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A Few Notes on Super Boom

| | Posted in: Big Ideas

In his 2011 book Super Boom: Why the Dow Will Hit 38,820 and How You Can Profit from It, author Jeffrey Hirsch (editor-in-chief of the Stock Trader’s Almanac) states, regarding the book’s title and a target date of 2025: “…I believe it will happen” and more cautiously “the coming super boom is not only plausible, but mathematically and historically probable. Moves of this magnitude have happened several times throughout history, and they have always been preceded by tumultuous times and economic weakness. In fact, big moves happen with such regularity and clear cause that we have successfully identified why they happen, how they happen, and when they happen. Most importantly, we show what to invest in before and as they happen.” Derived from approximately a century of historical observations, some notable points from the book are:

From Chapter 1, “The Boom Equation” (Page 11): “The correlation between war, inflation, and the subsequent catch-up of the market is impossible to ignore. Consolidation during wartime possesses roughly the same percentage range, giving the appearance of launching pads for the 500 percent moves.”

From Chapter 2, “A Strangled Economy” (Pages 16, 31): “…when the P/E hits single digits again, that will be a signal that the next super boom is ready to explode. …The low point of the economy and the bottom of the stock market appear to be behind us. But other factors have yet to align.”

From Chapter 4, “An Argument Against Financial Calamity” (Pages 55-56): “I concur with the general concept of restrained economic growth and a lid on stock prices over the next several years. I believe we will flirt with the lower end of the market’s range during that time. A test of the lows in the Dow 6,500-7,500 range in the 2012-2014 time frame is entirely in the cards. But Dow 3,800 or 1,000 are not, in my opinion.”

From Chapter 5, “Yale Hirsch and the 500 Percent Move” (Page 76): “The next super boom will begin around 2017 and run to at least 2025, carrying the Dow to at least 38,820.”

From Chapter 9, “Inflation” (Page 127): “…all the elements of the 500 percent equation are in place: a diminishing war effort, a coming period of peace, high government spending, and the likelihood of significant inflation. …The question is not will a super boom happen, but how does one position for it and profit when it happens?”

From Chapter 10, “Investment Ideas and Strategies” (Pages 130-131): “…alternative energy, robotics, biotechnology, and genomics all have enormous potential… The next boom may actually be sparked in the BRIC nations, Brazil, Russia, India, China… The broad market can be bought with impunity when the Dow is below 10,000. Well-chosen small stocks will outperform large stocks. Consistent dividend payers make money in tough markets and are well positioned to take off in booms. Seasonality works well as markets bounce around in trading ranges and during long booms. When a bear market is officially declared over during the next several years… back up the car and load up on stocks.”

In summary, the approach of Super Boom is to infer elevated prosperity (and asset prices) throughout much of the world during roughly 2017-2025 based similarity of current macroeconomic conditions with those of a few war-inflation-boom sequences since about 1900.

Reservations about the book include:

  • The reasoning in the book is based on loose historical similarity rather than statistical analysis. The author presents a plethora of historical narrative but does not support his characterization of a super boom as “mathematically probable” using generally accepted statistical methods.
  • Retrospective assessment of forecasting records of self and associates is subject to sampling and confirmation biases.
  • The reasoning about technologies that will thrive in the super boom seems superficial.
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