Dow 20,000 Is Not Pure Speculative Hype

Speculative hype has little to do with stock prices since 2000. The large cap stock to gold ratio illustrates how currency devaluation, i.e. printing money through quantitative easing QE(n), has been driving stocks higher for more than a decade. Is possibility of Dow 20,000 pure speculative hype? No. If central planners continue to panic under the weight of the sovereign debt collapse, there’s no predicting the depth of currency devaluation and equity market rise that lies ahead; the farther fiat currencies fall, the higher nominal stock prices will climb.

Unfortunately, many American assume that rising stock prices suggests not only a recovering economy but also getter wealth for all. This is a bad assumption. The falling stock to gold ratio below illustrates the economy’s real downward trend. Also, history clearly suggests that citizens of hyperinflation, more likely to be known as quantitative easing programs today are not protected by rising stock prices. Stocks are simply not good enough as an inflation hedge. That is, they not rise fast enough to protect against a currency’s purchasing power decay.

U.S. Large Cap Total Return Index (LCSTRI); S&P 500 Total Return Index to Gold Ratio


Headline: Dow 20,000 next? It’s pure speculative hype

Big names like Nouriel Roubini, Jeremy Grantham and Bob Rodriguez are slinging around words like “disaster” in forecasting the stock market, advising extreme caution and defense strategies. Contrast that with hot headlines about the Dow “storming back soon,” soaring to the “Next Stop, Dow 20,000.”

Warning, folks, you’re in a new cycle of irrational exuberance.

After losing an inflation-adjusted 20% the last decade, a prediction that the Dow will roar back 80% anytime soon is misleading, pure speculative hype. Reminds me of book titles like “Dow 36,000” and “Dow 100,000” back in 1999. And memories of those mutual funds selling with absurd multiples over 40, with annual returns in excess of 100%. Worse than the tulip-bulb mania of the 1590s.

Source: marketwatch.com