Two Bearish Predictions For 2012

Joe Granville: “Dow to fall 4000 points in 2012”

In a recent interview on Bloomberg television, technical analyst, and author of the Granville Market Letter, Joe Granville, made an argument for a 4000 point drop in the Dow during 2012.

Mr Granville, who was named the number one market timer in 2011 by Timer Digest, bases his forecast on the combination of three market indicators: momentum, price, and volume.

Mr Granville begins by explaining that momentum peaks before the Dow, and that momentum actually begins to fall while the Dow is still rising. He then goes on to explain that in 1961 he discovered that volume also precedes price, and that trading volume today is at its lowest level since 2008.

It is this “Triple Whammy” that tells him that the Dow is in the process of peaking and that it will shed 1000 points every quarter to end the year 4000 points lower at around 8688.

Harry S Dent: “S&P 500 to Drop 30-50% This Year”

In another recent interview on Bloomberg television, author and newsletter writer, Harry S. Dent, put forward his argument for a 30-50% drop in the S&P 500 index during 2012.

His thesis is based primarily on demographics, more specifically on peak spending among the baby boomers. In the interview he explains that the baby boomers had been increasing their spending until 2007, after which it reached a plateau that lasted until 2011. He now predicts that this spending will begin to decline as the baby boomer’s children leave the family home and they begin saving for their retirement.

Dent has been using demographics for 20 years and while he admits that they are not exact, he said that people’s spending falls dramatically from age 50 until death, and that the last time this spending decline occurred was in 1968 through till 1972.

Dent is essentially a consumptionist and as such he believes that boom-and-bust cycles are driven by consumer spending – which in the US account for around 70% of GDP – and that as the spending of those born between 1946 and 1964 declines, so will the economy and the stock market.

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