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DOW 20,000? Part II

with Special Guest Lance Roberts, Principal of STA Wealth Management
& Charles Hugh Smith & Gordon T Long

24 Minutes, 32 Slides

Dow 20,000

In Part II of this multi part series we ask Charles Hugh Smith and Gordon T Long whether they see DOW 20,000 or DOW 5,000 ahead, and when?

Charles Hugh Smith

Charles sees the US economy facing a Willie E Coyote moment! The markets are no longer a 'Buy & Hold" investment as he expects volatility while the markets complete a Megaphone Top. If the markets reach 20,000 it is not a legitimate top, but rather a false one. As the megaphone pattern suggests, the markets will just as likely be followed by DOW 5,000, as excessive mal-investment and mispricing is wrung out of the markets.

Rotating Asset Bubbles

Charles Hugh Smith argues through supporting charts that:

  1. Corporate Earnings & Debt: Corporate Debt has been growing at a much larger rate than Corporate EBITDA for sometime now. Earnings need to be growing faster than debt for a DOW 20,000 to be legitimate.
  2. Full-Time Employment versus Social Security Beneficiaries: Full Time Employment has not been growing as fast as Social Security Beneficiaries. This is unsustainable. The solution will require higher taxes or cuts in benefits. Both will reduce household disposable income in a 70% consumption based economy. How do corporations further increase profits from record levels while facing such a secular shift?
  3. Productivity: US productivity has increased 58% since the mid 90's. Meanwhile government spending is up 300% and financial markets have doubled. This makes rising markets unsustainable.

Without these three metrics being dramatically reversed, any DOW 20,000 is not legitimate. Though in nominal termsthe market may reach these lofty levels, in real terms this will be quite a different matter.

Gordon T Long

Gordon T Long looks at the question from a Macro perspective and argues that we need to analyze the Wiemar Germany of the 20's by considering what would have been different if:

  1. Germany had been the world's reserve currency?
  2. If the rest of the world had not been on the gold standard but were all fiat currencies?

The answer suggests the road we are currently on is a modified form of the von Mises Crack-up Boom.

Steps to a Crackup Boom

Conceptual Sequence of Events

Gordon's market charts will leave you with a different perspective.

Delfationary BUST FistCurrency Collapse

Video: DOW 20,000? Part II

24 Minutes, 32 Slides


Listen to Part I - Lance Roberts. In the upcoming Part III John Rubino shares his outlook.


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