Wow, it has been a while since I have published my last stock market and/or economic forecast. I think about 5 years or so. That is mostly due to the fact that I was doing something else and did not want anything to do with the stock market at that juncture. Those who know me, know that back in 2005-2008 I was talking about the upcoming economic collapse and its consequences on the overall economy. I have predicted the housing bubble and its destruction, the blow up of the credit market and the subsequent impact on the overall economy.
I was right on the mark but unfortunately was not able to capitalize on it due to my major setback in the market in 2006 due to my own stupidity and greed, discussed in my first blog post [I think I will blow my brains out now]. Due to that horrific experience I did not want to nor could I participate in any market operations during that time.
Those who know me even better can affirm that I predicted the exact bottom on March 14th, 2008. I was 1 day and about 150 points away from the true bottom. Not bad, if you ask me.
So, what does the future hold?
At least for me it is clear as night and day from both a fundamental as well as a technical perspective. As I have mentioned in the past the stock market can be predicted with great accuracy. In my subsequent posts on the stock market I will talk about my approach and how I am able to do it. It took me over 3 years of measuring every little market move since 1790, a lot of research and high degree of mathematical work in order to figure out about 50% of the total stock market framework. There is definitely a clearly defined mathematical structure behind every single stock market move that can be used to predict (with great accuracy) the upcoming moves not only of the overall stock market, but individual stocks as well. I will talk about this more in my upcoming posts.
Before we get there, let’s me get something off my chest and bitch for a few moments.
I find it horrifying that 99.9% of Americans don’t understand what is going on in our economy and financial markets. The issue is not gay marriage, gun control or abortion. The issue is fiscal insanity that is happening on every level of our government. It can end only in two ways. Economic collapse or war. The stock market is predicting significant inflation to kick in between 2016 and 2029. Now if you think that China will allow the US to simple inflate their 1.2 to 1.5 TRILLION dollars of debt into thin air without retribution, you are sadly mistaken.
I have no problem whatsoever with putting macro financial illiteracy at 99.9% because I know it from experience. Let me give you an example. When I was raising capital for my fund between 2001-2006 I would talk to a lot of smart and wealthy people, people in the financial and the investment industry. You can say the cream of the crop, smart and very well educated people. However, even most of these people didn’t get it. They couldn’t see what was so clear (at least to me). I would tell them, “Listen guys, this shit (credit bubble/real estate) is about to blow sky high.” In return, they would call me “Boy who cried wolf”. Yes, I was a little early, but right on the mark. Some of the companies I advocated shorting, collapsed and filed for bankruptcy within weeks in 2008.
So, what is my point? My point is that most Americans don’t understand what is going on in the economy and the financial system. And what is going on?
Well, generally speaking we are about 70% done with the BEAR market that started in January of 2000. The true date of completion will be in 2016 with 2018 representing the secondary bottom. (Once again, I will discuss the cyclical and technical breakdowns of such analysis in my later posts).
Presently we are in a deflationary environment where most “tangible” things will lose value. I know there is a lot of talk about inflation, rising gas prices, food prices, etc…. However, that is not the proper definition of inflation or deflation.
Inflation is expansion of credit.
Deflation is destruction of credit.
Presently we are still going through one of the largest credit destruction events in financial history. The only reason you are feeling the impact of inflation is because the FED is pumping out a tremendous amount of money into the economy. However, that money in itself is much smaller than the amount being destroyed though credit defaults throughout the economy. The volume of money will not be equalized until 2016 and that is exactly when the real inflation will kick in. (Start locking in your long term loans at fixed now. The rates will go much higher from here over the next few decades).
Anyway, My Forecast: (based on my mathematical calculations)
A. There is a prominent 5 Year market cycle. Typically it runs as a Bull Market, but sometimes it does alternate to bear market. Let me give you just a few examples. (you can keep going back further and you will find the same thing)
1982 to 1987. Exactly 5 Year bull run followed by 1987 crash.
1994 to 2000. 5.05 Year bull run followed by 80% Nasdaq crash and 2.5 year strong bear market.
2002 to 2007 Exactly 5 Year bull run followed by 2008 Credit bubble and a 55% haircut on the Dow.
March 2008 to March 2013 This bull run is coming to an end very soon. Plus, the existing market has put most investors to sleep. This is very dangerous. That is what the BEAR market does. Be VERY CAREFUL here. The bear market LOVES to suck people back in with a bear rally and then put them to sleep towards the end of it with a lot of up and down movement and without so much as going anywhere. Everyone is lazy, calm, fat and happy. The trap is set.
BAM!!! That is when the bear jumps in, rips your head off and drinks your blood. Basically, be very vigilant and careful here.
B. 100 Year Cycle: If you study the market back to 1790, (the first year stocks officially started trading on Wall Street) you will see a very prominent 100 Year Cycle in the stock market. Simply put, market tends to repeat itself more or less every 100 years.
For example, you could have pulled credit collapse headlines from 1908 and put it into 2008 newspapers and you wouldn’t be able to tell the difference. If you go into 1912-1913 time frame you can see that you should anticipate a decline with a long side movement thereafter to complete the BEAR market.
Next few years summary & advice:
The next few years will be very uneventful. The bear market that started in 2000 is coming to a close in 2016. History, the 5 year cycle and 100 year cycle (among many other things that I don’t discuss here) predict a short term decline to the tune of 20% or more and years of sideways movement thereafter until the bear market is over in 2016 (with 2018 being secondary bottom).
Remember, the 5 year cycle indicates that this bull run is over in March of 2013 (+/- 30 days) As they say, sell in May and go away.
If I was NOT a stock picker and if I was in the stock market, I would……
Wait for a technical breakdown of the existing bull run over the next few months, liquidate ALL of my positions immediately at that point and roll over all of my cash into SAFE high yield fixed instruments.
That’s about it. If you have any questions about this, let me know.
from Anonymous5.Thank you. In fact, it may be purely luck. Last year, when i watch your porfotlio, I think I can’t match yours. I can’t invest in the anticipation of calamity. Just what the Warren Buffett mentioned below. Anyway, Let’s wait and Mr. Market will soon recover.”What the DeBeers did with diamonds, the Arabs are doing with oil; the trouble is we need oil more than diamonds.” And there is the population explosion, resource scarcity, nuclear proliferation. But, he went o n, you can’t invest in the anticipation of calamity; gold coins and art collections can’t protect you against Doomsday. – WEB 1974, Forbes
Thanks for your comment. It is not necessary the anticipation of calamity but working on and trying to predict what the market will do. I wish I was saying it’s going higher (and sometimes I do like at 2009 bottom), but that’s not what my work is predicting.