On Jan 14, 2000, just two weeks after the start of the new millennia, the Dow Jones Industrial Average peaked at 11,722, a record close at that time. On Friday, January 14, 2011, eleven years later to the day, the Dow closed at 11,787, a move of only 65 points.
Eleven years ago, awakening to the dawn of a new era, drunken with the delight of superior stock market growth from the previous decade, we would lay awake at night, with great anticipation of our future gains, calculating our great bounty.
If it was still the year 2000 and I predicted that by this day in 2011, we would witness the following:
· The Dow will still be at roughly 11,750.
· The New Orleans Saints would have won a Super Bowl.
· A gentleman from Hawaii with the middle name Hussein will be our President.
· Bill and Hillary will still be married.
· Al and Tipper will be getting a divorce.
You would have resigned yourself from my occasional newsletter and labeled me a crackpot.
Even though one's preference is to extrapolate the present, many of us cannot help but make ill-fated stabs at predicting the future (I continue to wait for my personal jet pack and flying car). For me personally, I have often stated, "If I have a 50/50 chance at something (for example, should I turn left or right?), there is a 90% chance I will choose incorrectly."
Since last year's predictions from the famed prognosticator, Byron Wien, Vice Chairman of Blackstone Advisory Services, fell short with only one of his ten predictions being partially correct, I thought, "What the heck - why not shimmy out onto a thin limb and try my hand at peering into the elusive crystal ball?"
Below are my prognostications for 2011:
· The Dow will finish higher. (Right now, at 2x book, near its historical average, it is less likely that bad news will be a shock to anyone, so look for the surprises to be on the upside that will act as a catalyst to move stocks higher.)
· Investors, who "don't ever want to own a stock ever again" (54% of middle income investors according to Investment News, January 2011), will run to get back into the stock market (not wanting to miss out on the new bull market) but only after it nears its last high-water mark of 14,164 reached on October 9, 2007.
· The bond market's 30-year bull run will come to an abrupt halt and have more surprises for investors on the downside. (The past was just practice: In the 4th quarter of 2010, long treasuries lost 8.2%).
· The recovery will be less than robust. (We can always count on Americans to do the wrong thing at the wrong time. This time instead of spending their savings during a slowdown, they are actually saving their earnings, taking money out of the economy just when the economy needs it the most and taming the expansion. [A 6% savings rate reduces spending by $400 billion annually.])
· Unemployment will remain high; that is, for the under educated. (The unemployment rate for college educated will continue to remain low near its current 4.8% vs. 9.8% for high school graduates and 15.3% for those without a high school diploma[1].)
· President Obama's approval rating will improve (along with the improving economy as individual's opinion of how well the President is doing is based primarily on how well they are doing).
· The Federal Reserve will leave interest rates where they currently are. (After the 2001 slump, the Fed did not begin to lift its target rate until 31 months after the recession ended. After the 1991 downturn, the first rate hike did not come for 34 months. We are currently in month 18 of the recovery.)
· Housing prices will continue to decline. (Even though housing is approaching fair value (historically, homes have sold at three to four times income. (The average income in America in 2009 [most current data available] was $50,211[2] the median price of a home 2009 was $216,700[3] or just over the historical norm. However, both increases and decreases, in stocks, bonds or even housing, never stop at fair value - they always overshoot both on the upside or the downside).
· Utilities will be a winning sector in 2011. (Historically, small caps lead us out of a recession, utilities are often second. With an improving economy, increased energy consumption will improve the earnings of utilities companies.)
· Corporations will either spend through acquisitions or return some of that $1.93 trillion they have in reserves (vs. the $1.5 trillion they had in cash reserves prior to the recession) or start to return it to shareholders in the form of dividends.
As previously mentioned, many of us find security in maintaining the status quo and don't feel comfortable venturing out into the dark unknown, while others of us will try our hand at pontificating the possibility of future events. I conclude my thoughts with a simple caveat.
I could be wrong.
And hedge my bets with a statement about one of my prior predictions:
The Gores may yet reconcile.
