Remember a few years ago when several books were published with titles, like, Dow 40,000, Dow 22,000, Dow 36,000, Dow 39,000. This was in late 1999 and early 2000 at the then top of the internet bubble and with the Nasdaq and the Dow hitting highs. Exuberance was everywhere.
At that time, many of us dismissed these forecast as they were largely based upon a growing U.S. economy propelled by the demographics of the coming baby boomer generation. The theme was the peak would arrive in 2009 or so.
What then seemed like a 'fantasy' or pipe dream forecast of a Dow at 22,000, much less 40,000 is now becoming a more realistic projection but for perhaps different reasons.
Yes, there is growth albeit, slow growth in the overall U.S. economy. But the growth in other parts of the world, China, India, Russia, Brazil and even Mexico are driving the world's economy. So, what does this have to do with a Dow 22,000 or higher?
It's all about the U.S. dollar. We don't recall those forecasting a Dow 22,000 envisioning a declining U.S. dollar.
What we are currently witnessing is an earnings growth in the large multi national U.S. corporations. This growth is coming at the expense of the declining U.S. dollar. As the U.S. dollar declines the exports of these corporations are increasing and thus the earnings will be rising.
Some analysts are predicting the U.S. dollar still needs to fall and 1/3 in value from current levels, to make the U.S. more competitive and help with the balance of trade deficit. This would produce more earning for these U. S. corporations in the coming months ahead.
With this backdrop of increasing earning we can see the potential for the Dow and the S&P 500 to increase dramatically within the next 18 months. Can the Dow reach 22,000 or higher? We continue to think not. But investors must remember the Dow while currently at around 14,000, is in a bull market only if measured in U.S. dollars. Denominate the Dow in virtually any other currency or in gold and you get an entirely different picture.
We believe the great trap that U.S. investors do not see is that a Dow 22000 with come only with a U.S. dollar at substantially lower levels. Investors with feel rich and exuberate with a Dow 22,000 only to realize when they sell that their U.S. dollars are virtually worthless. U.S. investors for the most part do not think in terms of the macro picture. The Euro, Canadian dollar and gold are foreign concepts. By the time U.S. investors wake up the game will be over. Their retirement funds will be virtually worthless and denominated in a greatly depreciated currency rivaling that of a third world country.
Got Gold? We do!
With the declining U.S. dollar, gold, silver and virtually all natural resources and commodities should continue to rise dramatically. Thus, we see incredible value in the shares and long term warrants of those companies in the natural resource and commodities sector. One leading analyst recently has written that he sees the possibility of a blow-off top in gold taking us up to the $1,500 level. When? Not 5 years from now, not 2 years, but within the coming April - June 2008 timeframe.
It will be an incredible ride if this forecast becomes really. The shares and long-term warrants will explode in value. So we will stick to the gold market not to the Dow for our investments and will be greatly rewarded for our decision.
For those readers interested in education and information on warrants, we encourage you to visit our website where you can now signup to receive our Free Saturday newsletter which is appropriately titled, The Warrant Report.
