Trends Can Change …

We saw the old year out in business class on Air France. We feted it with champagne and woke up in 2015 thinking about you. Many dear readers wrote to offer best wishes for the New Year. Others wrote with compliments on our book or new newsletter. Thanks to all… and best wishes to you for 2015. We hope to help make it a good year for you.

Often, readers accuse us of “negativity” or “excessive pessimism.” Typically, they also ask for “solutions.”

Perhaps the beginning of a new year would be a good time to address the issue. Chris presented a list of possible market surprises in 2015. Although oil at $40 a barrel and gold at $1,000 may sound shocking, for the most part these trends are already under way.

Trends continue until they end… which often takes many years. “More of the same” is usually what happens. But that doesn’t make it the best bet. The best bet has to take into account the consequences of being wrong. That’s where the negativity comes in.

The stock market may continue to go up in 2015. Investors may continue praying to Saint Janet, with positive results. US economic growth may continue.

But what if they don’t?



Photo via Wikimedia Commons


Buy on the Dip

The major media, Washington and Wall Street will be happy to tell you why things will be cheery and bright in 2015. Just look at the price action last year. From Bloomberg:


“Investors and traders over the last number of years have been conditioned to buy on the dip,” said Quincy Krosby, a market strategist based in Newark, New Jersey, at Prudential Financial Inc., which oversees $1 trillion in assets. “This year was no exception.”

Stocks have dropped on 107 days in 2014, two more than in 2013, and never once declined more than three straight times, a first in data compiled by Bloomberg going back to 2000. Stocks jumped an average of 0.1% on days after they fell, helping underpin a 235-point advance in the S&P 500 that pushed its 10-year annualized return to 7.8%. It was minus 4.5% as recently as March 2009.

Companies are doing what they can to keep shares aloft. Through the first three quarters of the year they spent $515 billion on repurchases, a rate that were it maintained would trail only 2007 for the highest level ever, Birinyi data show.”


How could it get better than that? Which is just the point: You probably can’t. Optimism is fully bought. So, even if 2015 turns out to be a good year, there may be little profit in it.

But if things don’t turn out as hoped, the losses could be staggering. Then you would hear some real wailing and gnashing of teeth! Which is why a little “negativity” might be a good thing: It’s oversold.

IPOsStock buybacks are not the only thing that has soared – so have IPOs (and secondary offerings) – click to enlarge.


A 25-Year Slump

That in mind, here is a little more of it – a brief review of some discontinuities and some trends that could surprise us in 2015…

Stocks could go down. Why not? They’ve gone up for six years in a row. They’ve got to go down sometime. Bonds could also go down. There’s been a bull market in bonds since 1982. That has to end sometime too.

Oil could go up. The Fed’s bubble in the oil market has burst. Now, output should be falling, as the Fed still holds its key rate near zero… and central banks in Japan, China and Europe are still pumping.

Inflation could surprise us. We’ve gotten used to falling inflation rates and Everyday Low Prices. The Consumer Price Index has been going down for 33 years. There’s no law that says it has to keep going down. And when price increases go back above 2%, what major central bank will have the courage to tighten?

Those are just the most obvious and inevitable trend changes. There are also wars, crashes, and natural disasters that we can’t foresee but that could be devastating to millions of people.

Any one of these things – the inevitable or the unforeseeable – could trigger Jim Rickard’s “25-Year Recession.” A bear market in stocks could last a quarter-century – as Japan’s has. The US economy could go into a 25-year slump, as Japan’s has. The government could react as Japan’s has… and go broke, as Japan’s will.

What are the solutions? Stay tuned.


SPXThe S&P 500 Index over the past two decades. 2007 was a year of huge stock repurchases, but it was not a good year to buy stocks. Years ending in “5” have a very positive long term statistical record for being good years for the stock market, and the presidential cycle is positive as well – these are some of the reasons why many people expect the rally to continue. In fact, it seems every trend that has prevailed last year is expected to continue by the vast majority of market participants, except the downtrend in bond yields – click to enlarge.


Charts by: Renaissance Capital, BigCharts


The above article originally appeared as ‘America’s Coming 25-Year Recession’ on the Diary of a Rogue Economist originally written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.




Dear Readers!

You may have noticed that our header carries ab black flag. This is due to the recent passing of the main author of the Acting Man blog, Heinz Blasnik, under his nom de plume 'Pater Tenebrarum'. We want to thank you for following his blog for meanwhile 11 years and refer you to the 'Acting Man Classics' on the sidebar to get an introduction to his way of seeing economics. In the future, we will keep the blog running with regular uptates from our well known Co-Authors. For that, some financial help would be greatly appreciated. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.


Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA


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