in Facilitating the Sub-Prime Crisis
Does anybody remember James Glassman?
He’s that crazy guy who published this book in 1999 claiming the Dow would eclipse the 36K mark in ~three-five years.
Turns out his earlier prediction wasn’t so correct. That doesn’t mean the guy doesn’t have conviction – he just penned an op-ed on Bloomberg suggesting the target is still attainable, though he stops short of a time prediction and merely suggests it will come to fruition when U.S. economic growth accelerates to its potential run-rate of ~4% / year.
And though it may be fun to laugh at Mr. Glassman these days, when one consider’s what the Dow is currently doing, which it’s only done six (or five depending on how you look at it) other times through history, and what has tended to happen thereafter, they might take the man a little more seriously.
To wit, check out the chart below. Via vertical blue lines, we’ve highlighted those six (or five) areas in history where the Dow has statistically done what it’s doing right now.
We’re not going to reveal what the statistical property is that we’re looking at as it’s proprietary to us, but in five of the six previous occasions the index has gone on to register somewhat ridiculous amounts of additional upside, with the only exception being the 1946 example, whereby it peaked immediately, fell 20% and then traded sideways for four years before launching higher again.
Regardless, on the other occasions the market registered the following incremental upside (with upside targets) before an “ultimate” top was put in:
- +170%, 4 years = Dow 39,000
- +25%, 1 year = Dow 18,000
- +60%, 18 months = 23,000
- +60%, 30 months = 23,000
Is it really different this time and is Glassman that crazy?
In our view, when elected (or un-elected in the case of Bernanke) officials pursue illogical policies markets defend themselves by taking those policies to their logical extremes.
Was the logical extreme of free money and implicit government backing for major banks and Fannie and Freddie anything else but the massive sub-prime/debt bubble that we ultimately received?
Were those parties, given the illogical policies in place, not acting in logical fashion? Did markets, via the trillions in CDOs, CDOs-squared and so on issued, not act in a completely logical fashion to help facilitate the process?
Did capitalism and markets really fail? Or, did they actually act more efficiently and better than they ever have in their part to facilitate the massive sub-prime/debt bubble?
Is then the biggest cyclical bull rally in history not the logical extreme of the illogical policy of infinite easing?