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Outside the Box
June 2, 2011, 3:50 a.m. EDT
By James Altucher
NEW YORK (MarketWatch) "” The market fell like a brick on Wednesday. People can't handle any piece of bad news without saying "this is the big one." We have visceral memories of May through July 2010, just a year ago. We have visceral memories of 2008, when it seemed like no end was in sight. Nobody wants to be caught trying to catch that knife with their mouths like in a circus act. You get cut up that way, and the blood isn't pretty.
But it's not going to happen. Even God took one day to rest. The market every now and then needs a day or two to rest. Maybe even more than a day or two. But over the next 12 to 18 months I expect to see Dow 20,000 /quotes/comstock/10w!i:dji/delayed DJIA -0.18% .
Here are some reasons:
1) QE2 has not started. WHAT? You might say? I thought not only has it started last November, it's about to end? Not true at all. Federal stimulus takes 6 to 18 months before even one dollar hits the U.S. economy in a meaningful way. So expect that $600 billion or more to start hitting toward the end of 2011.
/quotes/comstock/10w!i:dji/delayed DJIA 12,268, -22.36, -0.18% Dow Jones Industrial Average
2) Then why is the market going up? One major reason is because we are in the third administration of George W. Bush. The tax cuts got extended. This signaled that Barack Obama was going to pay lip service to his constituents while still keeping an eye on the stock market. The guy wants to get re-elected, after all.
3) Multiplier effect. Once the stimulus hits the economy, it's not just $600 billion. It's probably more like $3 trillion. How come? Because when you buy that coffee with $1 at the local deli, what does that deli guy do with it? He buys a newspaper? And then that guy buys a donut. The multiplier effect is up to 10X. To be honest, I'm more worried about a bubble in 2013 then I am worried about a economic slowdown.
4) Nonfinancial companies are at their highest cash levels ever. Almost $2 trillion dollars. They were hoarding the cash just in case bad times were going to happen again. Guess what? They didn't. But what good is that? Well"¦
Click to Play $(function () { $("#video_8C5C1F2E-BBA3-4DEB-96F4-BCA9A2231665").click(function (e) { e.preventDefault(); MarketWatch.Video.loadAndStartVideo('8C5C1F2E-BBA3-4DEB-96F4-BCA9A2231665', 'video_8C5C1F2E-BBA3-4DEB-96F4-BCA9A2231665', '287', '162'); }); }); Dow suffers biggest drop in a yearStocks plunged Wednesday, suffering their biggest drop in almost a year, as a slew of downbeat reports prompted fears the economic recovery was running out of steam. Dave Kansas, Dave Callaway and Dennis Berman discuss.
5) They are spending it. Stock buy-backs are at their highest levels in history. Let me tell you the rule of every market on the planet that we learned in Economics 101: Price is ruled by supply and demand. Demand has been down for the past two years. But that's OK, supply is now going to start going down right when demand picks up. $2 trillion is a lot of supply of shares to scoop up.
6) What about unemployment? Well, according to the Bureau of Labor Statistics, temp workers are at levels not seen since before 2009. Companies hire temp workers first before they hire full-time workers. That happens in every recession in history.
7) Corporate profits are at their highest levels ever. Did you know this is the first recession in history where cash levels in corporate America increased quarter-over-quarter every single quarter of the recession? And now profits are at their highest ever. Analysts expect S&P 500 earnings to come in at $95 next year. What if (as usual) they are too conservative and the number comes in at $100. Slap in a 20x multiple (could happen when the stimulus kicks in), and we have an S&P 500 at 2,000 and a Dow probably at 20,000.
8) Major stocks are dirt cheap. Apple /quotes/comstock/15*!aapl/quotes/nls/aapl AAPL +0.38% trades for 12 times forward earnings and has $65 billion in cash and no debt in the bank. Microsoft /quotes/comstock/15*!msft/quotes/nls/msft MSFT -0.94% trades for around 10 times forward earnings. Intel /quotes/comstock/15*!intc/quotes/nls/intc INTC +0.66% trades for around 8 times forward earnings. These are high market-cap companies. By the way, all the major indices are market-cap weighted. So if the big guys go up, the indices go up. All of these big guys can easily double or triple.
9) Innovation. Barely a year ago the iPad came out. Now what's the number of people who have iPads? 20 million? 10 Read 10 Unusual Things I Didn't Know About Steve Jobs.
10) Major demographic changes are occurring that are going to affect stocks for the next 25 years. What are they? Check my article here next week. Or, perhaps more importantly, follow me on twitter where I engage in ongoing discussions on these things. Follow me!
The fight never stops between the bulls and the bears. Last summer was personally grueling for me. The market was falling on worries of Greece, an economy the size of Rhode Island, and every day it seemed a new blogger was using this as an excuse to write a blog specifically trashing me. It's usually a bad idea to personally attack someone to get your point across. It's never really necessary, and it's lazy and bad writing. And yet, my kids would Google their last name, and there would be post after post insulting me personally for my opinions.
The market is up some 25% since then. My feeling for the next year is similar: BRING IT ON.
/quotes/comstock/10w!i:dji/delayed Add DJIA to portfolio DJIA Dow Jones Industrial Average 12,267.78 -22.36 -0.18% Volume: 107.60M June 2, 2011 2:42p var embeddedchart70394702Chart = new EmbeddedChart('#embeddedchart70394702', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:DJIA'); jQuery.data($('#embeddedchart70394702').get(0), 'embeddedchart', embeddedchart70394702Chart); /quotes/comstock/15*!aapl/quotes/nls/aapl Add AAPL to portfolio AAPL Apple Inc $ 346.81 +1.30 +0.38% Volume: 9.68M June 2, 2011 2:43p var embeddedchart2053059580Chart = new EmbeddedChart('#embeddedchart2053059580', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:AAPL'); jQuery.data($('#embeddedchart2053059580').get(0), 'embeddedchart', embeddedchart2053059580Chart); /quotes/comstock/15*!msft/quotes/nls/msft Add MSFT to portfolio MSFT Microsoft Corporation $ 24.20 -0.23 -0.94% Volume: 34.92M June 2, 2011 2:43p var embeddedchart37009960Chart = new EmbeddedChart('#embeddedchart37009960', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:MSFT'); jQuery.data($('#embeddedchart37009960').get(0), 'embeddedchart', embeddedchart37009960Chart); /quotes/comstock/15*!intc/quotes/nls/intc Add INTC to portfolio INTC Intel Corporation $ 22.15 +0.15 +0.66% Volume: 42.01M June 2, 2011 2:43p var embeddedchart668544352Chart = new EmbeddedChart('#embeddedchart668544352', NormalChartStyleNoDecimals, 240, 80, '1dy', '5mi', null, null, null, 'US:INTC'); jQuery.data($('#embeddedchart668544352').get(0), 'embeddedchart', embeddedchart668544352Chart); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function (index, value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //});Add Comment › · Recommend (15) · Post: Alert Email Print var OB_permalink= 'http://www.marketwatch.com/story/next-stop-dow-20000-2011-06-02'; var OB_Template="marketwatch"; var OB_widgetId= 'AR_1'; var OB_langJS ='http://widgets.outbrain.com/lang_en.js'; if ( typeof(OB_Script)!='undefined' ) OutbrainStart(); else { var OB_Script = true; var str = ""; document.write(str); } Comments Screener Breaking Insight Cody Willard: Time to load up the silver short again? Jon Friedman's Media Web New York Times's new editor faces 3 key issues Bill Mann's Canada When cheering stops, NHL economic reality bites Therese Poletti's Tech Tales Is Léo Apotheker the right man for H-P? Most Popular Outside the Box Next stop: Dow 20,000 1. David Callaway All eyes on Bernanke, but QE3 has sailed 2. Market Snapshot U.S. stocks slammed by downbeat data 3. Indications U.S. stock futures retain rise after data 4. Microsoft offers peek at Windows 8 5. Find a Broker Partner Center » MarketWatch's Latest Tweets
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