Dear Mr. Berko: We heard you speak in Gainesville, Florida, last August. One of your comments was that you believed the Dow Jones industrial average will reach between 23,000 and 25,000 by 2020. How can you believe this? Don't you listen to what expert economists are telling us? The Dow recently took a bath; oil stocks and commodity prices have collapsed, and the Dow fell by more than 2,000 points in less than six weeks. That suggests we have a bad problem. Bearish professionals — such as Jeffrey Saut at Raymond James, Porter Stansberry, who writes a popular financial newsletter, and Paul Craig Roberts, who was assistant treasury secretary for economic policy — would call you crazy. They say the Dow may crash to 10,000 by mid-2016. Therefore, I'm considering moving my retirement plan to cash unless you can change my thoughts. — NF, Fort Lauderdale, Fla.
Dear NF: I can't reason someone out of something he hasn't been reasoned into.
My 50 years in this business has taught me that shareholders, veterans in the game, millennials, baby boomers, pension plan participants and I all have one thing in common. We want to be winners.
Bad news sells better and faster than good news — hence touts such as Bill Fleckenstein, Paul Craig Roberts (I'm leery of people who emphasize their middle name), Harry Dent, Porter Stansberry and Jeffrey Saut, to name a few. It's a challenge to remain bullish when we're bombarded by Kafkaesque eco-babble from the above characters, the fuds at the Fed and the dime-a-dozen newsletters distributed by Agora Marketing Solutions, a specious company that's a source of numerous consumer complaints.
Corrections in the market on the way to a 23,000 Dow or higher are as natural as breathing in and breathing out. Corrections of 4 percent, 8 percent and even 12 percent are as normal as sniffles and a headache. Now read my lips: Major market corrections don't just happen; they're the result of a confluence of negatives — not a single occurrence or several occurrences, such as the drop in the price of oil, the financial crises in Greece, Venezuela and Brazil or the slowdowns in China, Australia and Canada. Many things must be fundamentally and structurally wrong with an economy to presage a downturn in the Dow. And they are: 1) Unemployment spirals upward. 2) Bankruptcies occur at alarming rates. 3) Interest rates rise. 4) Real estate markets begin to crumble. 5) Auto sales start to collapse. 6) Office vacancy rates climb. 7) Advertisements to sell businesses begin to clog the classifieds. 8) Same-store sales for multi-location business begin to fall. 9) Gold and precious gems rise in price. 10) Public confidence turns negative. 11) Help wanted ads taper off. 12) Capital spending wanes. 13) Sales tax collections (state and municipal) turn down. 14) Dog and marriage license applications decline.
However, when two or three of those items become blips on our economic radar screen, the Federal Reserve launches into a fusillade of cautionary warnings and financial newsletter writers tell us that we are heading for disaster. Others climb on the bandwagon with explanations that we are spending too much, we are saving too little and the non-accelerating inflation rate affects the equilibrium of our economy. Then the talking heads on TV — the rip and readers, as they're called — pile on.
Those who listen to this stuff get the megrims, the fantods and loose bowels. They pull their money out of the stock market and then pull their hair when the market moves back up. That's probably what you will do. Most investors who get out of the market anticipating a crash fail to get back in as it moves back up.
So if you want to participate in a 23,000 Dow or higher, you should always be fully invested, resist ascribing long-term consequences to short-term events and never make investment decisions based upon an "expert" economist's forecasts. I don't care for economists, most of whom drive Volvos, use after-shave lotion that smells like Juicy Fruit, wear shoes that squeak even when they're standing still, have handshakes that make you feel as if you're gripping a glove of Jell-O and are reluctant to reproduce. The economists I know are lousy investors and lack a sense of humor.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.