Tuesday, March 10, 2009

70s Re-Run - Revisited

After just 30 days, Obama's team has managed to lower the likely bottom for the S&P to 666, forcing us to re-visit the best-case 70s scenario (the 30s scenario is still possible, but only if we (1) significantly breach Friday's low on heavy volume and (2) introduce major new government interventions into the mix, chasing yet more capital out of the markets). So I've updated the cut-and-paste chart with the latest from Dennis Short's excellent website and the result is striking:

Bottom line (if this scenario plays out): expect to see a whipsaw around the "old" bottom as we go up sharply heading into the fall, and look for peak unemployment to hit 11% by fall. At best we're going to plateau and eventually kiss 1000 again briefly next year before sliding back to the low 700s in 2014 when a brief recession creates a double-bottom. Exiting that recession we'll see a promising recovery cut short as our old friend stagflation takes hold, creating a final bottom in 2017 somewhere in the mid 600s. Buy at the peak of fear in 2017 and you'll be richly rewarded in the bull market that follows, which might finally surpass the 2008 market peak sometime after 2020 and the 2000 peak by 2025.

BTW, here's the original post