Last week we saw the unlikely headline blazing across the airwaves that the Dow Jones Industrial Average had hit 20,000 for the first time in history. Soon after the record was broken there began a massive selloff of stocks leaving many to speculate about the future of the market and whether it was a flash in the pan. And unsurprisingly the naysayers jumped in front of the cameras to decry false flag confidence in a new White House run amok.
But there’s much, much more going on here than simply a market responding to the political intrigues du jour. That there was a selloff of stocks was nothing more than investors taking profits on the massive growth in stock prices. And there was plenty of profit to be had. This happens nearly every time we see a steep peak in the market. And of course the same thing happens in reverse when we see a massive downturn in prices: a buying freezing while stocks are “on sale.”
I have a bold prediction to make: the Dow will hit another massive record of 30,000 within 24-36 months. And here’s why. The fundamentals underlying the growth of the American market have far less to do with the change in administrations and quite a bit more to do with what’s happening in the global financial system. That Donald Trump’s policies appear to the average investor to portend growth in GDP is merely gasoline on the fire.
So what’s the fire? Take a look at what has been happening for several years and increasingly so in the last couple. China and other major players in the Asian sector are buying up American assets as fast as they can. Why is that? And investors in the Eurozone are doing the same thing. Meanwhile, foreign money is flooding into American funds to such a degree that fund managers are scrambling to find investment vehicles for those dollars in order to hit their required ROI numbers. All of it has a single explanation.
Both the Asian and European sectors are drowning in national debt and are on the brink of insolvency. The Chinese stock market dropped more than 40% just last year. And Japan is upside demographically and cannot manage its national debt. And with Brexit as the cherry on top, the near bankruptcy of Greece, Italy and Spain is threatening to drag down Germany and France beyond recovery. This means foreign investors are fleeing those markets for higher ground in the U.S.
That global reality more than any one factor is what’s driving the Dow and other indices up and up. And since there’s nothing on the horizon that might forestall the continued fall of the Asian and European markets, investors will continue to move money into the U.S. markets.
What this means is that money will continue to seek new investment opportunities in much the same way it did in the early to mid 2000s when low interest rates made debt very cheap. And those new investments will fuel additional speculation and growth in virtually every sector.
Between now and the mid-term elections, we should see very high peaks and relatively low valleys as stock prices continue to move toward record levels again and again. It will not be a straight line up to these records, as there will be volatile swings- especially as our new president and the Republican houses call for and drive significant change. As with all change, there will be big winners & big losers. Therein both bulls & bears should find quick-hit, BIG profit opportunities buying shares of stock or call options and selling stock short or buying put options. Those positioned for such volatility should do really well… even on the seemingly (market) down days.
Of course global instability — a major terrorist attack, for instance — could always threaten and delay the march to new records… and bring their own volatility into the markets. But global megatrends like this one are difficult to derail. And that means huge profits are in store, both on the rise and on the fall of the prices as we climb evermore toward DOW 30,000.
–Mike Galiga
Mike would love to hear from you, including the investing & economy topics on your mind right now (so he can address them in upcoming articles). Email your thoughts or questions directly to him at: [email protected]
Stock & options trader Michael Galiga’s trading expertise is built atop a confluence of unique life experiences: working with Sam Walton (yes, that Sam Walton), piloting Cessna turboprops, being a Major in the USAF Auxiliary and graduating law school with only $11.70 in hand. From humble beginnings to American dream successes… in bull, bear & flat markets… he’s seen- and done- it all. He’s cultivated his impressive stock & options-trading skills on a unique blend of fundamentals & technicals, plus a generous layer of the wisdom-driven art of trading to grow the wealth of his followers.
