DOW 6000 Revisited

Earlier in the week I wrote about the DOW hitting 6,000 before the end of the year.  For most that is not only unthinkable but it is downright horrifying.  But is it realistic and within the realm of possibility?  Let’s look at the numbers.

In the past 12 months the DOW has plummetted a head-spinning 40% from 12,381 to today’s close at 7,365.  So far this year the DOW is down 18.5% in the first seven weeks of trading.  That means if there were no further decline, the DOW would have to have a 23% return to get back to the level of January 2.  But what if the DOW continues to decline?  The trend is indeed established to do so, despite any loose optimism about bailouts and stimulus packages.

If the DOW drops 30%, that would bring it into the neighborhood of 6,325.  To recover to the level at the beginning of 2009 it would have to rise 43%.  Absolutely not going to happen in this economy.  For the DOW to dip below 6,000 it would have to decline by almost 34% this year.  But what if it declined by 40%, as much as it has in the last 12 months?  That would bring it down to about 5,400.  It would take an unprecedented return of near 70% just to get back to the DOW average of 9,034 at the start of this year and an unbelievable and unattainable 130% return to get back to the level of just 12 months ago.

This is why I got out of the investment business in 1999.  I saw this coming and I warned every client.  Those that took heed, are not complaining.  Those that did not, have lost small fortunes and retirement dreams.  If – and I emphasize “if” – this economy recovers, it will not be measured in weeks, months or even years.  It will take decades of prudent and wise leadership in all sectors and an American populace willing to sacrifice for the good and survival of the country.  So far, I do not see much of that in any arena.


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