Betting against the American economy (My bet against the Dow)

Throughout the months of March and April, as the markets were moving up and down, Steve, my roommate, and I exchanged 125-150 emails on the subject of the market. Some of the time I would email an article that I knew Steve would disagree with, just to get a discussion going. Much of the time, I was pointing out that the markets were still too high and how more bad news was forthcoming. I complained as the markets moved positively on bad news such as increasing unemployment or companies not losing as much money as predicted. He complained the markets pulled back from earlier gains on things like housing news and the analysis of bank quarterly earnings. Eventually, this led to the following email exchange:

my roommate:“will the DOW hit 9000 this year? ill bet you $20 bucks”

me:“Just because it hits 9000 doesn’t mean it will stay at 9000. I’d be dumb to take this bet because all you have to do is hit 9000. it could go down the next day, but you could still claim victory.”

my roommate:“ok whats your bet then”

me:“My bet is that DOW will unable to sustain 9000 for an entire month during 2009. 20$.”

my roommate:“deal. dow stays above 9k for a month

remember that you are betting against the biggest badest economy in the world: the american economy. while capitalism and all these ’stupid banks’ show how capitalism goes astray – it also adapts quickly – there is a monetary incentive to do so.”

me:“and you’re betting that the illusions created in this current market will hold up.”

As of today, the market stands at about 8360. The market has swung up as high as around 8500 recently, but nowhere near 9000. Now I realize 2009 isn’t over yet and that it is too early to claim victory, but, I don’t see the Dow making 9000 this year. I think there is going to be more bad debt writes off by the banks and more prime borrowers having problems due to job loss and declining home values. The banks in their quarterly earnings reports were increasing their provisions for bad debt. So even the banks are expecting more bad news. From time to time I will update the status of this bet.

Feel free to leave your comments or predictions for the Dow / markets in 2009.

• Game Changing News for those who collect miles and points - American Airlines One-Way Mileage Awards!!! According to Dansdeal.com (a site I frequent for deals and news), American Airlines has just launched one-way awards. I've been waiting for US-airlines to allow their frequent flyer members to redeem one-way awards. Previously and on all other US airlines, if you wanted a one-way award, you would have to......
• News Link - A 15,000 dollar tax credit for buying a house after all?? I saw this link on one of the message boards I frequent. Apparently the Senate wants to increase the home buyer tax credit to 15,000 and remove the income and first time buyer restrictions.  Originally, when the stimulus bill was being considered in Congress, the first time home buyer tax......
• Restaurant Review - Ike's in downtown Minneapolis On Wednesday evening, I met up with some friends who were coming from out of town to see the Twins / Red Sox game. One of my friends really likes burgers. Originally, we weren't going to attend the game and I was going to take my friends to Town Talk......
• Twin Cities Restaurant Review - Enjoy Restaurant in Apple Valley, MN On Saturday, June 13, A friend and myself at a restaurant called Enjoy. I admit I am a city person so I probably would have never gone to this restaurant myself, but my friend insisted on driving somewhere and she had one of those 2 for 1 entertainment coupons. The......
• What to do with GM Well it's been quite a week of activity for GM. Many events have led to the what has finally happened this week. On Monday they filed for bankruptcy. In past few months, GM has received over 19 billion dollars in government loans to continue operating while it came up with......

• Is The Stock Market Overpriced? The Dow has currently been up 24 out of the past 27 sessions. From what I've heard, this is a record. Its NEVER done this before!!!!And its not like the US economy is rock-solid. According to Chuck Butler of Everbank.com, the US unemployment rate should actually be at 12% instead......
• Is there a formula I can use to calculate a mutual fund price (various stocks) before market close? Mutual funds are composed of various stocks. The mutual fund price is calculated after the close of the market at 4pm each trading day. I would like to know if the stocks in the fund are known, can I use a spreadsheet of the stock prices at a given time......
• Liberty Dollar headquarters raided The Evansville, IN, headquarters of Liberty Dollar was raided by federal agents earlier this month.  The Liberty Dollar is an alternative currency backed by precious metals that is designed, and encouraged, to compete with current US currency as an "inflation-proof currency."  Documents, precious metals, and other equipment were seized.The Liberty......
• Gold Investing for Retirement I often ask myself whether I and other baby boomers should be investing in gold or gold stocks for retirement. On the one hand, a good financial plan needs an inflation protection strategy and precious metals are favorites as an inflation hedge. On the other hand, gold is notorious for......
• Where To Invest Extra Cash and Savings Today Have you got some extra cash you’ve squirreled away, waiting to be put to good use? If you’ve got your debt paid down and your emergency fund taken care of, and you’re fortunate enough to have additional disposable income or a windfall to work with, then here are a few......

Tags: Finance, market bet, perspective

This entry was posted on Wednesday, May 27th, 2009 at 2:05 pm and is filed under Finance, News and Perspective. You can follow any responses to this entry through the RSS 2.0 feed.