QUESTION:
Hi Mr. Armstrong,
You have said that the Dow could reach 40,000 by 2032. That is a compound annual growth rate of 4.94%. Is that even enough to rescue the pension funds, or are they doomed regardless?
Thanks,
MB
ANSWER: No it is not. The projection of 40,000-42,000 is a NORMAL projection, and not the extreme that you would see in a Phase Transition bubble. The value of the currency will also decline by that time. The dollar is strong and will move higher AFTER the crisis manifests in Europe and Japan. Then the dollar will decline. Yes, there could be a Phase Transition where the Dow is at 100,000, but a can of Coke might be $5 as well. Everything is relative. People hear projections and think they will be rich. If you sold your gold in 1980, you never reached the purchasing power of that sale in 2011. So in real terms, you were better off selling gold in 1980 and shift to stocks. The Dow rose from 1,000 where we are today. You have to look at everything from every direction – currency & inflation.
We are setting up our Asset Allocation Models on the Institutional Site that are designed to beat that problem by looking at the complexity globally and correlating that back to reality reflected in each entity;s base currency. Understanding the global flows enables you to avoid getting involved in things like gold and Treasuries that seem to be in a race to see who can reach the bottom of the barrel faster. Just looking at our US bond index demonstrates that if you need income, stay away from bonds..
