DOW 20,000? Part II

By: Gordon Long | Wed, Oct 30, 2013
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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.

 


 

Gordon Long

Author: Gordon Long

Gordon T. Long
Publisher - LONGWave

Gordon T. Long

Gordon T. Long has been publically offering his financial and economic writing since 2010, following a career internationally in technology, senior management & investment finance. He brings a unique perspective to macroeconomic analysis because of his broad background, which is not typically found or available to the public.

Mr. Long was a senior group executive with IBM and Motorola for over 20 years. Earlier in his career he was involved in Sales, Marketing & Service of computing and network communications solutions across an extensive array of industries. He subsequently held senior positions, which included: VP & General Manager, Four Phase (Canada); Vice President Operations, Motorola (MISL - Canada); Vice President Engineering & Officer, Motorola (Codex - USA).

After a career with Fortune 500 corporations, he became a senior officer of Cambex, a highly successful high tech start-up and public company (Nasdaq: CBEX), where he spearheaded global expansion as Executive VP & General Manager.

In 1995, he founded the LCM Groupe in Paris, France to specialize in the rapidly emerging Internet Venture Capital and Private Equity industry. A focus in the technology research field of Chaos Theory and Mandelbrot Generators lead in the early 2000's to the development of advanced Technical Analysis and Market Analytics platforms. The LCM Groupe is a recognized source for the most advanced technical analysis techniques employed in market trading pattern recognition.

Mr. Long presently resides in Boston, Massachusetts, continuing the expansion of the LCM Groupe's International Private Equity opportunities in addition to their core financial market trading platforms expertise. GordonTLong.com is a wholly owned operating unit of the LCM Groupe.

Gordon T. Long is a graduate Engineer, University of Waterloo (Canada) in Thermodynamics-Fluid Mechanics (Aerodynamics). On graduation from an intensive 5 year specialized Co-operative Engineering program he pursued graduate business studies at the prestigious Ivy Business School, University of Western Ontario (Canada) on a Northern & Central Gas Corporation Scholarship. He was subsequently selected to attend advanced one year training with the IBM Corporation in New York prior to starting his career with IBM.

Gordon T Long is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course, he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you confirm the facts on your own before making important investment commitments.

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