Dow 100,000: Fact or Fiction
Any number of magazine articles, and even a few books, will tell you that the U.S. stock market in the late 1990s was a dangerous bubble. No one could say when the crash was coming, but a lot of people believed it was just around the next big economic curve. Kadlec, chief investment strategist for Seligman Advisors Inc., has a different point of view: sure, bad things will happen now and then, but ultimately the Dow Jones Industrial Average will end up at 100,000 in the year 2020. In other words, "two decades of above-average economic growth with price stability." This, he notes, represents only an 11.1 percent annual increase in the stocks' value, which, he believes, is entirely realistic.So how does Kadlec actually get to 100,000? First, he shoots down comparisons to previous periods of boom and bust. The cold war is over, he notes, which represents a new political paradigm. Then there's the oft-discussed drive of the baby boomers to retire in style. And, of course, there's technology, presenting new ways for workers to be more productive and resourceful. Kadlec also sees the worldwide trend toward freedom and democracy as a powerful economic force, as is the need for governments to compete with each other for economic activity. But he cautions that the prosperity he predicts isn't guaranteed: wars (either with bombs or tariffs) could end it pretty quickly. So could terrorism or higher taxes. (He includes some nifty illustrations showing how tax increases on rich people inevitably sock middle-income and poor people harder.) And a currency shock could cause untold economic mayhem. Kadlec notes that even he was surprised by his conclusion that the Dow should travel to this nosebleed height. But if he's right--well, let's just say a lot of investors are going to have very comfortable retirements.--Lou Schuler