Kaplan predictions today: DJA VU ALL OVER AGAIN
THE MOST DANGEROUS GAME: PREDICTIONS.
D.J.I.A. short term will be ????
D.J.I.A. November 23, 1998 will be 7000, made April 1998
D.J.I.A. July 2000 will be 3000, made September 9, 1998 **NEW**
D.J.I.A. April 2001 will be 4000, made September 9, 1998 **NEW**
D.J.I.A. in the year 2003 will be 1500, made September 9, 1998 **NEW**
D.J.I.A. in the year 2008 will once again be 1500, made September 9, 1998 **NEW**
Comments: The above predictions were originally ridiculed as far too bearish; now they are laughed at as too bullish. Those who bought long-term puts based on my numbers and vacationed in Bora Bora did the best.
Spot gold October 5, 1998 will be $296, made September 8, 1998
DJA VU ALL OVER AGAIN
--In the 1929-1932 stock market collapse, one of the primary reasons for the extended plunge was that investors bought shares on only 10% or 20% margin, so that a moderate decline wiped out their entire investment, and triggered a chain of margin calls that continued to depress the market until stocks were trading at nearly a 60% discount to historic mean value (equivalent to about 1200 for today's Dow Jones
Industrial Average). In 1998 investors are required to put up 50% margin, and most open-end mutual fund participants have bought their shares with 100% cash. However, this requirement only applies to individuals; hedge funds, brokerage houses, banks, and other professional traders are still able to buy shares on 10% margin
or even less, depending upon the risk tolerance of their clearing houses. Since such a large percentage of the money managed today fits into this category, the triggering of margin calls is already causing a similar effect. The fact that the stock market could not rally on Wednesday after an impressive up day on Tuesday underscores the
fact that many hedge funds and brokerage trading departments are teetering close to amassing serious red ink, or outright bankruptcy, and must use every rally in the market to sell in the hope of salvaging their business. This is analogous to a large crowd of people trying to exit a room where there is only one door and the smoke is spreading rapidly. The number of respected brokerages which are suffering enormous trading losses is growing daily, and this only reflects those which are honest enough to admit their red ink. It is virtually certain that several respected names on the Street are not going to survive the bear market. As these brokerages go belly up, whoever assumes their remaining assets will be forced to liquidate them, further depressing the market, as most mutual funds are
fully invested and in a period of net redemptions cannot afford to purchase shares even if their fund managers believe they represent good value. At a critical point the average investor will have a net loss on his or her stock holdings, which historically is the point at which individuals will exit the market en masse, as in 1931 and 1974.
Although I had thought that this would take nearly a decade, I have since revised my time projection by half. A long-term double bottom is historically the most likely scenario. Because of the cascading sell order pressure, I have reduced my official Dow bottom target from 2000 to 1500. The greatest point drop should occur in 1999 and early 2000 as stocks initially regress to the mean for a resting period and probably an election-year bounce in the second half of the year 2000 before resuming their decline. The largest percentage loss is most likely to happen as the bottom is approached in a final selling climax as the Dow goes from 3000 to 1500 (or less). Look for the Dow to
first hit 3000 in the year 2000. Of course, there will be sharp short-term rallies now and then, such as when interest rates are lowered or pessimism becomes temporarily extreme (the strongest short-term rallies in U.S. history were during the darkest Depression days), but the cascade of sell orders heavily hitting these upward moves will prove decisive. |
