Are the Dow’s New Highs the Blowoff Top Everyone Has Been Waiting For?Paul-Martin Foss
With manufacturing activity slowing, job postings declining, and manufacturing activity grinding to a halt, the economy is obviously headed toward recession. Yet stock markets seem oblivious to all of that, reaching new highs in the past few days and confounding everyone who sees the next recession just around the corner. Yet many stock market bears have been predicting another “blowoff top” before stock markets crash. Is Dow 28,000 the top we’ve all been waiting for, or does the Dow still have a ways to run?
The parallels between this top and the last pre-crisis top are many. In October 2007 the Dow peaked at over 14,000 points, shortly thereafter beginning a slow but steady drop that only began to accelerate about a year later. Today we see the Dow peaking at almost exactly double that level, at over 28,000 points, and at roughly the same time of year, the fourth quarter.
In late 2007 the housing bubble’s burst was well underway, yet analysts and economists across the board downplayed its significance, claiming that any effects from a housing market slowdown would be muted and limited. While Bearn Stearns had seen some difficulties in mid-2007, everyone thought that was under control. Who would have thought that just a year later Bear Stearns and Lehman Brothers would cease to exist, and the nation’s 4th-largest bank, Wachovia, would be forced to sell itself to a rival due to a shadow bank run?
We’re seeing many similarities this year, with automobile manufacturing slowing and decreased world trade affecting US industries across the board. Farmers have had to deal with the double whammy of tariffs and bad weather, while a resolution to the trade war that has been promised for months has yet to materialize.
Yet with stock markets so elevated, it’s easy for investors to get complacent and think that everything is just fine. Their 401(k)s are still fat and growing, so they don’t feel under any pressure to do anything to protect their assets because they can’t see the losses they’re about to suffer.
There are many other investors, however, who see the recession just around the corner, who see that stock markets are going to suffer 50% or greater losses like in 2008, and who are taking steps to ensure that their assets are protected. Those investors are investing in gold, trusting that gold will perform just as it did in 2008 to protect investor assets in the face of economic turmoil.
If you’re worried about your 401(k)’s performance in the coming years, now is the time to do something about it. Once the stock market crash comes, you may not realize it until it’s too late to do anything about it. Do you want to risk losing half your retirement savings by waiting too long to invest in gold, or do you want to take steps today to ensure that your investments are well protected when markets nosedive?