By CCN.com: A break-neck rally in the Dow Jones has the bullish analysts leaping back out of their hiding places. Perhaps the most outlandish call came from Yves Lamoureux, who believes the Dow will skyrocket to 40,000 within two years, only to languish there for an entire decade.
“It will be what we call a ‘generational top’, where the Dow will climb to 30,000 then 40,000 as an eventual high, but then plateau for a decade.”
When looking at Lamoureux’s forecast, it’s obvious this we have an uber bull on our hands. The analyst goes on to laughably suggest that he is the only one looking at investor psychology.
“What I’m expecting…is another big move, in which people really go nuts. That’s what’s kind of missing here. What separates me from everybody else is we study psychology, and what I find particularly odd now is there has been a very big flight of money out of stocks to bonds.”
Frankly, when you consider the fundamentals that have pushed the Dow higher over the last decade, it does appear plausible that the index can continue to rocket higher.
As long as you don’t look too closely.
You can’t deny that the bull case is solid.
First, you have abysmally low yields on cash deposits. You can’t make any money with a bank account, so investors have to seek riskier assets. Because everyone else has to dive into equities as well in search of yield, direct investment in stocks becomes the only game in town. This creates the famous “bubble effect” that people love to discuss.
Now add in the fact that the US economy is booming. The Eurozone’s gone nowhere, and money has fled from the second largest economic area into greenbacks. We now have a desperately weak euro, a strong dollar, and a Dow Jones that has blown through the roof.
Here’s the cherry on top: The second largest sovereign economy (China) has tons of freshly minted billionaires desperate to get their money out of China, and where do they put it? Into the US housing market, of course.
And yet, despite these factors, the Dow Jones has moved virtually sideways over the last year.
The RBA in Australia just cut interest rates, and many are clamoring for the Fed to do the same. If the market priced in all the positives mentioned above to get to 25,000, then there is no chance of getting to 40,000.
In fact, as the prospect of a socialist backlash grows in late-cycle capitalism, the “lost decade” might already be upon us.