The first part of this article looked at two very bearish predictions for 2012, however, this article presents two much more bullish opinions.
Christopher Channer: “Dow to reach 20,000 in 5 years”
Mr Channer is proprietor of Channer Investment Management in Inverness, and he is famed for correctly predicting that the Dow would reach 10,000 in 1999, a prediction he made in 1990 when the Dow was around 2,800.
Channer now believes the Dow will reach 20,000 in about five years. In an interview 21 January Mr Channer said “I could probably go up and down the street and draw a crowd by talking about Dow 20,000. But there’s no mystery about it. I’m just particularly aware from experience that you can do a couple of mathematical calculations” and arrive at an informed guess.
His prediction is based on assumptions about earnings growth and the markets reaction to those earnings. He reasons that the Dow will probably trade at an average price-earnings ratio of 15.4 over the next five years, and over the same period he calculates a 30% increase in the earnings of the Dow 30 stocks. The Dow members are estimated to generate $1,000 in earnings this year. A 30% increase takes it to $1,300. Multiply that by 15.4 and you are at get 20,000.
Channer notes that even though stocks went nowhere from 2000 to 2010, corporate profits grew substantially. In a note to clients, he said IBM made $4 a share 10 years ago, vs. projected earning of $14 a share this year.
As the Chicago Sun Times reports, “Channer is a steadfast apostle of established companies that are growing steadily but trading cheaply. It’s his way of exploiting the greed-or-fear pattern that can rule everyday trading. More people need help in looking beyond market cycles, Channer said. It puzzles him that today’s homebuyers [in the US] understand they are getting a good deal from depressed prices, whereas stock investors are seldom so positive in bear markets.”
Byron Wien: “S&P 500 to exceed 1,400 & Oil Falls To $85 A Barrel”
For each of the past 27 years, Byron Wien, Vice Chairman of Blackstone Advisory Partners, has issued his list of Surprises for the coming year. This year’s list, published 4 January 2012, is pretty bullish. Wien expects earnings for US companies to continue to improve “driving the Standard & Poor’s 500 above 1400.”
Another prediction that is bullish for the global economy is that of lower oil prices. Wien writes, “The extraction of oil and gas from shale and rock begins to be a game changer. The price of oil drifts back to $85 a barrel and the United States becomes less dependent on Middle East supply. Deposits in Poland, Ukraine and elsewhere prove promising as well. Increased production from Libya and Iraq and reduced demand resulting from the slowdown in world-wide economic activity contribute to the price decline.”
A fall in the price of oil from today’s $98 for WTI ($111 for Brent) would provide significant stimulus to the global economy, helping to lower inflation and taking some of the pressure off consumers and businesses. Personally however, I don’t share Byron’s optimism where oil is concerned, however I think his call in the S&P will likely prove too pessimistic.