What If China Doubles and The Dow Goes to 20,000…How Would You Fare?

I know I would do very well. I would like to do better. This has been one hell of a bullish blog for two straight years, but I have been a very nervous bull of late.

I have been a net seller the last few days and have been posting my sells. Tonight I got an email from Cole at Blackstar reminding me of all the solar stock earnings coming in November (long FSLR), and that China, Chipotles and Solar stocks may just be the beginning. I love getting these reminders from Cole whose fund is set up to follow and not think. The deep thinking has long been done and most work goes into tweaking.

My Chipotle’s sells have been dead wrong so far. I should be doing the opposite. Tonight they blew away numbers and announced their intentions to ‘burritofy’ Canada starting with Toronto. I could swear this Company is operating on massive growth steroids. They have shrunk global growth time in the restaurant business.

The market has been good to me and my partners this year but alas, I have only 30 percent dedicated to equities (on margin of late though).

With all the breakouts I have been thinking about raising more money to increase my allocation to equities. It would be easy right now.

Obviously there will be a ‘pop’ after this boom, but say it comes from the FXI at $200, The Nasdaq at 3,500 ( it would still down 30 percent from all-time highs) and The Dow at 20,000.

Would you miss it? Are you in the right frame of mind to take advantage of it? Worse, would you fight it all the way up and get mad?

Most of the investing public is underinvested in stocks. They are licking the wounds from the housing slam. The Nasdaq bubble is too fresh in all our minds, especially the media.

With the global wealth boom and a weak US dollar, you could get an explosion in US equities as our creditors use cheap dollars to invest in US equities. If the dollar reverses course for just 6-12 months, you could get a US stock market/dollar carry trade. The US dollar could rally 20 percent and not break the downtrend. Combined with just a small 10-15 percent market run from here, the trade could be staggeringly profitable for big institutions. The Chinese governement could squeeze the bears and shorts to complete death right now by buying US dollars and just gunning stocks higher. Basically, the Chinese could corner our equity markets. They could do it for fun. Maybe that is already in process.

With ‘SpankMe’ Bernacke at the helm who is already the market’s whipping boy, more rate cuts could just intensify the trade short term.That’s just one upside scenario.

I am not saying that you should blindly buy stocks. I won’t. I am just reminding you (and by writing this…me) that we need to think about the possibility that the markets could melt UP and how that would affect us.

What do you think?


  1. Todd says:

    Howard said:

    “My Chipotle’s [Click to launch this SmartLink] sells have been dead wrong so far. I should be doing the opposite.”

    That reminds me of the quote (Livermore?) that goes, “you should fear that your losers will continue to drop and hope your winners go higher.” It’s human nature to sell your gainers and hold on to losers.

    I don’t see you as one that holds on to losing positions, though.

    Averaging up is almost always better than averaging down.

  2. Crawford says:

    Howard, did you happen to listen to the Chipotle (no s) call last night? Ells did his usual masterful job of OPUD. Best part was his description of Fine Done Fast. Really is a quality+vision+discipline story. Forget the competition. The competition is the company itself. Enjoy.

  3. bocagirl says:

    Ahhhh, hindsight is always perfect. Just keep surfing the forward rolling waves of the market.

    I’m staying in the equity market until they change the capital gains tax rate and dividends tax rate. Right now can’t beat a 15 percent tax rate. I’m bullish until the election, although we might reallocate some to real estate next year.

  4. fred says:

    i eat at Chipotle all the time and last week the volumne seemed to be down? quality was still very high. they did have an it network problem and my change was wrong but they did what they always do and tried to comp my meal. management really tries to keep the customers happy. i think there is still a lot of upside regardless of the economy……

  5. Anonymous says:

    The exact opposite is more likely.

    The weakening US dollar overwhelms everything, and foreigners are figuring this out. For instance, lately you can do far better parking money in Canadian T-bills than US stock index funds… so why buy US stocks?

    Worse, US investors are figuring this out too. Part of the emerging markets story is US investors fleeing their own domestic markets.

    Don’t look for the Chinese government to come to the rescue. With foreign reserves measured in the trillions, they already have far too much exposure to the US dollar, and heavily buying up US equities would just result in severe political pushback, especially in an election year.

    Thursday’s mini-crash is an indication that the dollar-weakening effects of rate cuts matter more than any stimulation they might deliver. These are dangerous times.

  6. Anonymous says:

    The US equity markets as the ragdoll plaything of the Chinese government? Hmmm…. good thing that this power can only be used in one direction, to drive values up. Swell folks, always looking out for our interests.

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