Dow 3700, $3,500 Gold, $300 Oil…Oh My!

I’d like to just highlight the absurd lengths media outlets will go to in order to get a page view. Some of the headlines I see on prominently placed links just force you to click through and see how this dire prediction could possibly occur, only to find some unsubstantiated, hypothetical example outlining where things might go if the perfect storm occurs. I wonder how much of the current economic malaise is actually due to the media’s frenzy to run with the most sensational, shocking prediction in a game of one-upmanship. Remember the days of Dow (^DJI) 100,000 and Nasdaq (^IXIC) 10,000, etc. The predictions were becoming more and more stupid as the media and investor euphoria deepened. I actually felt dumber after having read some of this material.

$300 Oil

This article was prominently featured on CBSMarketwatch’s home page and drew over 600 comments. This ex-trader cites the contango and economic recovery as justification for this rather absurd prediction. He makes this rather nonchalant prediction - it’s elementary, right?

Any economic recovery results in higher energy prices — it’s elementary. That means $300 crude oil could be one year away or three years away, but certainly not much more.

I’m sorry, but contango doesn’t result in an 8x move in a couple years. And if this were so elementary, oil wouldn’t be constantly teetering at $30-$40 per barrel. This prediction is just silliness and sensationalism at its best.

$3,500 Gold

This video made the front page of TheStreet.com touting $3,500 Gold. The guy in the video cites the emergence of ETFs (news flash, they’ve been around for some time now) and low interest rates (investors have figured this out already) as justification for his prediction. But there is not a single iota of quantitative justification for his assertion. The $3,500 could just have easily have been $35,000. Why not print an article entitled, “Gold to hit $35,000 per ounce!”. I’m really surprised by the lack of evidence for an assertion on the website brought to us by Jim Cramer (yeah, right).

Now, there is an Exchange Traded Note (ETN) for gold that’s been up over 400% in the past month while the actual price of gold has only risen moderately during that period and nobody seems to have quite figured out what’s going on there. But that’s got nothing to do with a run to $3500 gold. It’s an instrument gone wild the likes of which I’ve never seen…and I don’t expect it to last.

Dow 3,700

This article is on CNBC’s homepage touting a Dow 6000, with a possible drop to the next support level between 3,700 and 4,000. To put things in perspective, the Dow last traded at 3,700 in 1994. We’re currently at 1996 levels which is pretty shocking, so perhaps an extra two years back on the clock isn’t too far fetched, but I think enough’s enough.

Some Sanity Out There

At least this trading video hit most of these trends right - recently called continued move downward in US equities. I’ve been following these for some time now and I can’t argue with the accuracy/quantitative support provided for predictions.

Warren Buffet recently took some accountability for his lousy timing last year, which resulted in the worst year in the company’s history and made an interesting analogy to the female anatomy in this article. He makes some predictions I can’t disagree with, but overall, he doesn’t view the world as coming to an end.

…major industries have become dependent on federal assistance…Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

You’ve got to love the media. Remember when parents had to pick through Halloween candy and apples each year even though there had never been a single documented case of “candy sabotage” in US history? Remember all the bans on using cell phones near gas stations and some states’ attempts to actually impose fines and prosecute reckless barbarians from blowing up the gas stations - even though there has never been a documented case of a cell phone igniting a fire or explosion in the presence of gasoline?

Disclosures: I am long gold via ETFs, I have no position in oil and I’ve been shorting Treasuries as outlined here.

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