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4,000 Dow?

December 10, 2008

Mark on the markets Mark Patterson

4000 Dow?

Every time the markets have a relief rally as we are now, the analyst in the media try to make the investor buy into the premise that we have seen the bottom of this market and that we are coming out of the worst times these equity markets can throw at us.
I can understand that after the pain we have endured as investors that it is only being optimistic and positive for us to buy into this theory of “we have seen the worst”.
Back when the Dow industrial average was 12,500, I thought that we would see 7700 on the Dow. I was wrong it went to 7500. As I wrote last year that the slight downturn was nothing compared to the pain we could feel in a real bear market and global recession.
Now that we have rallied to about 9000 on the Dow, I will make a prediction that we could see a Dow as low as 4000 this coming year and an s+p 500 at 400. That would be more than a 50% downturn from here. So if you are still “staying the course” or “investing for the long term” in mutual funds or non targeted equities, the course could get much bumpier and the long term could become really long term. If you are retired and relying on your investments for income, be extra cautious, capital preservation is key for you.
We are in a deflationary mode at this time, when assets are worth less, but because the government must print money for the numerous bailouts and stimulus plans not yet revealed, we will turn the corner on deflation and I believe we will go into a very rapid inflationary cycle like 1981 when interest rates peaked at 21.5 %
If you feel like you need to take some control over your money, take some profit when this Santa Clause rally subsides and have liquidity for the future. Stay nimble, this is a short term or traders market, it has been and will continue to be.
Do not let your bank or broker sell you an annuity “for safety and guarantees”, Annuities are backed by the insurance companies that issue them, and we know that the insurance companies have had the same issues as the banks. If you chase a little extra yield or interest and take risk to do it, I will not feel bad for you when you get burnt.
I hate to be so negative in these times of euphoria about our new president, but even he said this week that, “the economy will get worse before better”.
So buckle in and get ready for round 2 of this economic downturn.

Mark Patterson is a money manager with MHP Asset management LLC, and can be reached at 603 447-1978 or Mark@MHP-Asset.com