Sunday, April 17, 2011

That 70's Dow

Over the past 14 years the S&P 500 index has twice risen from 800 to 1500 and then fallen back to 800.
Now the S&P is less than 200 points from completing a third 800-1500 climb. The question now is whether it will fall to 800 again, or finally break through 1500 for good. The pathetically low dividend yield of 1.85% suggests that a third fall is inevitable. Unless the Federal Reserve Bank prints us into high inflation (which seems increasingly likely) I foresee a repeat of the 19-year flat performance of the Dow Jones Industrial Average from 1963-1982:
So the choice is either high inflation or another 40%+ downward oscillation in a flat stock market. One way or another the fake wealth of our debt-dependent economy will find a way to disappear.

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