New Predictions: The Dow will close 2012 up about 6% from 2011’s close of 12,700: and that would be at or about 13,450.

New Predictions: The Dow will close 2012 up about 6% from 2011’s close of 12,700: and that would be at or about 13,450.

“The broad moves of the market ultimately must reflect the economic realities or fundamentals on which stock prices are ultimately based. When all the noise subsides, stock demand a multiple of expected earnings in the market place, discounted for the perceived risk, and must compete with all other investment opportunities, bank CD’s, real estate, commodities, gold, private and personal investments, etc.

“Therefore, the long run stock price movements should reflect the long ruin moves in the economy of which they are a part. Stocks historically earned 11% for 100 years. Now they are earning about half that for many reasons: in a “mature” economy, “drivers of growth” must be rediscovered every 7-8 years, about the same length of time of the broad economic cycle of boom and bust.

“We are in the process of discovering what those drivers are now, but it is unclear. I personally think natural gas will be a driver, as well as discovery and innovation, i.e. technology and especially tech as applied to the systems of our lives, like the manufacture and distribution of goods. Therefore, it is predicted that the 11% traditional stock growth will be about cut in half: ergo the 6% prediction.

“Predictions are only as good as the assumptions they are based on. And sometimes, the assumptions are more important than the predictions themselves.

“If the predictions prove wrong, it will not be unthinkable. It is vain to read more into these things than is meant by them. If the predictions prove accurate, it is partly by plan, partly by accident, and partly by the unknown.

“The most fundamental reason for making predictions is that since we anticipate the future in all our dealings, why not try to approach it the most informed and rational manner possible? Predictions also help us to plan our investments and other behaviors.

“As in most things, we gather as much information as possible and then guess.”