Sunday, 12 February 2012
Barrons (Siegel/Epstein): Dow 15,000
Gene Epstein had this week the honour to write the cover story of Barrons. As usual he had something bullish to tell: Enter the bull; Dow 15,000.
For this forecast he leans on Siegel (writer of Stocks for the Long Run). He has, as is so often the case vexed the numbers of the S&P500 since 1871. After cycles of five year with disappointing returns you normally get good returns. That is now the case. Epstein/Siegel see with 2/3 probability the Dow rising above 15,000 in the coming two years and with 50% probability above 17,000.
Siegel thinks that will be possible even when you get almost no profit growth. The big sorrows (the Euro crisis and the American fears for a recession) will gradually diminish. Siegel thinks 10-15% rise of the S&P as too pessimistic, he goes for 20%+.
These forecasts are not at all very optimistic (when the consensus is right at 15,000 the PE will only be 12.8), but lots of people will use the cover of the Barrons and say that you have to go short based on the contrarian cover theory (when something is at the front page of an important journal the trend is at its highest point and will go in the other direction; so now the Barrons is overoptimistic and that has to be punished by the markets).
Dow 15,000 is a quite modest target. We have had bestsellers with Dow 36,000 and 100,000 at the cover. Because since then the Dow has plummeted nowadays everybody is too much of a coward to impress with a Dow at e.g. 25,000 or 50,000 in 2018 even while that is possible. For 25,000 you don’t need much, only about the current profit margins, continuing implementation of innovations and nice growth in the Emerging Markets.