Can you believe 2015 is almost over? It seems like only yesterday we were ringing in the year. Now, we’re about to watch the ball drop in Times Square again, and close the books on it.
Market Roundup
Sadly for Wall Street, it hasn’t been much of a year to celebrate. The Nasdaq Composite has managed to rack up a few percentage points worth of gains. But the Dow Jones Industrial Average and Standard & Poor’s 500 Index have barely budged. The Dow Jones Transportation and Dow Jones Utility Index have gotten pasted. And the Russell 2000 has struggled for several months now.
Why such a lackluster year? And what does that say about the prospects for 2016?
I believe the big turn in the credit cycle, the global economic slowdown, and the ongoing woes in commodities are at the heart of the stock market’s struggles. Throw in a less-friendly Federal Reserve, and divergent central bank policy overseas, and you have a recipe for lousy performance.
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| The markets have confounded many observers and participants in 2015. |
Think about it: Investors grew fat and happy beginning in 2009. They could always count on free, easy money from central bankers worldwide to artificially prop up asset prices. They could count on synchronized global economic expansions to give corporate earnings a nice tailwind. And they didn’t have to worry about credit market turmoil because lenders were throwing money around like crazy.
But those very factors also laid the groundwork for the cycle turn we’re witnessing now.
Too much money flowed into the energy and materials sectors to finance the commodity “supercycle.” But the dramatic economic slowdowns in Asia, South America and parts of Europe are torpedoing demand and pricing. So investors are growing increasingly worried about a huge wave of defaults, and that worry is being priced into the credit markets.
Too much money was loaned out to too many auto loan and student loan borrowers. But now investors are growing increasingly nervous about the debt burdens those loans have left Americans with, and the prospect for rising defaults down the road.
Too much money also flowed into corporate America and yield-chasing mutual funds and ETFs during the boom years. That financed record amounts of M&A, stock buybacks, and junk bond issuance. But now investors are getting more worried about the negative impact on corporate balance sheets. So they’re selling aggressively and sending credit markets into a tizzy.
My belief (and fear) is that this process is nowhere near played out. After all, we had an epic boom/bubble in many assets and investment classes over the last seven years thanks to the massive influx of easy money. To think that would all unwind in just a few months seems naïve.
| “This cycle seems to be following the eerie pattern of the early 2000s.” |
If anything, this cycle seems to be following the eerie pattern of the early 2000s. That’s when we got a massive influx of easy money designed to combat the dot-com bust … and ended up with the biggest bubble ever in housing and mortgages (and related stocks). That bubble began to deflate in late-2005, but didn’t finish doing so until 2009.
Bottom line: Enjoy your New Year’s celebration. Open a bottle of champagne if you like, and blow as loud as you can on those noisemakers. But keep the struggles of 2015 in mind — and realize that many of the forces that helped hold markets back this year are still going to be with us in 2016.
Do you think my outlook is overly pessimistic? Or dead-on realistic? What do you believe held markets back in 2015, and what do you think will hinder (or help) stocks in 2016? Any economic or fundamental forces I overlooked, or that you believe investors need to take into account in the year ahead? Hit up the comment section below and let me hear about it.
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I hope you enjoyed the long holiday weekend as much as I did — and I’m glad you took some time out to comment on the issues at hand for the markets.
Reader Jim and Reader Phil weighed in on the gold market, and their thoughts about investing in the yellow metal. Jim said: “Gold is a good hedge, just don’t get carried away. The conventional 5% holding isn’t going to hurt you, but could prove very rewarding in the event of unexpected turns in the economy.”
Phil added: “Rare, highly graded gold coins are collectibles that have nothing to do with commodity gold. They, like fine art, are priced on rarity value. If you do invest in that field, please be sure you get a seller’s guarantee (insurance) that what you are getting is not counterfeit. Only buy from established, reputable dealers.”
When it comes to sovereign wealth funds and their liquidation selling, Reader Frebon said: “The Saudis and Chinese will sell their foreign currency holdings before their equities. If the Fed keeps raising rates though, they will have to accelerate their currency selling, and then maybe equities will be on the table.”
Reader Ted F. added: “There are a lot of potential problems with the low, scrape-the-floor oil prices for the producers. Quite a few countries have gotten so used to $100-plus oil prices that they shored up their economies with the oil revenue. They expanded and expanded social programs and giveaways to bolster the leadership.
“But what happens when the money runs out? Do they borrow themselves into a deep hole?”
Finally, Reader John said: “There is no question that with oil prices down, economies slowing (and tax revenues sagging as well), and defense spending up at the same time in key areas around the globe (Europe, Middle East, and even to some extent in Asia), many of the world’s nations are facing budget squeezes. Since not increasing defense spending in many regions would be both naive and risky, they are going to call upon the reserves they’ve saved up for just such a rainy day as we are seeing now.
“It’s also pretty clear that ‘hidden sellers’ of the kind Mike describes are not simply moving things around. That money is coming out of investment vehicles of all kinds and is being spent on whatever that government’s financial agenda requires. So that represents net de-vestment in the capital markets — and it could be sizeable.”
Thanks for sharing your views during these holiday-shortened trading weeks. There are only a few days left in 2015, and several powerful trends are set to influence stocks once the new year gets underway. So we all have to be at the top of our investing game — and sharing ideas here is a great way to bolster our understanding of the markets.
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 You know what the best investment was this year? Basically nothing! As this Bloomberg story notes, cash, stocks, and bonds all delivered next to nothing in returns, while commodities got crushed. That makes 2015 the worst year for asset allocation-style strategies in eight decades, according to Bianco Research.
 ISIS is being pushed back in northern Iraq, with government forces taking over key facilities in the city of Ramadi. U.S. airstrikes have aided in the effort, which still has a way to go.
 Widespread sleet, snow, and rain across the nation’s midsection is spreading havoc during the holiday travel season, and has claimed 24 lives. Flooding and tornadoes associated with the storm system have proven the most deadly.
 It looks like a lot of people got in touch with their inner dark/light sides over the long holiday weekend. Ticket sales for Walt Disney’s (DIS) “Star Wars: The Force Awakens” topped $1 billion worldwide. It managed to do so in only 12 days, the fastest any film has reached that milestone.
Are you traveling in this mess of a winter system, or staying put? Did you find it hard to identify winning investments in this year where nothing seemed to work very well? Do you think Disney will get its mojo back given the new ticket sales figures? Add your comments below when you get a chance.
Until next time,
Mike Larson
P.S. Larry Edelson had a 93% win rate last month! Members of Supercycle Trader won on 13 out of 14 trades last month … and Larry is set to continue these profits into 2016!
Click this link to find out more, and get on board now. But hurry, enrollment could end at any moment, as we are rapidly approaching out subscriber limit!
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Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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2015 reminds me of 2011, mike … and look what happened after that.
One of the biggest bubbles of all must be the UK housing market; constantly propped up and propelled onwards by government policies. We never had the major correction which took place elsewhere (as in the USA) and I see a huge disaster around the corner. But the politicians will be okay!
Well my experience with Bee Options this past year has been anything but “Good”. I was encouraged to invest in both Gold options (1088) and Apple (112-123) expiring at 1710 on the 30th of December. Oh yes the amount invested?? $25,000. And guess what? Unless there is a massive turn around I will lose that $25,000. And my association with the company that made the investment recommendations.
Happy new year.
Hopefully as 2016 comes we will find away to get an economy churning on the last embers of an burnt out middle class . We need new creative approaches which will allow us to increased consumer spending in a sector of the economy which when working hits almost every industry with its exhilarating effects . This would be the housing industry which at least in my corner of the world hardly has a pulse. This industry needs creative fixes which come with need and power. Much like credit swap defaults did for the Bankers. We need to do something to bail out the languishing middle class. Maybe revamping the credit bureaus would be a start. Not raising rates . We need to work with new ideas and maybe we an get the whole Ecco system firing on all cylinders. New Awareness for the new year
Last embers of a burned out middle class is a good way to put it; hope this does not turn into death warmed over.
Yes I like your comment ” On the last embers of a burnt out middle class” According to new numbers the 0.7% of the population own almost half its wealth. Forget 1%. The word creative is not in the governments handbook. Creative approaches would indicate something sustainable again not in the governments handbook. The middle class is definitely not feeling exhilarated only scared of terrorists which the government mantra drives home especially the GOP fear factor brigade. Fear factor of terrorists keep us docile and manipulatable as big brother will? protect us.
A cheap lesson
Some news investment letters are saying the market is just fine or normal. Others are saying go to more cash and wait for the next market crash. Is there a better economic indicator other than the federal data on economic indicators? We need a fine simple tool to work with for investing short and long term. What is available for us small investors?.
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money just started leaving retail money funds again, which is likely headed for equities.
Are you saying “out of the frying pan and into the fire.”
hopefully. some always goes into the money market during corrections, and comes out at the end. it’s moving out again now.
Nothing your on your own.
2015 reminds me of scrog this year was Christmas now next year 2016 Christmas past like 2008 and finally 2017 Christmas future sell some of your profitable positions and wait till there’s blood in the streets like jp Morgan said till then listen to the experts and have some fun while you still can
“Blood in the streets” is a Rothschild, during the French Revolution, when buying 1/2 of Paris from the Aristocracy.
Amazon (AMZN) more than doubled in price on 2015 without ever making a profit that came any where near supporting the January price of $285. Now selling at $675 they are talking about $800+.. It seems like weekly option sales are the new way to profit from an unprofitable company.
Hi Mike!
As usual, I feel and believe that you’re one of the few truly sane market analysts (like Larry Edelson) teaching and preaching the TRUTH. However, you both lack the real guidance of planetary influences/astrology and numerological factors. Whereas 2015 has been a number 8 world year of intense materialism that primarily includes financial and economic conditions, 2016 will be a number 9 (2+0+1+6) world year of ENDINGS, which will be followed by a number 1 world year of NEW BEGINNINGS of all kinds in 2017! So hang on for the ride!
Is that a cycle: 8, 9, 1?
Bill and Will,
You are both delusional and need to change your meds.
Wait till I consult my fortune teller. Will get back to you.
Hi Mike
We need a catalyst to give direction to this aging bull market. What will it be and when will it come and who won’t be prepared. Who will be surprised?
Many middle class retirees with modest investments have been forced into seeking higher yields because of controls on interest rates and rigged capital markets. Many of these battlers don’t have a seat at the decision making table and my fear is they will be caught again with a capital loss.
Howard,
That catalyst would be a $10K check to every legal person in the good o’ll USA. It would be a bit less than the “Bank bailouts”, but would give the economy a kickestart like no one has ever seen!
I stand by the old saying “Don’t fight the Fed”. The first increase in the fed funds rate (.25 bp) is nothing. If we get a few more, the message will be different. I’ve been watching the markets for a long time. Show me where the market topped out on the first rise in interest rates. It doesn’t happen. A few more increases would send a much different message. Also, the Fed continues to roll maturing Treasuries into new Treasury purchases. (St Louis Fed Data). If they stop rolling maturing bonds into new bonds, watch out. That will be, in fact, a Fed withdrawal of funds from the system. That would not be good for stocks.
2015 has been my worst year ever. Continued to be unemployed for the 3rd year in a row. Working crappy low wage temp jobs just to get by, despite being a licensed CPA. Still being discriminated against because my company went bankrupt in 2012.
But hey America is in great shape! Only 5% unemployment once you exclude one third of the working population, low inflation assuming you don’t eat anything, and the lowest increases in healthcare costs assuming you don’t use it because deductibles are through the roof.
I too just had my worst year ever. I have no one to blame but myself. I still have a job. I’m just not getting paid. My prognostication for the new year involves the direction of oil prices. The only really solid data available has been the domestic inventory numbers which have been the key driver of lower prices. The build has probably been exaggerated by the fact that shale crude is light sweet that we don’t have the refining capacity to process. The lifting of the export ban, that was received with a yawn, may have a more dramatic impact than many believe because our foreign partners have plenty of spare refining capacity. If our inventory begins a steady drawdown we could see at least a modest rebound in prices. Jim
Jim, I still don’t understand why our refineries can’t handle light crude. It requires a certain temperature to drive off each fractional component, regardless of the density of the whole. In an essentially automated process, any problem should be merely one of software, not of construction. If I’m wrong, I would like to be enlightened.
i think our refineries can handle light sweet crude.
I’ll try to explain it. Extensive conversion is required. Expensive coking units installed in the nineties have to be bypassed. The distillation tower has to handle three times the light ends, significantly reducing capacity. The furnace needs to be much larger to produce additional necessary heat. It adds up to much lower output from the old equipment. This is all very expensive and takes two to three years for the EPA permit and four to five years to recover the investment. I realize it’s trendy to say it’s just another example of big oil gouging the public but it just ain’t so. If current conditions persist I’m sure adjustments will eventually be made. Jim
I’ll personalize it. If you owned a refinery that turned a profit processing heavy sour crude and you knew that switching it to process light sweet meant no profit, what would you do? Jim
i’ve dealt with nasty coke ovens and dirty naptha gas, so i have an idea what you’re talking about.
Thanks Jim. I can understand refineries set up for heavy crude would lose efficiency processing light crude, and would produce less coke, tar and heavy oil, but why weren’t they originally built to process whatever is handy? West Texas has always produced light stuff, I think. Refineries might have cost more, but then would have had the versatility to take advantage of lower priced crude of any grade. They might have saved the refiners money in the long run.
100% correct on all counts. Good luck with job prospects in the new year (was out of work myself for 2 of last 5 years),
Only 5% unemployment and 35% not participating in the work force incredible. New all time low unemployment insurance claims!! Easy answer. They have exhausted their claims and dropped off of the charts. Government numbers are rubbery at best and its only getting worse at lying to the populous.
Mike
What are you saying in your newscaster> Try and be more specific rather than giving rain , snow sunshine and ice all in same forecast and relating it to the watcher we got back in 2000 and saying to expect something similar and leaving enough wriggle room that the forecast is meaningless,
Sorry about my negativity as you are usually not that indecisive? Maybe it says something about the current markets ? nobody knows and anything can happen
John
“nobody knows and anything can happen” – your quote. Maybe Mike is making you think, you think?
Between 2011 and 2014, earnings per share after deductions, for the S&P500 stocks grew, in the last 12 months ending in September of each year, by an average of about 2.4% yearly. In the 12 months ending in September 2015, earnings for those 500 stocks FELL about 15%, from $106, to $90.66. It is a wonder that stock prices for the year, after falling in August, seem about to end up just about even for the year, depending on what happens in the next 3 days. Perhaps the word hasn’t reached most shareholders yet, or they are waiting for a miracle in this last quarter.
The last miracle happened in Bethlehem. Watch out for a brutal 4th quarter. The government spin doctors are already at work to soften the blow. Future projections will look rosy.
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乙未年(羊)冬月åä¹ 2015-12-29
translator:
I wish you a happy New Year in advance .
Yi Wei year ( sheep ) winter months nineteen 2015-12-29
Thanks for another interesting article / forecast for 2016.
DIS is the season, as always – for discernment and discretion.
definitely a time to be cautious.
…but bullish.
I keep wondering where that 9 tril of national debt went that we acquired in the last 7 years. It sho aint helped the main street economy much and I never did see those “shovel ready” jobs. Seems like the people are burned out and tapped out on consuming “stuff” and nobody trusts the gov. to do anything that’s positive for everday people. No trust in the gov., no trust in the markets, and no leadership with vision that I can see that would propel the nation and/or markets forward. I expect a huge national and global crash and upheaval before anything like a positive growth world returns, I just don’t know when. You might say I’m pessimistically pessimistic about the whole shebang.
Mule
were getting precariously close to 19 trillion in debt, before Obama leaves office doing his best to destroy this wonderful country of ours we will most certainly be well in the 20+ trillion in debt obamas debt just he accrued in a short few yrs makes every taxpayer liable for over 4,200 dollars just in interest payments
And we’ll pay the SOB a “retirement” pension – and after he spent > $150 million of our money on “family” vacations.
the debt per citizen in this country is as of today 58,323 dollars that’s for every man woman and child the problem with this debt is……………tomorrow it will be more and every day after even more yet with no end in sight
the liability for every taxpayer for united states unfunded liabilities as of today stands at 841,222 dollars the problem with this debt tomorrow it will be more
some liberals here like to blame conservatives for all the debt we now have the truth is only long term fiscal sustainability will solve the problems we are now facing … ever wonder when the national debt began spiraling ever upward here are some facts that liberals like eagle495 don’t want known democrats controlled the senate from 2006- 2014 democrats controlled the congress from 2006-2010 and a democrat controlled the presidency from 2009-20016 and now you see why things got so out of control with this tax and spend administration
the truth hurts doesn’t it
Yet 47 per cent of voters thoroughly approve of what they are doing. Go figure. Jim
They are the “entitlement” voters – so not a shock.
Quote Seems like the people are burned out and tapped out on consuming “stuff†unquote. You have answered your own question. Under lousy circumstances it gives people a feel good feeling to “charge up on their credit card” junk they do not need. We constantly have our face glued to the candy store window.
Mike,
I believe the contrast between your thinking and Larry Edelson needs to be clarified ASAP!
Well, you MUST know the Larry Edelson forecast which is that as long as the Dow rises above 18500 again then it MUST rise above at least 31000 on the Dow in approx. 2 years because of capital flows from Europe and Japan when those areas face sovereign debt defaults like in the 30’s Great Depression. By the way Larry also forecasts another severe correction if the Dow does not rise to that level, (but if that happens I wonder how on earth the stock market could rise from the mid 15000’s to 31000 within two mere years!) so anyway, then after the rise to 31000 the USA stock market will then collapse altogether when the USA defaults, but he insists that it must and will rise to 31000 whatever happens!!
So are you impressed or influenced by Larry’s prediction at all or just basically pessimistic or just undecided???!!! Some clarity would be delightful!!
I like Larry and he and I both live in Thailand. Sadly I watched his gold supercycle loose its wheels and bounce over a cliff. Physical gold is holding its value but its true value is being choked off by all the “paper gold” in circulation. Governments, banks, Wall street are all pushing the “Gold is a relic of the past” religion. Why? So people do not realize that the only relic from the past is useless paper money. All the world currencies are worshiping at alter of the almighty Greenback. Devaluing debasing but this is not an endless cycle.
Most of the ancient civilizations have a duality that ends a situation clears the decks and gives room for renewal. The Greeks/Latins have Hubris & Nemesis.
However, I like the Indian god Shiva the Destroyer. Who is both, a god of destruction and then allows rebuilding anew. Methinks his time is nigh. (evil) Hwa, Hwa, Hwa.
(Tongue in cheek please, there is no spiritual message here, nor derogation of Hindus.)
This has all to do with easy money policies of recent years blowing up bubble after bubble, including inflated governments and regulations. The world is like a giant pendulum that swings from extreme to extreme; the farther pulled up, the farther to swing in the opposit direction. 2016 looks like as likely a year to swing back as any; hopefully we’ll before the next election.
Viva Las Vegas and Chicago Cubs …. you are about right …. Titanic is going down … stick to good companies paying DIVIDENDS and raise cash . . . . and also Pray that AMERICA return to GOD and elect Christian people …. as you all know these POLITICOS are Rotten to the Core and only care about their pockets and to their Luciferian Bosses … we need to change that by Praying … GOD BLESS you and your family and love ones I see the market crashing , more FALSE FLAGS , WARS, and remember we are just beginning of the End of TImes ……. the Two Witnesses will be here soon …. prepare accordingly and Pray that America RETURN to GOD we might slow it down …… GOD BLESS …
When one dies and faces his maker and asks why He didn’t reply to prayers, He’ll reply, “I gave you a creative brain, the only other being except Me in the universe with one, why didn’t you use it? why did you waste it? not even Lucifer has the ability to build a simple thing like a chair. What did you do with my gift? If you knew your enemies, didn’t I instruct you in my Book “to smite thine enemies” and GET WHAT YOU WANT numerous times?”
What do you answer then? Praying for change without lifting a finger to make change happen is a sin of laziness. David and Saul and others prayed for God to give them the strength to complete their tasks and beat their enemies, not for God to come as “Deus ex machina” to do it for them.
If you know that your leaders are lying to you then clearly they’re your enemies, what does God give you? The strength to beat them, but He does not beat them for you.
God Bless.
Pretty full on bro..but you nailed it…no lazy bro’s wanting to do the heavy lifting or hitting…your spot on..
Live long,smite heathen politicos and prosper.
Ed you hit the nail on the head.
“Now, we’re about to watch the ball drop in Times Square again, and close the books on it.”
Well said, Mike, except replace “Times Square” with “Wall Street”.
Over and out.
The junk bond market is now the tail wagging the dog. As positions are “attempted” to be unwound, and more bonds are down-graded, the flight to cash will first pressure these bonds, and then stocks in a massive way. The Fed will be powerless to stop it – and their 1/4-point reduction will cause a huge downdraft that day (as everyone finally realizes how bad things really are).
look at it from a different angle. i would imagine there’s opportunities in distressed debt as these markets unwind. now that would make a great article by the weiss family.
The junk bond market is the ultimate “canary in the coal mine”. Jim
as the fed raises rates it will clear out the excess in the junk bond market. but, as one sector goes into decline, another will take it’s place. over the next few years home buyers will scramble to purchase before rates and prices increase. what we lose in one area of credit we’ll gain in another. the banks will do great and so will the economy. the canary will die, but the eagle will soar.
i don’t know enough about credit, but distress creates opportunities. i’m sure there’s ways for us to profit. maybe someone who’s worked in banking could enlighten us?
COULDN’T HAVE SAID IT BETTER THAN MIKE (SEE BELOW)—SOMEONE AT YOUR OPERATION PLEASE RESPOND TO MIKE’S COMMENTS—DOES YOUR SERVICE HAVE A REAL POSITION AND WHAT IS IT?????? UP???DOWN??? SIDEWAYS????
John Monday, December 28, 2015 at 9:31 pm
Mike,
I believe the contrast between your thinking and Larry Edelson needs to be clarified ASAP!
Well, you MUST know the Larry Edelson forecast which is that as long as the Dow rises above 18500 again then it MUST rise above at least 31000 on the Dow in approx. 2 years because of capital flows from Europe and Japan when those areas face sovereign debt defaults like in the 30’s Great Depression. By the way Larry also forecasts another severe correction if the Dow does not rise to that level, (but if that happens I wonder how on earth the stock market could rise from the mid 15000’s to 31000 within two mere years!) so anyway, then after the rise to 31000 the USA stock market will then collapse altogether when the USA defaults, but he insists that it must and will rise to 31000 whatever happens!!
So are you impressed or influenced by Larry’s prediction at all or just basically pessimistic or just undecided???!!! Some clarity would be delightful!!
To Bill: All of the above. You want to cover all bases, after all. Larry is very good at it, John M.
the way I see it is that we will not see further rate hikes, the contrary will happen more of the same ( QE ). As long as we have to fight these expensive wars, still have high unemployment numbers, we are in trouble and risk riots and disorder.Result: a period of
higher inflation,higher employment and wages turning the economy upside down and wiping out these trillions of debt and having to introduce a debased currency.
Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won’t come again
And don’t speak too soon
For the wheel’s still in spin
And there’s no tellin’ who that it’s namin’
For the loser now will be later to win
For the times they are a-changin’
“NOT” to mention the hundreds of $billions that the BIG banks are sitting on & not lending.
A bit of an oversight?
A FEW STOCKS WILL BR PROFITABLE AND THE REAT WILL BE LOSERS.
THE TRICK WILL BE TO PICK THE WINNERS.
YOUR ADVICE WILL BE THE KEY.
LOOKING FORWARD TO YOURV ADVICE.
When you blow up a balloon – which is just a kind of bubble – and keep blowing, eventually it will burst. A flap of it might hit you in the face, and maybe sting a bit. When you blow up a $600 Trillion plus worldwide debt bubble, and it sooner or later bursts, it is likely to sting a helluva lot more. Maybe fatally for much of human society.
I feel 2016 will show us continued weakness in the bond markets especially in the mining and oil sectors