That’s a quote by Richard Nixon. And though he said it many years ago, I think it’s pertinent to the market today.
The Fed has printed hundreds of billions of dollars recently. That stimulus is having an impact worldwide. Our economy seems to be picking up momentum. The Europeans are coming out of their recession. China is starting to show some signs of growth. Australia, too. And I don’t think we have seen the full effect yet. I believe the market will continue to go up: I’m sticking to my fearless forecast of the Dow at 16,000 by year end. I also think we’ll have more stimuli next year, which will grow the economy and push the stock market up another 10 percent, putting the Dow at about 18,000 in 2014.
But here’s where the Nixon quote comes in. I believe that “what can’t go on forever, won’t,” and we’ll see hard evidence of that in 2015. The U.S. is spending more than it takes in. We’re not the only ones. The Europeans have printed a trillion dollars. The Japanese are drinking the Kool-Aid now: They’re probably going to spend another trillion dollars that they don’t have. The Australians are doing it, the Chinese are doing it-the whole planet is going into debt. Economies around the world have been stimulated for about five years now. How long can this go on? It’s as if we’re pumping a cadaver full of adrenaline and watching it run around the room, forgetting that when the adrenaline rush wears off, that cadaver’s going to crumple down and fall on the ground, dead like before. Once the stimulus rush wears off in 2015, I predict the Dow will drop from 18,000 to 9,000-a 50 percent bear market.
I’m not alone. A few months ago, John Bogle, the founder of Vanguard Funds, said he believes we will have two 50 percent bear markets in the next ten years. He also believes that ten years from now everything will be fine, so investors should stay in the market. That’s insanity. Yes, I think we should be in the market right now, making money when we can, but I don’t see any reason to sit tight during a bear market and lose mass quantities of money. Instead, I suggest we buy, hold, and sell.By using an exit strategy to protect our investments, we can get out of the market during the bad times. They will come. After all, what can’t go on forever, won’t.