Will 2011 Be The Dow’s Best Year Ever?

By: Barry_M_Ferguson

Could it be? Will it be? I haven’t been this giddy since 1999. Of course, I’m all jacked up on POMO and TOMO and QEs. But think about it. The Dow is already up about 2% for 2011 and January is only half over. If the Dow could go up 4% every month, it would be up 48% on the year. Certainly our Ruler of all things bubbly and bubblicious, Mr. Bernanke, will over shoot a few months and push the Dow up 6% or 8% on some months! What? What’s that? You haven’t heard that the stock market was captured in August of ’07 and it is now the sole contrivance of the wealthy to amass more wealth? What’s that? How are they doing it, you say? Well, first the super wealthy had to take the helm of the world’s largest economies.

They did that by putting the dumbest people they could find in political office and then creating a seemingly horrendous economic event so the dumb people would hand over the keys. The super wealthy have this thing called a printing press and it can conjure up money at the snap of a finger. They say it can cure the cuts, heal the hurts, bandage the bankrupt, fix the foreclosed, and straighten out the stupid. Seems no one knows how the contraption works except that Bernanke fellow and when he tickles that thing - magic happens! So now the Federal Reserve is running the whole show.

The stock indexes are theirs and they want to make sure the super wealthy get super-er wealthy-er. Trouble is, the world’s economic machine is running like an 1974 Chevy Vega with a hundred-thousand miles on it. The economic machine is not generating wealth. Neither is its ‘American Motors Pacer’ cousin, real estate. So, all the wealthy have left is the stock indexes. And, since the super wealthy put, and keep, the bankers in power, the bankers have to make sure the super wealthy are taken care of really nicely. I believe I read a stat that the top 10%  in terms of wealth own 90% of all stock. If that is wrong, I would love to be corrected. What they all need is a really good year from the stock indices and maybe they would then own 95% of all stocks!

The best year ever for the Dow was 1915. The Dow was up 81%. Coincidentally, that was one year after the birth of the Federal Reserve. Even more coincidentally, that was one year into WWI. The second best year ever for the Dow was 1933 as the Dow was up 66%. Coincidentally, Americans were losing their homes in droves in those days. Even more coincidentally, small banks were imploding like super thermite coated buildings. In case you are wondering, the third best year ever was 1928 with the Dow up 48%. So, it is easy to see that we have a chance for a historically good year in stocks this year, 2011. Why should we be confident?

It’s the Federal Reserve, silly! They have the money machine. The citizens are either doped or dopey and the people’s Congress remains stupefied in a state of catatonic cognition. Thus, the Fed rules supreme! They can do whatever they want without challenge. And what they want is quantitative easing.

Now that we know what they want, we must extrapolate where they want to go. I have included the chart below for a roadmap reference. The chart is the Dow in candlestick and the USD (US dollar) in green since September 1, 2010 (the beginning of QE2 and its announcement). The chart is a weekly look at how the Fed’s program has progressed. And yes, it is a thing of beauty. Four months and two weeks of trading and there have only been four, count them - four, down weeks. And, only one of those weeks was even the least bit painful. Of course, the dollar has to lose in order for the stock indices to gain. Check out the chart and imagine another eleven months of this pattern! Yes, we may indeed experience the best year ever in the Dow this year! QE2 will wind down in June. I can’t wait for QE 3! The Fed will be buying municipal bonds, stocks, Treasuries, and everything else to make the Dow rise. Heck, Bernanke himself might start calling each of us to make us a premium offer on stocks we are holding!

Chart 1 - DIA in candlestick, USD in green - since September 1, 2010
Chart courtesy StockCharts.com

The only thing even restraining gains on the Dow has been concerns over corporate earnings. Ha! I like to include jokes so readers don’t get bored. No really, investors have been concerned about the continued trouble in real estate. Ha, ha - that’s another good one! No one cares about anything because the Dow is no longer based in reality. It is now simply an indicator on a ‘Ring the Bell’ carnival game. The Fed has a monetary mallet that they use to hit the pivot board. However hard they hit the board, the indicator reacts accordingly. Along that line, this past week was witness to a bit of nervousness over the fate of Portugal’s bond offering. You know the story. Portugal is just one more in the succession of European sovereign (or as I prefer - pseudo sovereign) nations that can no longer pay their bills. They are carrying on the American way - they are going to borrow their way to prosperity! Of course, no one wants to buy junk debt at single digit interest coupons so Japan and the ECB generously offered to absorb the rancid bonds. And of course, just like every other bankrupt nation, Portugal vehemently denied needing a bailout.

Really - they did!  Well, I guess they were right - they were already getting a bailout. But the debt was ‘well received’ and the investment world took the news like it takes all news. Bad news is ‘good news’ and good news is ‘better news’. So, Portugal’s debt is solved just like Greece’s and Ireland’s. It’s time to rally, rally rally! Ta-da! I think I am starting to like the ECB. I think I’m starting to like quantitative easing. I think I would like to see the best year ever in the Dow! I think I am even starting to like Ruler Bernanke! The way he shakes his POMO is a real turn-on!

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory
barry@bmfinvest.com
www.bmfinvest.com
www.bmfinvest.blogspot.com

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

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