Whether it is the mainstream or the alternative medias, economic and financial predictions are part and parcel for the final week of a given year. And perhaps what is humorous for the average reader is how dichotomous these forecasts can be, with one side always predicting good times for the economy, and the other side lamenting collapse.
So rather than picking and choosing who is more accurate or cogent on an individual basis, this year we will post a number of different forecasts from a number of different sources and look back a year from now and see who was on the ball, and who was full of garbage.
Doug Kass: Seabreeze Partners
Surprise No. 1: Terrorism Dismantles an Already Fragile Global Recovery
I fear we’ll see attacks that demonstrate how terrorism incidents are systemic and not (as the consensus sometimes believes) simply isolated. It could become apparent that we face a broad, aggressive wave of terrorism aimed (as expressed by ISIS) at defeating the West’s world domination.
Acceptance of this notion would cause significant disruption in global markets and the world’s economies. Shares in airlines, hotels, entertainment companies (especially theme-park related) might suffer the most throughout the year.
Surprise No. 3: ‘The Mother of All Flash Crashes’
One of these cyber-attacks causes “The Mother of All Flash Crashes,” which scares the hell out of many market participants. The Dow Jones Industrial Average falls by 1,100 points — the largest one-day point decline in history.
Almost immediately following a Democratic presidential win in November, President-Elect Hillary Clinton attacks the market-rigging, unholy alliance between high-frequency traders the stock exchanges. A special congressional commission is formed after the flash crash to address the HFT industry and its fellow travelers.
In an attempt to correct the unfair playing field that’s evolved, the government declares co-located servers illegal and bans “spoofing” and other dirty work that’s become routine in the HFT industry. The market’s fragmentation and illusion of depth that have allowed quants to profit at the expense of other investors reverses as new, punitive and costly regulations threaten Wall Street’s “dark pools.”
However, legislation from Sen. Elizabeth Warren (D-Mass.) to revert both the Nasdaq and New York Stock Exchange back to non-profit status fails to make any progress.
Surprise No. 5: America Falls into Recession and Stocks Tank
Too much debt, too little growth, fiscal-policy paralysis, a “spent” Federal Reserve and limited capital spending (which adversely impacts productivity) weigh down stocks in 2016. So do crony capitalism, geopolitical instability a further narrowing of market leadership and a further technical breakdown.
The current U.S. expansion is now more than 70 months old, one of the longest in history. There have been six recessions since 1971, and the S&P 500’s average drop during them is 36%. I predict 2016 will see the seventh recession in the last 45 years, with stocks experiencing a 20% decline.
Few asset classes will be spared, and household net worths will suffer. Rising bond prices had the effect of somewhat buffering falling stock and home prices in the last downturn. But we won’t be so fortunate this time as stocks, real estate and bond prices will likely all decline at the same time.
Other key economic/market features of the year:
- U.S. real GDP suffers two back-to-back declines in 2016’s third and fourth quarters. Corporate profits turn negative in the second quarter as the largest number of earnings guidedowns since the Great Decession develops.
- Profit margins drop precipitously as revenues come in well below expectations and costs rise ever higher.
- Productivity will decline in the face of the past few years’ limited capital expenditures.
- S&P 500 stocks’ 2016 earnings per share will come in under $100 (dropping off dramatically in the second half). That’s more than 15% below today’s consensus expectations.
- Price-to-earnings multiples contract.
- Share buybacks are 50% lower in 2016 vs 2015.
- Merger-and-acquisition activity slows to a crawl.
- 2016 produces the lowest number of IPOs in eight years.
- The U.S. dollar’s bull run ends. Our currency fails to appreciate as the consensus expects. Instead, it slumps in response to terrorism within our borders and to cyberattacks directed at our financial system.
- Oil temporarily exceeds $60 a barrel.
- The U.S. housing market suffers in price and sales volume.
- Auto industry sales (SAAR) decline by over 2 million units to under 15 million.
- Another peak is seen in 2016: “Peak Employment.”
- Despite weakening economic growth, the 10-year Treasury’s yield spikes to 3% on inflation scares.
- The VIX breaches 40 to the upside during the year.
Surprise No. 8: China and Russia’s Economies Falter
China’s real GDP growth rate (at least as stated) could fall below 5%. Unemployment rises and riots ensue, forcing the government to clamp down on social media.
As a form of distraction (and an attempt to expand its political and economic reach), China flexes its military muscle and gets more aggressive in the South China Sea. A hot-headed ship captain causes a crisis and President Obama considers sending U.S. ships into the disputed waters.
Despite a rise in oil prices, Russia’s economy implodes. Russian leader Vladimir Putin grows increasingly irrational and retaliatory towards his perceived enemies, precipitating more confrontations and crises.
Surprise No. 9: The European Union Begins to Unravel
German Chancellor Angela Merkel’s open-door immigration policy backfires and causes her to resign, while Britain leaves the EU (a “Brexit”) under the assault of Euro-skepticism.
Separatist initiatives in Scotland and other countries advance and France’s National Front party rises to new heights in the face of immigration fears. Support to Greece and other EU peripheral countries diminishes, causing another emerging-market crisis. European borders are shuttered and trade comes to a halt.
Surprise No. 10: It’s Hillary vs. The Donald
The U.S. far left and far right both surge in popularity as voters lose faith in the political status quo. Despite his rude and crude campaign, a series of terrorist acts within U.S. borders propels Donald Trump ahead of all of his Republican competitors.
The “bromance” between Trump and rival GOP presidential candidate Sen. Ted Cruz continues, and The Donald makes the Texas senator his running mate. Clinton selects former San Antonio mayor (and current Housing Secretary) Julian Castro as her running mate.
The first Clinton/Trump presidential debate attracts nearly 100 million viewers. Given the world’s chaotic landscape, the November election is much closer than expected, but Clinton beats Trump 293 electoral votes to 245.
Ruchir Sharma, head of emerging markets equity and global macro, Morgan Stanley Investment Management – Watch for a Worldwide Recession
Dan Fuss, vice chairman at Loomis Sayles & Co. and co–portfolio manager of the $20 billion Loomis Sayles Bond Fund – Fixed Income Faces a Rocky Road
Thomas J. Lee, managing partner at Fundstrat Global Advisors – “Equities are going to do really well in 2016, especially banks and blue-chip businesses. Banks will benefit from the Fed tightening and will boost their returns on equity as the economy expands. And when you look at blue chips, they’re going to have the ability to generate stronger returns as the economy picks up.”
Rebecca Patterson, chief investment officer of Bessemer Trust, which oversees more than $100 billion in assets – The EU Faces Its Biggest Challenge Yet
Joseph LaVorgna, chief U.S. economist at Deutsche Bank – Growth Is Coming … in 2017
- Oil Continues to Be Cheap
- American Debt Is Smaller
- Millennials Are Buying Homes
- Wages Continue to Increase
- U.S. Interest Rates Will (Finally!) Go Up
- Corporate profits perking up. “Earnings growth is expected to accelerate. Resumption of earnings growth is key to stock market performance in 2016 … [which means] another year of potentially positive returns.” — LPL Financial
- Oil prices staying low. They likely will remain depressed, and may even fall below $35 a barrel. “I don’t think we’ve seen the bottom of energy.” — Laurence Fink, BlackRock chairman, speaking on Bloomberg TV
- Interest rates rising. The Federal Reserve has finally begun hiking short-term interest rates and now is “likely to proceed very slowly. IHS Global Insight expects four [quarter-percentage-point] increases in 2016 (in March, June, September and December) and four more in 2017.” — IHS Global Insight
- Residential construction improving. “Homebuilding, especially single-family homebuilding, will remain a key driver of economic growth in 2016. There is a great deal of pent-up demand for housing.” — PNC senior economist Gus Faucher
- Unemployment falling. The 5 percent jobless rate could go even lower, “perhaps down to the mid-4’s.” — Julie Heath, director of the University of Cincinnati’s Economic Center
- Auto sales setting records. Auto sales are projected to hit 17.3 million by the end of 2015, just shy of the 2000 record of 17.4 million. “That threshold certainly will be surpassed in 2016 as sales stretch to an almost-mythical 18 million vehicles.” — Robert Weagley, chair of the personal financial planning department at the University of Missouri
- Manufacturing strengthening. “The manufacturing economy is stabilizing after a difficult 18-month period (mid-2014 to late 2015) and may accelerate further.” — John Canally, economic strategist for LPL Financial
- Wages inching up. “The U.S. is poised for real wage growth of 2.7%, barring rising inflation.” — Korn Ferry Hay Group
- Expect gradually increasing interest rates and tougher credit for business.
- Lower oil prices into mid-year followed by gradual increases in the cost of oil.
- This will be the year of the mega-merger
- It will be a challenging growth year for middle-market companies
- It will be politics as usual—and the gap widens!
And some additional ones:
IMF: – IMF chief warns of ‘disappointing’ global growth in 2016
Global economic growth will be disappointing and uneven next year, said the head of the International Monetary Fund Christine Lagarde in an article for German newspaper Handelsblatt.
It’s time to start the countdown to the crash of 2016. No, this is not a prediction of a minor correction. Plan on a 50% crash.
Most investors don’t want to hear the countdown, will tune out. Basic psychology. They’ll keep charging ahead with a bullish battle cry, about how the Nasdaq will keep climbing relentlessly to a new record above 5,048 … smiling as they remember reading that a whopping 73 companies are now in the Wall Street Journal’s Billion Dollar Start-up Club, with Uber ($41 billion), SpaceX ($12 billion) and Snapchat ($10 billion). Hearts race even faster reading in Bloomberg BusinessWeek that “China’s IPO Boom Mints Billionaires” and Jack Ma’s Alibaba fortune is now valued at $35.1 billion.
Yes, technology IPOs are in the lead, and with all that good news, it’s easy to understand why investors tune out, don’t want to hear the warnings, no countdown to the 2016 crash.
But the crash of 2016 really is coming. Dead ahead.
Missing among these forecasts are the Big Five alt media analysts (Jim Willie, Peter Schiff, Rob Kirby, Marc Faber, and Gerald Celente), but for the most they have already laid out their beliefs for next year’s economy throughout 2015, and have not wavered from the inevitability of the U.S. and global economies.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com, Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.