The ASX at 20,000?

The ASX at 20,000?

It’s a crazy headline, we know. Crazier still, we left out the most important detail…that it could reach that level in just four years!

We can hear the faint murmur of disbelief already.

Rest assured we’re as sceptical as you are. When Australian Small-Cap Investigator’s Sam Volkering went public with his prediction, we respectfully disagreed. We couldn’t help but feel sorry for the eternal optimists that fall for this stuff time and again.

We figured, like all good sceptics, that extraordinary claims require extraordinary evidence. But we’ve yet to see anything that supports this forecast.

The Dow Jones Industrial Average only broke through the 20,000-point level in January this year. Five years ago, the Dow was at a relatively low 13,000 points. Today it’s just shy of 21,000 points. That’s a 62% rise in value.

Over the same period, the ASX 200 has risen 68%. Not bad, but well short of the necessary threefold increase. It’s a real struggle to entertain the possibility of an ASX at 20,000.

Despite the impression we give from time to time, we’re actually quite open-minded. So we gave Sam the benefit of the doubt. We set out on a hunt to find anything that might make believers out of us.

First, we turned to the charts first. They came up empty. While instances of meteoric stock market rises aren’t without precedent, they never play out in such short periods of time. We couldn’t find a shred of evidence showing an almost threefold increase in market value in five years.

But we didn’t stop there.

It occurred to us that these weren’t ordinary times we live in. Perhaps this exceptional period of human history could have something to say about an ASX at 20,000?

We thought long and hard about Brexit, taking heed of Donald Trump’s unlikely ascendency too. We considered the increasing unreliability of cast-iron certainties in both politics and global finance.

We looked back over our own bearish outlook on stocks since the turn of the decade. We recalled how, year after year, we were sure that a market crash was within touching distance. The prospect even excited us — such was our desire to be proven right.

But what have markets done since?

Apart from the odd dip here and there, we sit empty handed today. Markets continue to defy gravity. It seems we’re forever waiting for a crash that never comes.

To us, the Dow’s 20,000-milestone was a precursor to disaster. Now it’s flirting with 21,000. How long before 30,000? Or 40,000 even? At that point, an ASX at 20,000 won’t seem so out of place.

Slowly but surely, we’re learning to never assume anything.

Assumptions are the reason why we’ve sat on the sidelines as one of the biggest bull markets in history has played out. As we’ve found out all too often, stock markets make donkeys out of those that assume too much.

Readers have alerted us to this in the past. They’ve accused us of fear mongering. Of being too alarmist and cautious in our outlook on stocks. Why, some questioned, did we continually overlook opportunities in the market in favour of doing our best impression of a broken clock?

Our answer was always the same: We’re big believers in the laws of gravity. We understand that what rises must come down. In our view, buying in at record highs is the quickest way to the doghouse.

The two years from 2007 to 2009 were good buying opportunities. And we don’t say that with the benefit of hindsight, either. A halving of the market value is as good a time as any to jump on board stocks. But we’re a ways off that in the today’s bull market. And it could be some years yet before a similar opportunity presents itself.

Are we missing the chance to make serious money because of this? Almost certainly.

It’s not easy standing idle and watching the market climb higher…and in some cases break new ground. But until we can buy the ‘super-size’ dip we expect in the near future, we’ll stick to our hard-headed beliefs.

But that doesn’t mean you have to.

If the ASX 200 is truly on its way to 20,000 points, or even 10,000 for that matter, 2017 is no different to 2009. The current market would still present a prime buying opportunity.

If you’ve caught yourself tutting at us over our folly in sitting on the sidelines in the past, now’s the time to show us why we’re wrong.

Like Sam, you may believe this bull market is on course to reach stratospheric heights over the next four years. The trick, however, is to find the right opportunities at the right time.

We can’t help you there. But Sam can. He’s discovered four stocks he believes could potentially shoot 537% higher. You’ll find everything you need to know here.

As for us, we hope we don’t regret not listening to Sam. With the way things have been going, we fear we might.

This week in Markets & Money

On Monday, Queensland celebrated Labour Day. But Vern, a native of the sunshine state, wasn’t in a celebratory mood. He sees a worrying trend developing in Queensland’s public sector.

Between 2012 and 2015, the presiding Liberal government cut 14,000 public sector jobs. Since Labor took over two years ago, that trend has reversed. Queensland has added 20,000 full-time public sector jobs. Good news? Not exactly, according to Vern.

The economy is under threat of deflationary forces, both from low-cost work overseas and automation. Spending on public sector jobs is only making things worse.

As Vern sees it, taking the tough medicine now is far better than facing dire consequences later. But the government isn’t heeding the warnings. Which is why you need to take matters into your own hands. His advice? Pay down debt. Increase your cash level. And remain patient. For more on this story, go here.

On Tuesday, Jason explored why North Korea could kick-start another global war. With a loose cannon in charge of a nuclear-armed country, the stakes are rising in East Asia.

Not that Kim Jong-un is content with antagonising the West alone. North Korea’s list of enemies could include China soon, says Jason. The reclusive state and China have been involved in a tit-for-tat over economic sanctions imposed by the Middle Kingdom. That partly explains why Kim is rocking the boat by threatening the region’s stability. He wants concessions from both the West and China.

If worse comes to worst, Kim’s goading could land North Korea in a hot war. That wouldn’t be good for China, or the Korean peninsula. But it would benefit commodity prices. Commodities tend to skyrocket during wartime. For that reason, Jason recommends buying the best resource stocks in the right sector. You can find out more about these plays here. To read Jason’s analysis in full, go here.

On Wednesday, Jason turned his attention to this weekend’s French election. The way he sees it, Le Pen is the frontrunner to take the presidency. Political polls might favour Macron, but they’ve had a habit of being wrong of late.

The majority isn’t expecting a Le Pen win. Which is why you should be, says Jason. A Le Pen victory would wreak havoc across markets. And it would send the price of gold shooting higher. How high? Click here to find out.

If someone told you 20 years ago that marijuana companies would enjoy mainstream support, while coal companies languished, would you have believed them? That was the question Bernd Struben posed in Thursday’s Markets & Money. The answer: Not likely. But that’s exactly what we’re seeing today. Luckily for both sectors, with no end in sight for the bull market, it means that select stocks are likely to keep delivering healthy returns for investors.

The trick is to pick the right stocks. But, with so many stocks to choose from, how do you go about doing that? You’ll find all the details here.

Finally, in Friday’s M&M, Vern described a ‘job ad’ he came across this week. It reads: Position vacant. No life experience required. Positive outlook essential. No accountability. Delusions of grandeur preferred. Excellent conditions. Global travel. Pays well. Please apply to your near central bank. Interested? Click here to learn more.

That’s all for this week.

Until next time,

Mat Spasic,
For Markets & Money

Markets and Money offers an independent and critical perspective on the Australian and global investment markets. Slightly offbeat and far from institutional, Markets and Money delivers you straight-forward, humorous, and useful investment insights from a world wide network of analysts, contrarians, and successful investors.

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