Dow 50,000 within 10 years
That’s my prediction. Sound crazy?
Well, here’s my reasoning:
#1 – Massive Millennial Population
A lot of people are saying that because the Baby Boomers are retiring from the work force, that things are looking bleak for the stock market and the economy as a whole. Because it translates to a huge loss in productivity (lower GDP). But what people don’t see is that the millennial generation is even bigger than the Baby Boomer generation. Baby Boomers number roughly a little over 70 million in the US. Millennials, on the other hand, number just over 90 million. That’s a LOT of people. The Baby Boomer generation started hitting their mid 30’s in the early 1980’s, which marked the beginning of a major bull market that generated gains of 1000%. I think we’re about to repeat something similar; but even greater.
#2 – Millennial Spending has Just Begun
Look around at your typical millennial compared to the typical baby boomer. Do you notice any differences? Even though millennials are the most indebted generation, they are spenders. Not every millennial, but as a whole, they’re spenders. Said in another way, they’re consumers. And what churns the economy more than anything? Consumption. When people are saving money, if banks are tightening credit, and there’s an overall loss of liquidity within the money ecosystem, what do you think happens? The economy halts to a grind. But the more money is out there flowing, goods are being purchased, transactions are happening, it’s good for the economy. That’s the irony of it all. For the stock market to do well, people need to spend, not save. Because that’s how profits go up at companies: when people spend. And the millennial population is in the early phases of their career or are just graduating college. So the spending has only just begun.
#3 – Gen Z and Gen Y and Tech
Gen Z, which is growing in purchasing power, along with the Gen Y (millennial) generation, are more into technology than any other generation. They are practically inseparable from their tech gadgets. The majority won’t bat an eye when plopping down $1,000 for the next new smart phone (that’s what they’re saying the new Iphone 8 will cost). That’s because they see it as a necessity, not a luxury. And anything more than being 2 generations behind on an Iphone is viewed as plain embarrassing. So with every new iteration of the iPhone, or any new technology for that matter, you can bet your bottom dollar that both Gen Z and Gen Y will snatch them up . Whether they have money or not. And we’re only just now at the cusp of the rise of the “internet of things.” This coincides very well with the spending and buying habits of the millennial generation.
#4 – The Great Wealth Transfer
And to add to this, guess who’s going to get a huge infusion of cash to aid them in their spending? Millennials! How do I justify this? Well, as you know, the baby boomers are retiring. And as a group, they have a ton of money saved. How much you ask? $30 trillion. And it’s already begun. And within the next 10-20 years, there’ll continue to be this massive wealth transfer happening in the US. And that’ll mean a ton of spending will be happening.
#5 – Revolutionary Technology in the Pipeline
If you’ve read my other posts regarding technological progress, you’ll see that technology is exponentially increasing.
Related: We’re Living in the Golden Age
Related: Why Universal Income is Inevitable
This means that revolutionary technologies are in the pipeline, and we’re only in the beginning stages (i.e. AI, Space Colonization/Mining, Automation, Augmented Reality/Mixed Reality/Virtual Reality technologies, Nano-technology, Biomedical advances, etc). These revolutionary advances are going to blow previous technological discoveries out of the water. Which means we’re going to have a boom in productivity. I think more than how the PC or the internet has transformed our society today. Commute times will no longer be relevant due to fully autonomous driving. People will be working from home anyways, with their VR headsets on, working with co-workers in their virtual offices. All of this means increases in productivity, which directly translates to an increase in GDP for the nation. More wealth = more consumption = more wealth = more consumption. It’s a positive feedback loop.
#6 – Rising Global Consumption
Look at what’s going on globally. The whole world is rapidly advancing and developing a healthy and vibrant middle class. A middle class that’s doing a whole lot of what? Consuming! Just look at China and India. And they’re leapfrogging all of the old technology (obviously), and jumping straight into modern technology. Which means the billions of new consumers that are being minted globally, are lining up to buy electric cars and the newest smartphones. These are all consumers we used to not have, but now we do, and we’re continuing to see this upward trend.
#6 – Rising Global Development
Did you ever stop to think how many people there are outside of the US? A lot more than you think. The US population is just a little over 4% of the world’s population! Roughly 325 million people. The world population is roughly 7.5 billion. So just wrap your mind around how much more consumption will be happening globally, as countries begin to further develop and markets continue to mature. More gentrification and urbanization across the world will translate to a ton of money being made and spent.
Conclusion and Take-aways
We’re going to hit Dow 50,000 in the next 10 years. I think Dow 30,000 is within our grasp in the next 5 years.
Even though those numbers are quite arbitrary and doesn’t really mean a whole lot. What it does mean is that we’re going to have TREMENDOUS upside going forward. Call me an eternal optimist, or delusional even, but I just don’t buy the predicted sub-4% chronic low-return environment going forward. The funny part is that the people who are saying that are the people that I usually would agree with (the valuation-oriented people). But the problem is that these predictions are too reliant on using the rear-view mirror. What I think people are underestimating is human innovation and the magic of exponential technological progress.
Does this mean that there won’t be any potential for downsides?
Of course there’s a possibility. I’m fairly certain we will have hiccups along the way. I wouldn’t be surprised if we have a 50%+ decline in the next 10 years. But similar to what we saw in the massive crash in 2008-2009, IF we experience such a large decline, it’ll be followed up with the biggest bull market we’ve ever seen in our life times. Bigger than the one that started in ’09 and has continued to this day (the second longest bull market that we’re in right now in the history of the US).
What are your thoughts on this?
Do you share the same belief that we’ll be able to hit Dow 50,000 in the next 10 years?