“It’s OK to forecast the end of the world, but don’t ever give a date.” ~ Burton S. Blumert, 1929-2009
With that sage advice as a caveat, our thoughts on how 2016 might play out:
1) Global economy will be in full blown recession by the end of the year. China leads the way, but the Euro Zone and U.S. not far behind.
2) Global equity bubble bursts, with the S&P 500 down over 25%.
– Worst performers: financials (global banks, auto finance, asset managers like BlackRock), technology (including highflying “FANGs”), REITs (especially those with exposure to shopping malls and NYC real estate), health care (heavily leveraged serial acquirers like Valeant, pharma companies with dubious patent protection, health insurers gaming Medicare), Chinese financials and real estate-related
– Best performers: Wal-Mart, food-related, fertilizer, defensive/consumer staples stocks in beaten down markets like Brazil
3) Euro zone bonds decline (yields rise), reflecting too much debt and too weak economies to service that debt. German, Italian, French, Spanish bonds all decline.
4) U.S. dollar peaks
– Japanese yen surprise winner as speculative carry trades unwind; Swiss franc reemerges as safe haven – Gold holds up well and gold mining stocks outperform as costs decline (but sticking to high quality companies and royalty companies that control their owns destinies and don’t depend on rising gold prices); platinum and silver also do relatively well
5) A Republican wins the 2016 election as Dem experiment of last 8 years is discredited (50-50 chance it’s Trump).
6) Optimism and dip buying remain intact; Jim Cramer still working for CNBC; no more than 1 or 2 short selling hedge funds are launched. Denial is still the order of the day.
7) Fed raises rates no more than 2 more times, then does an about-face. The world’s central bankers begin to lose credibility and swagger (though still early in the process – no “Wizard of Oz moment” yet). (Yellen & Co. may not even raise at all.)
8) Biggest winners in 2016: short sellers (though they are still treated by the mainstream financial press like pariahs).
Happy New Year, everyone!