Alternation of Cycles; S&P 500 Targets...
Hi Clive,
Your simple trendline chart of the Dow shows nicely the principle of alternation of cycles. Up cycles are expansion, increased inflation, and rising productivity. Down cycles are contraction, decreasing inflation or deflation, lowered productivity caused by misapplication of capital, i.e., gov't intervention. One cycle always follows the other as the corrective to each period. My forecast of a flat ranging market is indicative of the alternation. Confirming information is coming from S&P research:
"S&P 500 YEAR-END TARGET CHANGED: S&P’s Investment Policy Committee reduced its year-end 2008 target for the S&P 500 to 850, indicating an expected full-year decline of 42% from the year-end 2007 closing level of 1468. We initiated a year-end 2009 target of 1025. This projected recovery of 21% for the coming calendar year is well within the average rise of 38% for the S&P 500 during the first year of a bull market since 1945."
I believe their 2009 forecast is optimistic, but plausible. The key will be how the gov't intervention is applied or misapplied. It's been well documented that the FED caused the Great Depression of the 1930's. This time they're misapplying monies by monetizing debt and that can lead to a "lost decade" situation as Japan has lived thru. Evidence of this is appearing daily as the financial stocks keep declining and the flight to safety resumes.
In your analysis, you need to build in a "worst case" scenario especially for an equity only and futures investor. As in any casino, there are many games to play. Play the games with the highest odds of success.
Best, Tim
