Sunday, August 12, 2007

Dow predictions revisited

I wondered recently about the growth of the Dow relative to the FTSE since 1987, and speculated that it could fall by anything up to 50%. David Tice of Prudent Bear thought the same back in May, so maybe I'm not crazy.

Robert McHugh in Safe Haven predicted on 9 July that the Dow could be heading for 9,000 points, "although if the PPT responds by hyperinflating the money supply, it could be 9,000 in real dollars (gold adjusted), not nominal." The London Gold fix on Friday 6 July 2007 was $661.25 and the Dow at close on that day was 13,649.97, i.e. 20.64 times the gold price per ounce. Dropping to 9,000 as defined would mean a "gold multiple" of 13.61 times, or a 34% relative reduction in share prices.

Perhaps it could happen as a combination of nominal share price reduction, and a devaluation of the dollar.

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