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The Other Shoe? Dow 7,000
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This Link is located in the Public Channel Housing Bubble and Bear Links.
Posted by ian 45 days ago (www.thestreet.com). Views: 65
Tags: housing bubble wall street credit crisis |
| Related Tags: finance economics business video forbes banks stocks countrywide gold |
Last fall, I opined that the market could go down 50%, that is, below 7000 on the Dow. Now that we've moved meaningfully toward that figure, I'm more convinced than ever that it will be reached. That's because a number of stocks in the Dow are already well below my earlier target levels. That means that the other stocks will have to fall less than originally anticipated to bring the aggregate to the target.
The 6600 I hypothesized last fall was based on the so-called investment value, which is equal to book value plus 10 times dividends. This can be said to be the "bond value" of stocks; the rest is like a call option based on growth prospects. The U.S. stock market has sold at a premium to bond value for such an extended period of time -- basically since the 1991 Persian Gulf War victory -- that most people now under the age of say, 45, can't remember a market that didn't sell at a premium to bond value. But at market bottoms, the Dow goes to half of bond value. These include times like 1932 (which predates me), and 1974 (of which I have a strong and painful recollection, because of a personal "recession" that coincided with the national recession). It's possible, though not probable, that the Dow will get to one-half of investment value, that is 3300-3500.
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