The Metaphysical Approach

The New Year is here.  The slate’s been wiped clean.  New hopes.  New dreams.  They’re all accessible.  They’re all within reach.  No doubt, 2016 will be the year you get everything you deserve in life.  But what else will happen?

Today we squint our eyes and peer deep into the crystal ball.  There, at the center of the orbuculum’s refractive light, we are scrying visions of what’s to come in the year ahead.

 

crystal_ballProfessional crystal ball gazer at work

Photo via imgur.com

 

Will stocks go up or down?  What about gold?  Are we destined for World War III?  Who will be the next President of the United States?

These are the questions – and more – we intend to answer.  Obviously, clairvoyance via crystal gazing is more art than science.  But so is taking a charted wave pattern and extending resistance and support lines out into the future.

Remember, past performance is no guarantee of future results.  Thus, we are eschewing common forecasting techniques for a metaphysical approach.  But before we gaze into our trusty crystal ball and let it rip, several words of caution…

What we know is far less than what we don’t know.  Moreover, what we do know is a liability.  For it’s soiled by what Samuel Clemens once called ‘lies, damned lies, and statistics.’  It’s also sullied by our subjective objectivity.  In short, we know less than nothing.

Now, with that out of the way, we shall face our limitations.  What follows, for fun and for free, are several simple guesses for the year ahead.

 

Strategic Bets

To begin with, extreme monetary intervention will continue.  You can count on that.  Central banks around the world will do whatever it takes – or die trying – to expand the money supply and increase credit growth.  Naturally, these policies promote extreme market pricing absurdities followed by massive price declines.

At this point we’re still in the extreme market pricing absurdities part of the cycle.  There’s no denying that we are heading for another massive 50 percent stock market shakeout like 2000 and 2008.  But who’s to say stock market prices won’t first become more extreme…and more absurd?

 

1-Market Cap to GDPBy many measures, stock market valuations are at rare extremes – this is one of them. Only at the peak of the tech mania in 2000 have non-financial equities been more expensive relative to GDP – click to enlarge.

 

In this regard, under current conditions, the broad stock market is speculative.  Make sure you’re honest with yourself about this before buying stocks.  If you are clear about this fact, then go ahead and place some strategic bets.  But, when doing so, also consider the following:

Resist the urge to go bargain hunting for energy, mining, and emerging market stocks.  They’re already down significantly.  But they will go down significantly more.

Resist the urge to buy stocks, like utility or consumer staple stocks, purely for dividends.  The Fed is intent on pushing up interest rates.  As the 10-year Treasury approaches 3 percent, riskier dividend paying stocks will be sold en masse.

Certainly, the Fed could reverse course at any time.  However, we believe they will push up rates until a crisis is triggered…even if a 2 percent federal funds rate is as far as it can go.

Conversely, if you want to speculate on rising interest rates, consider betting on banking sector stocks.  As the spread between what lenders pay to borrow money and how much interest they can charge when lending money to customers widens, the net interest income of banks will substantially grow.

 

2-Bank IndexesRegional Bank Index KRX and the cap-weighted BKX – from a technical perspective, there has recently been a divergence between the two. A widening yield curve would indeed be positive for bank interest margins, but it remains to be seen whether it will actually do so – click to enlarge.

 

Again, this is predicated on the Fed’s intent to push up interest rates and the extent to which financial markets allow them to.

 

Who Will Be President and Other Hunches for 2016

The coming year will be one of great tribulation.  As the global economy – including the U.S. economy – approaches recession, world leaders will seek to deflect blame from their own blunders.  They’ll search for a diversion to channel the frustrations of their populace towards.  They’ll stumble outward in quest for a greater purpose and meaning for their young and unemployed.

The fact of the matter is, global factions are on a collision course for war.  Today’s proxy war and blowback for ISIS duplicity in Syria will escalate.  Tensions in the Ukraine will fester.  The ongoing territorial dispute between China, Malaysia, the Philippines, Taiwan, and Vietnam over the Spratly Islands in the South China Sea will intensify.  Ancient territorial disagreements between Japan and China over the Senkaku-Diaoyu Islands in the East China Sea will deepen.

Drum beating and chest pounding of world leaders will increase to deafening levels.  New myths will be concocted to garner public war support.  Alas, a major clash between rival powers will be underway by year’s end.

 

3-DFIDefense Index, daily – in 2015 the index has essentially moved sideways on a net basis v

 

Despite personal reservations you may have about the warfare state, being pragmatic will have a payoff.  We must understand the world as it is, not as we would like it to be.  Hence, speculating on defense sector stocks – like Lockheed Martin and Northrop Grumman – will prove to be a shrewd move in 2016 – though we’d prefer it weren’t.

With respect to gold, the Midas metal will take another year off.  The strong dollar and rising interest rates will stifle it, for now.  Nonetheless, the comparative value of gold, relative to stocks, bonds, or real estate, is considerably discounted.  This means it will be a fantastic year to accumulate and add to your physical gold hoard, while gold’s price spring further coils. Five years from now you’ll be glad you did.

Lastly, and it pains us to say it, Hillary Clinton will be elected President in November.  We hope with all earnestness that our premonition is wrong on this one.

Here’s to a healthy and prosperous New Year!

 

Hillary Clinton attends the 2013 Greenbuild Conference November 21, 2013 in Philadelphia, PennsylvaniaSaints preserve us from this war-mongering statist harpy!

Photo Credit: Bill McCay / WireImage

 

Charts by: St. Louis Federal Reserve Research, StockCharts

 

Image captions by PT

 

M N. Gordon is the editor and publisher of the Economic Prism.

 

 

 

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Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. 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.

   

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