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.