Dow 3700, $3,500 Gold, $300 Oil - Enough Already 22 comments
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I'd like to just highlight the absurd lengths media outlets will go to in order to get a page view. Some of the headlines I see on prominently placed links just force you to click through and see how this dire prediction could possibly occur, only to find some unsubstantiated, hypothetical example outlining where things might go if the perfect storm occurs. I wonder how much of the current economic malaise is actually due to the media's frenzy to run with the most sensational, shocking prediction in a game of one-upmanship. Remember the days of Dow 100,000 and Nasdaq 10,000, etc. The predictions were becoming more and more stupid as the media and investor euphoria deepened. I actually felt dumber after having read some of this material.
$300 Oil
This article was prominently featured on CBSMarketwatch's home page and drew over 600 comments. This ex-trader cites the contango and economic recovery as justification for this rather absurd prediction. He makes this rather nonchalant prediction - it's elementary, right?
Any economic recovery results in higher energy prices -- it's elementary. That means $300 crude oil could be one year away or three years away, but certainly not much more.
I'm sorry, but contango doesn't result in an 8x move in a couple years. And if this were so elementary, oil wouldn't be constantly teetering at $30-$40 per barrel. This prediction is just silliness and sensationalism at its best.
$3,500 Gold
This video made the front page of TheStreet.com touting $3,500 Gold. The guy in the video cites the emergence of ETFs (news flash, they've been around for some time now) and low interest rates (investors have figured this out already) as justification for his prediction. But there is not a single iota of quantitative justification for his assertion. The $3,500 could just have easily have been $35,000. Why not print an article entitled, "Gold to hit $35,000 per ounce!". I'm really surprised by the lack of evidence for an assertion on the website brought to us by Jim Cramer (yeah, right).
Now, there is an Exchange Traded Note (ETN) for gold that's been up over 400% in the past month while the actual price of gold has only risen moderately during that period and nobody seems to have quite figured out what's going on there. But that's got nothing to do with a run to $3500 gold. It's an instrument gone wild the likes of which I've never seen...and I don't expect it to last.
Dow 3,700
This article is on CNBC's homepage touting a Dow 6000, with a possible drop to the next support level between 3,700 and 4,000. To put things in perspective, the Dow last traded at 3,700 in 1994. We're currently at 1996 levels which is pretty shocking, so perhaps an extra two years back on the clock isn't too far fetched, but I think enough's enough.
Some Sanity Out There
At least this trading video hit most of these trends right - recently called continued move downward in US equities. I've been following these for some time now and I can't argue with the accuracy/quantitative support provided for predictions. And the best part is, they're free just for signing up!
Warren Buffett recently took some accountability for his lousy timing last year, which resulted in the worst year in the company's history and made an interesting analogy to the female anatomy in this article. He makes some predictions I can't disagree with, but overall, he doesn't view the world as coming to an end.
"...major industries have become dependent on federal assistance...Weaning these entities from the public teat will be a political challenge. They won't leave willingly"
You've got to love the media. Remember when parents had to pick through Halloween candy and apples each year even though there had never been a single documented case of "candy sabotage" in US history? Remember all the bans on using cell phones near gas stations and some states' attempts to actually impose fines and prosecute reckless barbarians from blowing up the gas stations - even though there has never been a documented case of a cell phone igniting a fire or explosion in the presence of gasoline?
By the way, did my title get you to click on this article?
Disclosures: I am long gold via ETFs, I have no position in oil and I've been shorting Treasuries as outlined here.
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Yes, your title did get me to click on the article. And I enjoyed it a lot. The amount of silliness that is being thrown around in all media is simple amazing. Just like sex, doom and gloom sells. Hope their increased TV ratings or pageviews will translate into higher revenues. Otherwise it would be such a waste.
Kevin Kerr's "oil at $300 within 3 years" makes me question Marketwatch's editorial policies, and also the viability of the investment fund he manages (mind you, I don't mind a radical prediction - i oppose radical predictions without any rational support). Looks to me like someone with nothing to say being given a pulpit by an enterprise with no editorial policy - possibly so that person can get out of some bad energy plays during a mini-rally. This sort of story cheapens all the other stories on MW.
Daryl Guppy's "Dow 6000" story is somewhat less disturbing. I think all chart-based forecasts of support and what-not aren't really forecasts at all, but just helpful rules of thumb for setting sell-stops and limit orders. Suggesting "support at 3700" is interpreted in my head as "set lower sell stops for whatever money I still have invested."
As for the gold story...hmmm...well, these sorts of videos strike me as a modern day equivalent to streaking.
How about $1000 gold when it was $300 a few years back?
How about Dow 6000 in September '07?
These predictions don't seem so absurd in hindsight, do they?
A Dow/Gold ratio of 1:1 is not out of the question. It happened in '81. It regularly gets down to 2:1 or 3:1 during garden variety recessions. You don't think $300 oil is a possibility? A time frame like 10 years might make more sense, but does it always make sense?
I remember a year and a half ago when people were making predictions about Dow 7000 or Dow 5000. People scoffed- and then promptly lost 55% of their retirement savings watching these predictions come true.
These levels would feel very painful, but they hardly represent the end of the world. They are really just a return to rational pricing within historical norms.
If you play near the edge you do not have any room for error. The world is full of error.
On Mar 04 10:41 AM xsellside wrote:
> Outlier predictions can make for excellent contrarian indicators,
> imho.
Back to oil, I do not know the price of oil in 10 years, but in the next 6 month it is more likely down to 25 $ than 60 or 70 let alone 3 digits.
We are heading to 10% unemployment, less driving in generell , more fuel efficient cars etc. Look to Germany, they just started a bonus for buying new cars and scrapping your old one. Huge success, but all the new cars are small one's 40 to 45 mpg. So where is
On Mar 04 11:52 AM Larrysyr wrote:
> My broken crystal ball says the S&P 500 could fall further. It's
> at a P/E of 10-12 right now, and that is not historically low. Assuming
> earnings remain at their 2008 levels, which is unlikely, we could
> see another 20-30% drop, which would bring us to S&P 500-550,
> DOW 5000 or so.
>
> These levels would feel very painful, but they hardly represent the
> end of the world. They are really just a return to rational pricing
> within historical norms.
The claims of $300 oil, $3500 gold and 3700 are not one-offs. I have seen many people claim close to these numbers. And they back up their arguments with sound reasoning. I didn't always agree with their reasons, but at least they had them. Which is a whole lot more than you have. All you are doing is trying to create a sensational article to try to get people to click on it.
(And no, the title did not get me to click. The fact that it popped up under GLD is why I clicked.)
I don't argue that any of these are actually possible. But, if you click through and check out any of the articles I referenced, the logic and evidence used to support such a sensationalistic headline...completely lacking.
At least the Dow 3700 had some technical analysis, which was the least offensive. But the other two were wretched!
Same with the gold story; the DOW 2500 story is, as I said, somewhat forgivable, since they're not projecting the Dow wil lactually fall so low, but merely calling "support."
On Mar 04 10:41 PM everyday-finance wrote:
> I don't argue that any of these are actually possible. But, if you
> click through and check out any of the articles I referenced, the
> logic and evidence used to support such a sensationalistic
> headline...completely lacking.
And the problem is that folks who are critiquing the articles saw the numbers and never bothered to look any further. And in this, one has a demonstration of the sort of investor reasoning that drove multiple bubbles of late.
Yeah, it's pretty ludicrous for people to make dire economic predictions considering what a booming economy we have.
Longer term, on a timeframe more like 5-10 years, there are some good arguments as to why such prices may occur, the writings on for example theoildrum.com provide good arguments for that.
Gold at $3500, similar situation. Near term, very doubtful. What about longer term? We will have $2 trillion per year deficits, if one believes that will NOT revive the economy then Obama's claim that the deficits will go down won't pan out, especially not with a Congress that is like a kid in a candy store insofar as the economic downturn providing a rationale for pursuing their social spending wish list to the extreme.
With $2 trillion per year deficits, I believe the US dollar will be losing about 10% of its value per year. Of course, it will be somewhat difficult to quantify because you can't use other currencies as a benchmark, they also are likely to be greatly devalued in the coming years. The best gauges are probably money supply and precious metals.
If the dollar loses 50% of its value in the next 4-5 years, then nominal value of gold will be about $1800 US dollars. Of course, it has some volatility relative to the US dollar, so fluctuations might carry it down to $1200 or up to $2500 or so.
What about the subsequent 5 years? If we have not succeeded in printing our way into prosperity, i.e. if the economy is still in the dumps, one could argue that the public will not tolerate the economic authorities squeezing the economy with higher interest rates in order to stop the rampant inflation. If the inflation continues unimpeded, then the dollar could lose yet another 50% of its value in the next 5 years.
Thus, for gold to be straddling an equilibrium value of US $3500 10 years from now is quite possible.
I'm not saying that is a likelihood or a certainty, but it is a highly plausible scenario.
However, I think the author is right as far as those high predictions for gold and oil are implausible in the time frame that was hypothesized.
They won't be at that level in 3 years. They may possibly be at those level in 10 years, however.
As to the Dow, who in the heck knows. 3700 hardly seems implausible considering the dow has already had a greater than 50% drop and the economic downturn is still intensifying. However, just like with the other predictions, the author is right that there should be some rational argument made in support of predictions, they shouldn't just be a means for someone to get publicity.
On Mar 04 12:21 PM NanO49 wrote:
> The sky is falling, the sky is falling! ;)
China eyes SDR as global currency to replace dollar
03.23.09, 07:14 AM EDT
SDR was initially defined as equivalent to 0.888671 grams of fine gold