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Paul Triolo, M.D.
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After practicing family medicine for seven years, I left medicine to become the owner/operator of a medical billing company. As an entrepreneur, I now represent the financial interests of the numerous physicians located in the northeastern United States. I also trade and give investment advise... More
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Express Claims, Inc
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  • DOW 4,000 or 40,000...Both are Possibilities! 1 comment
    Nov 10, 2009 8:14 AM
         Trying to decipher the ups and downs of the market in these turbulent times is enough to give even the most seasoned pros a major migraine.  As we reach for our bottle of aspirin, we must be brave enough to consider several possibilities for the major averages certain to exacerbate our condition.
         The first, and less likely scenario is that the major averages retest the lows last seen prior to the parabolic run up in the U.S. markets.  This area of support dates back to February of 1994 when the Dow Jones Industrial Average had its first close above 4000.  As we have already pierced the lows reached in November of 1997, September of 1998 and October of 2002, the 4000 level on the DOW appears to be the next area of major support.
    DOW Historic Chart

    Had it not been for historic measures of central government intervention and an explosion of our money supply, we would probably have already tested 4000 on the DOW.  As a result of these extraordinary measures, the unwinding of our equity bubble may take some more time to play out.

         The second, and more likely scenario is that our currency becomes devalued as a result of the intervention described above and that those multi-national companies deriving their earnings in foreign currencies will have more than just a small advantage when their earnings are converted to dollars.  Should a hyperinflationary environment develop in the U.S., the exchange rate would catapult the earnings of the DOW 30(NYSEARCA:DIA) companies exponentially higher since these companies have a large percentage of their earnings denominated in foreign currencies.  This “currency conversion to earnings” phenomenon would also be true to a lesser extent of the S&P 500(NYSEARCA:SPY) companies and may work in reverse for smaller cap companies (MDY and IWM) which have minimum sales of their products internationally and do not obtain significant revenues in foreign currencies. The chart below illustrates the inverse relationship between the DOW and the strength of our currency as reflected by the UUP.
    DOW vs UUP

    This second scenario is fraught with more uncertainty and possibly more peril as there are few historic parallels to compare the dominant superpower of the world entering a destabilizing period of hyperinflation.  The DOW may hit 40,000 but good luck buying a loaf of bread.
     

    Disclosure: No positions
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  • secretbonus
    , contributor
    Comments (27) | Send Message
     
    Look at the Nikkei, it went from 10k to nearly 40k no problem into 1989... no "weimar republic" needed. Nasdaq went nuts too without hyperinflation. Gold 1980 did too. You can have massive global capital concentration in a few strong areas in a short time that creates bubbles.
    30 Jul 2013, 02:03 PM Reply Like
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