(I posted this on March 8, 2009 and also wanted to make it a page so it is easier to find for anyone that is interested.  Happy investing!)

I realize that my stock picks for 2009 have been totally brutalized in slightly over two months. Unfortunately this is what happens when the market falls almost 25% in a short period of time. These stocks remain compelling investments and if you bought at the higher levels you definitely should average your cost down.  Give them some time, they will do well.

My post today is why I think the Dow Jones Industrial Average will hit 10,000 by the end of 2010.  It has to do mostly with expectations pricing in hell on earth and no possibility for anything positive.

I understand that the economy is the worst it has been in many years and remains basically in free fall.  I also understand that the unemployment rate will continue to spike throughout most of this year.  Day in and day out we will all continue to be bombarded by bad news, company collapses, and more helping hands from the government.  The recession will hit closer and closer to home for people as friends and family will face dramatic challenges and lose their jobs, their houses, and their hope.  

My theory is that when a market declines over 50% in a year what I just described is already baked into the cake.  The market today is pricing in a 2nd Great Depression.  What happens if the world economies later this year are buoyed by China and India and regain footing faster than anyone thought?  Even just the tiniest fraction of an upside surprise anywhere would result in dramatic upside market reactions because nobody thinks this is possible at this point.  What happens if the American consumer comes back unexpectedly?  Again, it doesn’t have to be by much it just has to be the slightest level higher than what the expectations are right now.

When I see stocks like Alcoa at 5 and CBS under 4 it is time to aggressively buy.  There are hundreds of other stocks that have been taken down to once in a generation entry points.

The market is always 6-9 months ahead of what is going on in the economy, it looks forward.  Later this year the market will start looking into 2010 and is starting to right now.  When economic activity and strength in this country and the world is slightly stronger than expected markets will react and drive equities higher.  With the Dow at 6,626.94 this would equal an upside move of 51% over the next 22 months.  I believe about half of the move will be various economies around the world beating expectations by the slightest amount.  The other half of the move in 2010 to bring us to 10,000 will be due to the trillions of dollars on the sidelines that flew to safety during the market decline.  This money will come back in a big way as nobody will want to miss the 50% to 75% off Wall Street sale that will be ending.

What happens with the banks is critical as well going forward.  I believe it is only a matter of time that a major positive catalyst occurs with them such as the relaxation of mark to market accounting rules.  Once the banks stabilize and rid themselves of toxic assets it will be a whole new game.  

I am aware that my prediction isn’t really mathematical or directly tied to specific employment or output targets.  My prediction is more based on emotions and expectations. These two items are what have been trampled on over the past year and when they improve equities will lift substantially.