The expectation that we’ll just grow our way out of this big fat bubble is not realistic. That has never happened – not once in history – and there’s NO CHANCE this will be the first time – not given our aging populations, low productivity and unprecedented debt burdens! Here’s my forecast – my expectations – for this very tricky year:
The comments above and below are excerpts from an article by Harry Dent (moneyandmarkets.com) which has been edited ([ ]) and abridged (…) to provide a fast & easy read.
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While the Trump rally seems to have legs, it’s not based on anything substantial or real, except perhaps some cuts in regulations. I think it’s not likely to make it into the summer of 2017. In fact, it’s just another sign of how much the stock market is in an irrational bubble!
Tax cuts won’t get companies to expand substantially any more than did free money that largely only led to stock buybacks and mergers and acquisitions – financial engineering – not real growth. Besides, infrastructure investments take forever to get drawn up, approved and shovel ready.
Here’s my forecast [my expectations] for this very tricky, new year:
- The big divergence:
- I think stocks will continue to rise after a pullback near term.
- Bond yields and the dollar will also rise to counter that trend until it breaks BUT
- I think Trump could have as much as a six-month grace period before reality sets in about his ability to get things passed and to achieve 4% growth rates.
- Stocks rise – and fall:
- I see stocks going as high as 22,000 on the Dow and 2,500 on the S&P 500 by mid-July or so; maybe even a bit later.
- After that, I expect the Russell 2000 (small caps) will lead us into the trenches.
- I then see a dramatic first crash of up to 40% into the fall.
- A growing divergence between large and small caps will be an important sign of such a top.
- Small caps have grown the most irrationally since the Trump win after lagging and could disappoint increasingly in the continued rally from here.
- [Renowned financial and geopolitical analyst Charles Nenner…says we are not going anywhere until the fall of 2017 when the whole bottom is going to fall out. If you are a very good stock picker, you’ll be okay, but I am talking about the indices (overall financial markets). It continues to be dangerous, and most of the good news is already in this rally. The hope that Trump will do the right thing is still there, but it will take too long. People will realize it is not going to happen tomorrow, and they will get disappointed…”]
- 10-Year Treasuries:
- 10-Year Treasuries could rise to near 3.0% before reversing down on falling inflation and slowing economic trends again.
- Once they’ve started to fall, they could go as low as 1.0%, or lower, and then stay near there for years, creating the fixed income opportunity of the decade for buying 30-year Treasuries and 20-year AAA corporate bonds.
- The dollar strengthens:
- Look for the greenback to rise to 120, likely by late 2017, while the euro falls to 0.85-0.88.
- In fact, the euro’s very existence could be threatened by default scares in Italy and the failure of Deutsche Bank.
- Gold falls:
- This is the year we’ll see gold sink to $650-750 per ounce, likely by late 2017 or shortly thereafter.
- I still see it dropping to as low as $400 (if not lower) before this down 30-year commodity cycle is over between early 2020 and early 2023.
- Oil rises a bit more and then crashes again:
- Oil will likely rise to as high as $60 at first, and then fall back to $26 or lower by late 2017.
- Ultimately, I expect we’ll see oil prices between $8 and $18 a barrel by early 2020.
- Trump trumped:
- Lastly, I reckon Trump will quickly discover that it’s not so easy to get most of his agenda passed. Even his Republican party is split on some issues.
- In fact, I’d go so far as to say he may not last the year, for many reasons…
We’re deep into this economic winter season. My hierarchy of cycles remains in negative territory for the next three years with aftershocks for another three to follow. The threat of civil war looms over the Divided States of America, especially in late 2017 forward. Another challenge for the economy and “the Donald.”
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