I’ve been told-off over the years for making aggressively high targets for the Dow. Editors are often uneasy about articles that don’t heavily hedge their bets in the prediction of the future.
Here are a few of mine on Forbes that I could find using Google. There are more like this, especially calling the credit crunch, something that every one now claims they did, after all.
At the bottom of the market in 2009 I wrote:
In it I said I was very long and it was the finest time to buy since the dot-com crash.
Below was my prediction of the Dow at 14000, made in November 2011 when the index was around 12000. The Dow hit 14000 in Jan 2013 as few days late for me to be totally correct.
At the beginning of 2013 when the Dow was at 14,000 I wrote the Dow would be 16000 by the end of 2014. It went higher.
This chart from that article is rather pleasing:
Around 2014 I became bearish and increasingly so. So I wrote the dow would fall. I predicted it would hit 15300 from the mid 17500’s level when I wrote the article.
I’m not Nostradamus but my record of Forbes is there for all to see.
So what of 2016?
I’ve been bearish for about two years and you must understand I am a natural bull. Being bearish felt pretty nasty especially when the market didn’t fold and instead had a series of false crashes. I have since come to the conclusion that the markets are so heavily managed that they are being buffered on the downside by western central banks trying to maintain confidence and prop up their economies by creating strong and high assets values.
This puts some kind of medium term floor on the downside on market affairs but also risks a runaway slump when and if the economic dam bursts and ‘unconventional measure’ run out of potency.
This fogs my crystal ball because the market is in a bear and the managers of the economy are fighting to keep it in a bull. These forces are at loggerheads.
Without the Fed/ECB/BOE/BOJ supporting their economies by cornering bmarkets I would be predicting a big fat correction, likely a standard 25% crash.
I am positioned for this.
However if they insist on trying to ban the economic cycle of boom and bust, then for now they can hold the roof up. Instead they will build up a hidden oscillation which will grow to the point they can’t catch the ultimate plunge for the nth time and this will create a typical financial crisis.
Our economies are long since out of the valley of death and the central banks need to let go and allow the market do their magic. They won’t, so after the rescue they continue to micromanage and thereby pile up trouble of the next disjuncture.
In a way that is inevitable. Government regulates markets and therefore must take responsibility for their disasters. Of course they don’t but when you set the rules of the game you are culpable for systemic collapse.
That is, what it is, but what about the Dow?
It will crash in 2016 and I mean 25% down from the all time high of last year.
I am of course mad to make yet another call like that.
I always say a prediction should be one of the following 2.
The Dow will be unchanged. This is the statistician’s choice because on random probabilities that outcome is the 50/50 prediction.
It will either go up, down and if not those two possibilities it will go sideways. But without doubt, the chart will definitely not go left!
So let me use number two as a help. There is a 20% chance the Dow will be up at the end of 2016. A 50% chance it will crash, which is not the same as ending up lower and a 30% chance it will flap about at these levels going nowhere except for a few corrections interrupted by automagical intervention rallies.
This is coming from interest rate rises in the US and a potential dislocation of the debt markets.
Right now junk bonds are crumbling and if this turns into a general corporate bond rout, the stock market will go into crash mode.
However the Fed can come out and simply make it worth the while of banks to buy corporate bonds and stop that avalanche. Yet all it will take is a miscalculation or misstep and off will go the market on its way to a 25-30% drop or perhaps a mad bubble.
So the real call is not an economic one, but a political one. Has the Fed got the nerve to lay out some trillions to save the stock market from a crash if corporate bonds go belly up?
If the central banks are ready to butter the markets up while the Fed raises interest rates then the market is liable to sideways trade. If the markets are left to ride it rough, then the market will reprice toward into the 13000s.
This could be anytime and it could be right now.
So the picture is, small upside, big downside with few places to go.
Meanwhile the game is on in Oil. It has crashed, now the task is to define the lows and bail in when the bottom is in. It could be now, it could be in the mid-20s.
Without a general crash, this is where the money is to be made in 2016.