Why the Dow will hit 31,000

by Larry Edelson, 9/23/15

 

Once the pullback in the broad stock indices is over (more on that in a minute) — the Dow Jones Industrials will lead the way higher and catapult to 31,000 over the next two years.

 

What? Have I lost my mind? Or am I just some perennial stock market bull? Neither is true. Quite the contrary, I'm simply one of the very few analysts who understands the forces that are building to send the Dow rocketing higher. Moreover, I am not some perennial stock market bull. I foretold of the 1987 stock market crash months ahead of time. I forecast the 1999–2000 top in the Nasdaq and the Dow. I predicted the peak in the markets in 2007 ... and the stock market bottom in 2009. If I didn't know better, I'd throw my hat in the ring with all those pundits out there who say the economy is not strong enough, so the Dow must crash.

 

BUT, I do KNOW better. The fact of the matter is that the Dow is going to reach 31,000 over the next two years  ..

NOT IN SPITE of political dysfunction in Washington ..

NOT IN SPITE of the mess in Europe and Japan ..

NOT IN SPITE of ongoing currency and trade wars ..

NOT IN SPITE of gargantuan federal debts ..

But BECAUSE OF THEM.

 

I know better because for nearly 40 years, I've traveled the world and studied every major market and economic system on the planet. I have charted how they interact and influence each other. How major economic cycles expand and contract and sometimes converge.

 

And the fact of the matter is this: If you understand the way capital flows like a powerful undercurrent through the world — and if you understand the significance of what happens when interest rates start rising ...

 

Which they are already starting to do despite the Fed's decision last week — then I promise, you will be well-positioned to make a fortune over the next few years as most U.S. stocks catapult higher. Here is what you need to know to take advantage of it:

 

First, rising interest rates will be one of the major reasons the Dow and other broad market indices explode higher. To the contrary of many of the best minds on — and off  — Wall Street, when the Fed raises its official interest rate, that's no reason  at all to be worried about the stock market, and in fact, the opposite is true:  Rising interest rates will fuel stocks much, much higher.

 

How so? There are three chief reasons.

 

1. Rising interest rates are a sign that there is rising demand for money and credit. That's a positive.

 

2. Rising interest rates are also a sign that bond values are going to be heading down, and quite dramatically. As investors leave the bond market, they will have to put their money to work in other asset classes.

 

Commodities will eventually be a recipient of that capital flow out of bonds.  But the biggest asset class that will experience massive capital inflows from plunging bond prices will be none other than the stock market. It's the only market that can handle the depth and liquidity of trillions of dollars of capital that needs to be invested.

 

And it won't just be capital flowing out of U.S. sovereign bonds. There will be trillions more flowing out of European sovereign debt when the next shoe drops in Europe, and that isn't too far off.

 

3. Unlike when interest rates rise solely due to a healthy growing economy, this time around rates will rise because of a crisis in confidence in government.

 

Sounds bad, right? After all, if governments are collapsing and rates are rising as a result, stocks must crash too, right?

 

Wrong.  Dead wrong. Which brings me to my next major reason why the Dow will explode to 31,000 over the next two years ..

 

Second, collapsing governments in Europe, Japan and the United States will be just about the best thing that could happen for the U.S. stock market.

 

I know what you're thinking:  That's a pretty bold, almost unbelievable statement. Larry has definitely lost his marbles.

 

But mark my words: As Western governments and their largely socialist, huge entitlement programs shrink and even go bust, the private sector will become the recipient of a tsunami of cash otherwise eaten up by the public sector, and that will send stocks into an explosive move higher.

 

When the banking system crashes again, stocks will be deemed to be a safer place to put your money than just about anything else.

 

There's more. As Western governments teeter and the banking system crashes again — and it will — stocks will be deemed to be a safer place to put your money than just about anything else.

 

After all, just look at the Cyprus confiscation of bank depositor money in 2013. Banks will not be bailed out in the next crisis, and depositors everywhere will be bailed in.

 

Why keep your money in a bank then, when there's no safety to be found and instead, large amounts of your capital will be deemed to be bank creditor funds?!

 

Want proof of all the above? Just look at the 1932-1937 time period and what most analysts are NOT telling you about the Great Depression!

 

Back then, U.S. and European economies were plummeting in a depression. Unemployment continued to soar. And interest rates began to climb for the very same reasons I just cited: because 17 nations in Europe were going bankrupt, defaulting on their sovereign bonds.

 

And though the U.S. was the world's creditor then, its bond markets also came under suspicion. Banks were folding left and right in Europe and the U.S.  Tens of billions of dollars fled the sovereign bond markets — and the banking system — and went directly into U.S. stock markets.

 

Despite the worsening global economy, the Dow Jones Industrials soared three hundred and eighty-two percent from a low of 40.56 in July 1932 to a high of 195.59 in March  1937.

All in the middle of the worst depression in our nation's history!

 

And all of my indictors and studies tell me that the Dow's 2009 crash low of 6,495 is tantamount to the 1929 crash low in the Dow.  And a similar 382 percent gain from that low would put the Dow Industrials just north of 31,000! Thing is, Dow 31,000 is my minimum target. Why?  Because unlike the 1932-1937 period when it was primarily European governments and banking systems that were going down the drain ...

 

This time around the governments and banking systems of the U.S. and Japan will also collapse, adding fuel to the fire as capital stampedes away from the public sector and  banks in droves ... and into the welcoming arms of commodities and stocks.

 

What about the correction we're now seeing in the stock market, and where do the commodity markets stand right now as well? The pullback you're seeing in the Dow is just getting started. It was way overdue and it will end up merely being a healthy correction — the one I have been looking for.  The maximum downside in the Dow, according to my models, is roughly 13,900. If it gets that low, be ready to back up the truck.

 

Commodities are now in the final phase of their correction. We should see final bottoms come into play in the next few months. Best wishes, and stay tuned, Larry.  Have comments? Tell Us!

 

Source: Money and Markets