Market Predictions Report
The financial soothsayers are out with their predictions about what is going to happen for investment markets this year. Subscribing to several news letters you would expect me to be right on the button with exactly how things will play out, what to expect, even how your investment portfolio will go……
That’s where it gets tricky….!
There is wide divergence from commentators, so here is a summary of what a couple of them are thinking.
Ignoring completely the financial cheerleaders you see on CNN, FOX News, even Bloomberg and especially the daily grind commentary from ‘bank analysts’ thrown up on our own TV nightly news (most are just surprised at whatever happened on the day and are of little use) if you read the more in depth reports from market commentators who don’t show on mainstream nearly all are expecting 2016 to be a watershed year. Maybe the year it all falls down!
So far as of day one, this looks possible. However, what we have learned especially over the last 2-3 years is that a market crash of significance one day will be fully recovered the next. This normally makes no sense but with computer driven algorithms and flash trading happening all the time a dramatic fall one day is an equally dramatic recovery the next, whatever the data. Volatility is what is traded almost as if it is engineered by the traders playing in the markets. Little Johnny Brown standing on the sideline with his investment dollars looking for long term gains best stay on the sideline. This is a traders market.
Market crashes are what is being talked about, not just by one or two…. seemingly by everyone non mainstream. Baring in mind that whatever happens globally with the lead perhaps being taken from Wall Street, all markets will follow a similar pattern and whatever commentary says about the comparative strength New Zealand market, if the US or any major market goes down the NZ market will follow suit. What is important is not to look so much at what the market is doing because it is manipulated so much by traders but you need to look at what is really happening in economies around the world and her most things are pointed downwards.
However it has been in another market that the tone has been set; the Chinese stock market had trading halted on Day 1 as it plunged 7%. A one -off? I doubt it but because most American commentators know so little about the Chinese market and what they do say about it is always tinged with negative prejudice you have to see through this fog. What is certain is that the Chinese economy is slowing dramatically, there are significant excesses built up in both real estate (too many empty shopping malls, too many empty housing high rises) and way too much debt with banks needing capital is what I read. Add to that a major downturn in industrial output with manufacturing falling significantly and China appears to be heading for a hard landing.
As well China is struggling with the value of the Yuan now it has been accepted into the basket of currencies that make up the SDR (Special Drawing Rights) club of the IMF (International Monetary Fund) controlled by the 1%ers – or should I say the 0.1%ers of Washington. China is still getting its house into order according to Jim Rickards a widely respected commentator from Agora Financial. Indeed Rickards has written and spoken extensively about the decline of the US$ as leading global reserve currency and its eventual replacement by SDR’s as new world money issued to governments by the IMF (new world order?). Rickards states that while the IMF decision to accept the Yuan into the ‘SDR Club’ has actually been made by the IMF Executive Board the announcement is not expected until March 31st 2016 with an effective date of 30 September 2016. This is the first significant change in make up of SDR’s in 30 years, and it allows a rebalancing of investment portfolios globally to reflect the new SDR basket he says leading to potential volatility as China adjusts. Rickards says China is expected to have a weighting of about 7.5% in the SDR basket.
He writes ‘the next time there is a global financial panic – and we can be sure one is coming sooner or later – SDR’s will be used to put out the fire. The central banks in the US. Europe, China and Japan are tapped out. Their balance sheets have never been repaired after printing money to squash the panic of 2008′. Regrettably not many people even talk about this possible change in the worlds financial system and time will tell if Rickards is correct. So despite the problems Wall Street has on its own account it was the Chinese market that tipped Wall Street into a panic, not the other way around.
So what are other themes? Harry Dent of Dent Research follows his overarching theme of deflation being the number one culprit for stalling business earnings and subsequently his prediction for 2016 is dire, starting off with chaos in the high yield bond markets, something that money printing does not solve. His latest headline is blunt: This is going to be Worse than 1931!
He states that ‘unprecedented quantitative easing (QE) and stimulus since late 2008 have created a monster: a stock market so distorted it’s now endured a bubble run for two years longer than anyone before it (the average being five years)!‘ Dent’s theory of deflation being the main driver of outcomes runs counter to most predictions of inflation being the issue due to money printing of US dollars but it is based on sound thinking. The baby boomer generation is now not only starting to retire but also has reached its peak spending so business is struggling with flat sales, many performing negatively.
This deflation theme of Dent Research has a lot of merit because as anyone who follows markets knows, Japan has been on it knees for way more than a decade and its population is the barometer for an ageing population in the west with falling domestic demand and therefore spending. Try as they might to get inflation ignited with money printing (that makes the US FED look like rank amateurs) Japan’s PM Abe has failed miserably to do achieve anything apart from see the stock market recover a little because like the US that is where a lot of the printed money has found a home, not the real economy. Now, the Bank of Japan (BoJ) has become not only the underwriter of virtually all Japanese government issued debt but is a big buyer of the Japanese share market with as you guessed, printed money. A ‘stack of cards’ I think they call it; a Japanese government impossibly in debt and a BoJ that simply prints money to buy stocks and bonds to keep up a shimmer of hope.
The high yield (junk) bond market is already seeing plenty of US fund closures, both mutual funds and hedge funds wiping out $billions already. Dent is convinced that the carnage they see will first appear in the bond market. Marc Faber an esteemed commentator and many others are also of this opinion.
Dent also is contrarian when it comes to gold which he thinks will sink to $700/once. Oil he predicts is headed for $20/barrel by early 2017, maybe a little later. This is where he diverges from the others I read who see gold as being set for a major bull run. Dent views gold as simply a commodity whereas other such as Chris Martensen and Mike Maloney see it rather more in a traditional sense as a store of value when currencies lose value. What we do know about the gold market is that demand for physical gold and silver has never been so strong indicating people are worried by all the money printing but the price of gold is not set in the physical market. It’s set in the derivatives market by bullion bank traders shorting gold with paper claims over small amounts of physical gold in the Comex. It is outrageous that this manipulation is allowed to continue unchecked and breaking regulations about market manipulation but that’s the way it is.
So that’s enough to digest. Listen to Jim Rickards as he talks about 2016 to RT. His commentary segment starts at 3.57 through to 11.09 on this video.
Malcolm Eves 05/01/16