Bill Gross says the Dow…

Bill Gross says the Dow will sink to 5000

Who is Bill Gross and why should I care? 

Bill Gross runs PIMCO, the largest bond fund house on the planet. They manage several hundred billion dollars, more than any other mutual fund house (or most banks, for that matter).  He is known for great ranting predictions that often turn out to be true.  And oh yeah, in a devastated financial landscape, his bond funds still make money.

Keep in mind that the following is from one of the savviest and most respected money managers on the planet. On CNN Money, anchor Lou Dobb’s jaw dropped when this was announced – he asked the reporter to repeat the numbers because he couldn’t believe what he was hearing.

My message is as follows: stocks stink and will continue to do so until they’re priced appropriately, probably somewhere around Dow 5,000, S&P 650, or NASDAQ God knows where.

<Note: Currently we are at DOW 8427, S&P 863, NASDAQ 922>

Now I guess I’m on somewhat of a rant here but come on people get a hold of yourselves. Earnings have been phonied up for years and the market still sells at high multiples of phony earnings. Dividends and dividend increases have been miserly to say the least for several decades now and you’ve been hoodwinked into believing the CORPORATION should hold on to them for you so that they can convert them into capital gains and save you taxes.  Companies have been diluting your equity via stock options claiming that management needs incentives of millions of dollars just to get up in the morning and come in to work.  <Is this a great rant or what!>

Then they pick you off by trading on insider information, selling shares before the bad news hits and you have a chance to get out. If you try to get a hot IPO you find all the shares are taken – by Bernie Ebbers. Come on stockholders of America, are you naïve, stupid, masochistic, or better yet, in this for the “long run?”

Ah, that’s it, you own stocks for the “long run.” We bond managers may have had a few good relative years but who can deny Stocks for the Long Run? Not Jeremy Siegel, not Peter Lynch, maybe not even Bill Gross if you stretch the time period long enough – 20, 30, 40 years. But short of that, stocks can be, and often have been poor investments. The return on them depends significantly on their beginning valuation and right now valuation remains poor. Dow 5,000 is more reasonable. Let’s see why.

Then he details in great and documented detail precisely why this will happen. click Investment Outlook.