Berko: No predicting where market is headed
By Malcolm Berko Taking Stock February 1, 2013 6:16PM
Updated: March 4, 2013 6:18AM
Dear Mr. Berko: I am convinced the Standard & Poor’s 500 index is headed to 1,600 or higher this year. I’ve completed these (enclosed) detailed calculations, concluding the S&P 500 will earn $107.42 and trade at 15.1 times earnings. Then, by extrapolating those numbers, I place the Dow Jones industrial average at about 15,864. My calculations agree with the top analysts at Goldman Sachs, Citigroup and Bank of America, each of whom believes that the S&P will top 1,600 this year. You did not present your usual forecasts for 2013, and I’d like to know whether you agree with our projections.
Dear GH: You conspicuously used the words “our projections.” Am I to conclude you’re collaborating with Citigroup, Bank of America and Goldman Sachs, three of the deadliest snakes on Wall Street? I’m not making a prediction for 2013 because I can’t read the tea leaves as clearly as you and those fiends. But thanks for your mathematical constructs, which are too impressive for my linear thinking.
Your numbers may be on the mark. I remember when growing revenues and earnings moved stock prices higher. Today the primary reason for higher prices is that the Federal Reserve is engorging the economy by purchasing $85 billion of Treasury bonds and mortgages every month. This roaring influx of cash into the banking system has flooded into the stock market, precisely what the Obama administration and “Helicopter” Ben Bernanke ordered. They figure that a rising market will give business and consumers enough confidence to spend and grow our gross domestic product by 3 percent or more in 2013. The Fed believes that it can inflate the economy to health, thinking that rising tides lift all boats.
So it continues to create more money, knowing that if the printing presses stop, the economy will sink (think of bailing a leaking lifeboat) into a double-dip recession.
Helicopter Ben and the administration recognize the following nine things: 1) Consumers account for 71 percent of our GDP. 2) Consumer debt has reached record numbers and is perilously high. 3) New jobs are paying less, and most family incomes are lower today than in 2007. So except for taking on additional debt, American families have little spending room left. 4) This economy is facing a social crisis, a debt and tax crisis, a congressional crisis and a Social Security, Medicaid and Medicare crisis. Municipalities are teetering. Our infrastructure is in stages of serious disrepair. Real unemployment is more than 10 percent. Pension plans can’t keep their promises. And our welfare system is dangerously wobbly because of an inexorable public demand. 5) It’s becoming apparent that the costs of Obamacare will begin to bankrupt the economy in 2014. 6) Our largest trading partners, Europe and Japan, are in a recession, and China is floundering. European workers are hurting; their income and safety nets are imploding, causing U.S. exports to decline. 7) The administration won’t pull out of Afghanistan because returning troops would swell unemployment numbers. 8) The Middle East, a trouble spot for 5,000 years, may erupt into a major conflict. 9) Solutions to avoid the fiscal cliff will be temporary and political rather than economic and permanent. This cowardly behavior shifts the problems to the next administration.
Helicopter Ben and the administration know that falling stock prices would devastate consumer confidence and that voters will stridently blame Congress for the economic mess. So they continue feeding new money to a sick economy because the economy can’t feed itself. I doubt that this feeding frenzy can stop. Therefore, I believe that the averages could rise to your numbers. At some point, these trillions of new dollars will inflate our currency such that a 15,864 Dow Jones industrial average will be a 9,000 average in current dollars. That’s very scary!
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.