Forecast: Then it will fluctuate between 12 and 13,000 all of 2011

Forecast: Then it will fluctuate between 12 and 13,000 all of 2011, as we see that, once again, we got too excited to turn the prices up too fast Predictions for 12/31/2011 (as of 1/24/2011)

DJIA High side guess: 12,900

Low side prediction: 11,900

Seems most probable: 12,700.

Actual: DJIA Prior Year, 3/26/2010 – 3/25/2011 

So I just do this for fun, but we can see what happens, right? Tom

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[i] FOOTNOTE #7 - I think the DJIA and probably S&P 500 also are reaching their upper limits right now. I can't see how the DJIA will go up to 13,000. That's seems too high, because of

A) Domestic

1) almost 10% unemployment,

2) anemic residential real estate market (large percentage of market still "underwater" putting big drag on pricing,

3) weak commercial real estate,

4) large budget deficits (although government borrowing is stimulatory to the economy, but it "sucks up" capital that would otherwise be going into private sector and raises interest rates by competing in the market for funds. The low rate of inflation - because of the very slow, weak recovery, is keeping interest rates down in the medium term)

4) credit markets are still tight …

… becuz lenders are highly leveraged, often keeping only 5% capital against loans, i.e. loaning 20 times more than designated capital. Lenders are still writing off bad debt, which cuts into their capital base.

E.g. If Bank of America writes off $1 billion in bad real estate debt, that reduces their lending capital base by $1 billion, but it restricts their lending ability by 20 times that much, or $20 billion. (That is why credit is still so tight, even though interest rates are at historically very low rates.)

5)\ the P/E's (price earnings rations of stocks: price of stock divided by earnings) is approaching about 15x for the DJIA and about 17x for the S&P 500. Flip 15/1 upside down and you get 1/15 or a yield of about 6.7%. 1/17 = about 5.9%.

In a heated up economy (with typical but significant speculation starting to enter in, these ratios have historically been as high as 25+. (Japan Nikkei was once selling for 75x earning, but it did crash - badly, off of that, because it is not sustainable.)

B) International

1) debt problems and slow growth in Europe

2) unfavorable balance in most international trade accounts

3) continuing lack of U.S. competitiveness in manufactured (significant value-added) products trade in worldwide markets

4) still fighting major war efforts,

These are all reasons why (upside) growth potential is limited in the economy and in equity stocks.

So, we predicted that the DJIA would rise to 12,000 in January and then go as high as 13,000 maximum in 2011.

I feel on a gut level that the Dow will start having little panics (days when it loses 250 - 350 points in one session, because of the continuing weakness of the recovery and the big level it is starting to reach when it climbs above 12,000.

So the prediction is for the DJIA to fluctuate between 12 and 13,000 all during 2011, with a fair amount of volatility, and very well could end 2011 not much higher than it is today.