Invitation to a Super Boom Extended: DJIA 38,820 by the Year 2025
By: Jeffrey Hirsch & Christopher Mistal
November 15, 2016
This extraordinary forecast was and is based upon the seminal research and reports our founder undertook and published back in the mid-seventies. Yale Hirsch, who just celebrated his 93rd birthday discovered this iconic market cycle, which led him to the greatest market call in history for a 500% move in the market from the 1974 low to 1990. After publishing several articles over the previous three years that the market had hit bottom in the fall of 1974, Yale released his April 1976 newsletter with the headline “Stocks Catch Up with Inflation Eventually, 500% Moves After Both WW1 & WW2, Can It Happen Again? Dow 3420?" Well, it did. Following Vietnam and the rampant stagflation of the 1970s DJIA hit 3420 in May of 1992. S&P 500 completed its 500% move in July of 1990.
Yale’s 1977 Special Report opens with: “A Super-Boom rarely comes more than once in a generation. Unfortunately, it seems to follow a severely inflationary era which destroys stock values and leaves investors demoralized and disenchanted. Consequently, when the market begins its phoenix-like rise out of the ashes, the average investor, “scarred” and still remembering the pain of the past, fails to recognize the genuine buying opportunity of his lifetime. This report presents what I believe to be the most convincing evidence that a Super-Boom has already begun and is now in progress. Don’t be late!
We began tracking this cycle again in 2002 after 9-11 and the 2002 bear market. As we went to press in May 2010 with the Stock Trader’s Almanac 2011 which included this forecast we published this headline and excerpt in our newsletter at the time. “Next Super Boom – Dow 38820 by 2025 – Stocks Catch up with Inflation, But First Inflation Catches up with Government Spending: As markets and economies struggle over the next several years, remember to keep your eye on the future and get ready for the Next Super Boom and the next 500% move in the market. From the last bottom in 1974 it took eight years before the market really took off in 1982 and then another eight to move up the rest of the 500%, in line with Yale Hirsch’s prediction in 1976 for a 500% market move by 1990. A 500% rise in the Dow over 16 years from the intraday low of 6470 on March 6, 2009 would put the Dow at 38,820 in 2025.
At that time in 2010 DJIA was around 10,000, unemployment was quite high, the great recession was barely in the rearview, and global debt was a new and growing concern. So our prediction that the Dow would reach 38820 by 2025 seemed absurd to many when we announced it. That came as no surprise—all cutting-edge predictions are first lambasted before proven true. This super boom is not only plausible, but mathematically and historically within reason. Now that DJIA has exceeded 18,000 it looks even more credulous. Every truth passes through three stages before it is recognized. In the first it is ridiculed; in the second it is opposed; in the third it is regarded as self-evident. — Arthur Schopenhauer (German philosopher, 1788-1860)
As we developed this forecast further for our 2011 book Super Boom: Why the Dow Jones Will Hit 38,820 and How You Can Profit From It (Wiley) we discovered the other variables of the Boom Equation. In addition to war and inflation several factors came into alignment that ignited prior Super Booms and Secular Bull Markets, including a properly function government that is in synch with the private sector, stimulating innovation and robust economic growth. The final factor is what we call a culturally-enabling-paradigm-shifting technology – something that changes the world and touches and changes the lives of humans individually across the planet. Indoor Plumbing. The Steam Engine. Electricity. Automobiles. Air Travel. Television. The Microprocessor, The Internet, etc. 
We now believe that the part of this forecast that has called for a final tactical bear of 20-30% sometime in 2017-2018 may be averted. The shock and awe outcome of the recent U.S. presidential election may be an indication of a political paradigm shift and a big change in direction that could spark the next super boom. Sure the market has nearly tripled since the 2009 low, but we think the next big move is around the corner. Back in 1983 when folks started to realize the last boom was underway the market had already more than doubled. Have a look at the comparison below of the market from 1973-1986 versus today’s market since 2007. We appear to be on a similar path.
[S&P 500 1973-1987 Chart]
[S&P 500 2007-2021 Chart]
Things are a bit different this time as they always are. Official overall CPI inflation numbers show tepid inflation. However, look at the charts below from official government data of the things that we all spend most of our money on: medical expenses, housing, food and energy. Not seasonally adjusted, Housing is up 48.3%, Medical Care is up 83.6%, Medical Services up 92%, Food up 48.6% and Energy is still up 67.2% (it was over 100% in 2014) since 2000. Real inflation that hits us all in the pocketbook and bank account is up anywhere from 50-100%, right in line with the post WWI and WWII inflation numbers on our 500+% move chart.
[CPI-Medical Care]
[CPI-Medical Services]
War still lingers, but it appears that major operations have come to a close. What remains is a war against an ideology that is being fought on multiple fronts. It will likely be costly, in human lives and dollars, and could persist for a great deal longer. Provided past success and current efforts remain effective we are most likely on the tail end of significant expenditures of capital, human and monetary.
We are not going to get wrapped up in the why or the how many were surprised by last week’s Presidential Election outcome. The bottom line is that a major shift has just occurred in D.C. The incoming administration campaigned to reduce regulation, cut taxes and generally get the Federal government out of the way of the economy, entrepreneurs and business. Infrastructure and national defense are also expected to receive major fiscal attention from the Federal government.
A lot of this is similar to the approach that the Reagan administration took. We know this time is different, Trump is not Reagan, but a big political shift has just occurred like when Reagan took office. When Reagan took office, the 10-year Treasury was in double-digit territory, today it’s just above 2%. Borrowing at 2% makes a lot more sense than 10% plus to fund infrastructure and defense spending. Stock valuations were much lower in 1980, but the demand for stocks was also much lower. The higher valuations of today are supported by sovereign wealth funds, private IRA’s, 401k’s, 529 plans, etc. The days of single-digit S&P 500 P/E are in all likelihood long gone. Even low double-digits may never be seen again.
Most of the ingredients are in place for the next Super Boom. The market has been stuck in a secular bear for approximately 16 years. Inflation has accelerated and major conflict is winding down. Numerous paradigm shifting technologies appear to be on the verge of making it into the mainstream. And the potential exists for the incoming administration to at least partly repair the dysfunction in D.C.
From here we see two possible scenarios. The first is our original expectation for a garden variety 20-30% bear market sometime in 2017-2018 that ultimately leads to the beginning of the next Super Boom. This scenario is most likely if the new administration fails to act quickly early next year. Any delay or even perceived delay in implementing major policy changes will lead to disappointment and could easily be the catalyst for a 20-30% bear market.
Our second scenario relies upon early and effective execution from the Trump administration. Given Trump’s tenacity, we would expect him to put forth significant effort early and quickly. With quick and at least partially successful action, the market could easily continue to rally towards a 500% gain from the 2009 lows. In this case the mini-bear from earlier this year would have been the markets reset point and a rally on the order of 70-90% from February’s low is likely before the next pause.
We expect the market will decide which scenario is in play rather quickly next year, possibly as early as April or May. In the meantime, the Best Six Months are underway and DJIA’s streak of seven consecutive days of gains is bullish.