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Historians of the future will designate 2015 as the year of The Great Transition …
From zero interest rates to higher interest rates.
From the fear of inflation to the dread of deflation.
From global peace to global conflict.
And on the positive side, from left-over technologies of the 20th Century to life-changing technologies of the 21st.
Future historians will also recognize, probably long after the fact, what Larry Edelson has been telling us for over two years — that these critical transitions have been accompanied by escalating global conflicts in multiple venues:
1. Money wars: Governments waging wars with printed money to ward off the collapse of currencies, the collapse of nations, and the dismemberment of international alliances … to fight deflation, debts, and defaults … to overcome unemployment, poverty, and popular rebellion.
2. Economic wars: Major battles waged with economic sanctions, trade blockades, asset freezes, plus cyber-spying and cyber-attacks — between East and West, between governments and foreign extremists, and also between governments and their own people.
3. Terror wars: Rampant bloodshed and unprecedented horrors on every continent except Antarctica. On every day of the year except February 30th. In every way imaginable and unimaginable.
4. Three-way wars: Unlike most of World War I, World War II or the Cold War, this time we see the emergence of a three-way global conflict among …
* the “West” — the U.S., Western Europe, and their closest allies,
* the “East” — Russia, China and their cohorts, plus …
* the jihadists — in the Middle East and Africa … in Western Europe and the Russian Federation … in South Asia and Southeast Asia.
Who are the losers and who are the winners?
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Loser #1: Government Puppeteers
Government officials seem to be born and raised with the grandiose illusion that, like master puppeteers, they can control our destiny by manipulating — even fine-tuning — their levers of military and economic power.
The year 2015 has proven them wrong. Even the world’s richest or most well-armed governments have been unable to slow the pace of events — let alone turn them around.
Case in point: In 2015, international diplomats vigorously pursued old peace talks and new alliances. But in the final analysis, the most notable change has been the reality of more and more warring parties jumping into the fray:
Turkey. France. Russia. Gulf nations. Just to mention the main ones.
Also in 2015, central bankers have tried everything they could to stop the spreading deflation, forever postponing the end of zero interest rates … or even driving them below zero. All to no avail! In fact, much like the global wars and terror, global deflation has also deepened and spread.
A coincidence? Not at all. In fact, deflation is both one of the causes — and one of the consequences — of the global conflicts. Look at it this way …
- The deeper the deflation, the greater the popular frustration and anger … which lead to protests or civil strife.
- At the same time, the greater the conflicts, the more we see deflation ravaging prices and entire economies.
This is a vicious cycle that has hit emerging markets especially hard, whether near the conflicts or not, which leads me to …
Loser #2: Emerging Markets
Brazil, for example, has flip-flopped from a miracle economy to a basket case. Its service sector, once robust, suffered its largest fall since early 2009. Overall economic activity fell by 3% in 2015 and is expected to fall by another 3% in 2016.
And a massive corruption scandal, which began with Brazil’s oil giant Petrobras, has now spread fear to the boardrooms of dozens of the country’s largest corporations.
Result: EWZ, the once-high-flying ETF that represents Brazil’s largest companies, has suffered a long-term plunge from over 99 to a recent low of 20 — a wipe-out decline of almost 79%.
South Korea, recently a darling of global investors, has suddenly been cast as one of the dogs. Youth unemployment has crept up to record highs. The working-age population, which, until recently had made South Korea an export powerhouse, is shrinking. And among Korea’s elderly, poverty is the worst of all 34 countries that belong to the Organization for Economic Cooperation and Development (OECD).
For all these reasons — and more — EWY, the ETF specialized in South Korea’s blue chips, took a beating in 2014, rallied, and took an even bigger beating in 2015.
Malaysia, another recent “miracle” economy, has been hit even harder: Its currency, the ringgit, crashed to its lows of the late 1990s. Its central bank, desperate to prevent an even more dramatic currency crash, depleted foreign currency reserves.
Adding corruption to the mix, the government’s giant investment fund — 1MDB — came under investigation over allegations of a massive misappropriation. The biggest blow of all: The global oil-price plunge, gutting Malaysia’s largest source of revenues.
So it’s no wonder that the ETF devoted to Malaysia’s leading stocks has also been smacked down, busting through four years of lows.
But it’s Russia that currently worries me the most — both for the sake of its own people and the rest of the world.
If Russia’s economic swan dive could be blamed exclusively on its showdown with the West — sanctions, countersanctions and just last week, a renewal of those sanctions — you could argue that, once politicians on both sides come to their senses, a big rally might be in the offing. Alternatively, if you could pin it all on the oil-price slump, you might argue that, as soon as oil markets turn, all would be fine.
The reality, however, is that, in 2015, Russia was dragged down by both of these simultaneously. And both are megatrends with no signs of ending: The anti-West propaganda machine in Russia is now fully entrenched, making it almost impossible politically for the leadership to reverse course. And even if oil markets started recovering today, it could take years for Russia to recoup lost revenues.
Bottom-line: Russia is trapped in a Great Recession that could be deeper and longer lasting than what the U.S. witnessed between 2008 to 2013.
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Loser #3: Western Europe
As Larry Edelson explains …
“Almost everyone I talk to thinks the European sovereign-debt crisis has passed. They say Greece’s bailout fixed the problem. Europe is on the mend, they say.
“But as far as I’m concerned, nothing could be further from the truth.
“The proof is in the numbers. Before the Greek crisis flared up, debt-to-GDP in Greece stood at 113%. Today, Greece’s debt-to-GDP stands at a tad north of a whopping 177%.
“In Spain, pre-crisis debt stood at 40% of GDP. Today it’s more than 97%.
“In Italy, it was 106%. Now it stands at 132%.
“In France, it was 68%. Now it’s 95%.
“Even Germany’s debt-to-GDP is worsening, leaping from almost 67% in 2008 to almost 75% today.
“In each and every case, debt-to-GDP is worse than it was at the beginning of the crisis — and austerity measures are literally causing the entire European continent to implode.
“All of this continues to create some of the worst unemployment we’ve seen in modern times.
“Each and every one of these countries is in hock way over its head. And each and every one of them is in the depths of a nightmare caused by austerity measures.
“Unemployment in Greece is at 25.6%. Spain: 22.5%. Portugal: 12.4%. Belgium: 8.6%. Italy: 12.7%.
“Unemployment among youth (under 25) is still off the charts. In 2015, nearly 3.2 million young persons were unemployed in the eurozone, an unemployment rate of 22.5%.
“The lowest rates were observed in Germany (7.1%), Malta (10%), Estonia (10.1% in May 2015), Denmark and Austria (both 10.3%).
“And the highest rates were seen in Greece (53.2%), Spain (49.2%), Italy (44.2%) and Croatia (43.1% in the second quarter 2015).
“Corporate and personal bankruptcies surged. Social discontent is on the rise again. And tensions between countries within Europe are higher than ever.”
Other big losers: Oil prices, energy stocks, junk bonds, and more. But let’s not forget the other side of the coin …
Winners: Select Technologies
Highest quality U.S. stocks — especially in select technology companies — were among the biggest winners of 2015.
Just as we anticipated, fear of conflict and deflation overseas drove massive amounts of flight capital to the U.S. dollar and the U.S. stock market. That money, in turn, chased the best and safest investments available.
Indeed, as we revealed early in the year, the one broad stock sector that has historically been the single best performer when energy markets collapse is technology.
On average, technology stocks have surged 64% during major oil-price declines, plus another 35.1% within 12 months after oil prices hit bottom.
And it makes all the sense in the world: Consumers and corporations save fortunes on energy. So they promptly shift those resources to the one thing that can most efficiently improve their lives or their business — hardware and software.
Also early in the year, we drilled down deeper and demonstrated that, in the world of technology, the single subsector that had the best performance of all was software and related services — up 77.5% during the oil-price decline and up another 49.9% twelve months later.
And we followed up by revealing a new techno-megatrend few people were talking about — mobile communication apps that are threatening to blow away Gmail, Facebook, and even Skype — to communicate and network instantly by exchanging text, images, voice, video and more.
For example, looking at my own iPhone, I see that …
* Most of my U.S. and Latin American contacts are on WhatsApp. In early 2009, the company didn’t even exist. Now, just six years later, it has more than 700 million users and has been acquired by Facebook for $19 billion.
* Most of my China contacts are on WeChat (Weixìn in Chinese) — another text and voice messaging app that was just released four years ago and now suddenly has almost a half-billion registered users globally.
* Meanwhile, most of my contacts in the Philippines, North Africa and the Middle East are on Viber. So I decided to use that one too. Number of users: Another 400 million worldwide!
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At this point, I figured I had pretty much all my bases covered — apps with nearly 2 billion users combined … until, that is, I went to visit my son at his workplace in Tokyo. His associates promptly persuaded me to download LINE, which has had the fastest growth of all.
It was launched in Japan in 2011. Within just eighteen months, it had 100 million users. Six months later, it doubled to 200 million. And now it has close to 600 million users worldwide, more than the total population of Japan, the United States and Russia combined.
Looking further ahead, we see similar techno-revolutions coming in
- Driverless cars, as Google seeks to team up with a major U.S. automaker like Ford.
- Mobile everything, as three billion people access the Internet through mobile devices.
- The Internet of Things, as nearly every thing in our life gets connected to almost every other thing.
- Drone technology, now available for purchase with just $50, $150, or $350.
And many more.
My point is simple. Throughout this year, despite market ups and downs, and despite a series of external shocks, U.S. investors had the opportunity step outside the fray, breathe some fresh air, and stake out very profitable positions in choice companies.
But the opportunities — and dangers — coming next year could be even more intense, the subject of my upcoming edition of January 4th.
See you then. And I trust you’re in a quiet, or not-so-turbulent location to enjoy a Happy New Year!
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 19 comments }
thanks so much, Martin, for a most interesting and informative read. also taking this opportunity to wish you and all at Weiss Research – a merry Christmas and a truly prosperous new year 2016.
Thanks for the 2015 recap, but looking forward to your prognosis for 2016.
Rich & wise thank you Beeri
Dr Weiss, thanking you for your informative article! My Question: How can I use my 30,000 invested to generate real growth? I can’t find but 3,4000 p/yr to put away! What do I do to use what I have to generate more??
Thanking you, from Austria,
Marlin Miller
to make matters even worse for oil exporting countries like russia, venesualia, iran, nigeria, etc., it appears low oil prices are here to stay for some time.
Dr Weiss, many thanks and have a great years ahead.
Martin Weiss, I hope you have a wonderful 2016 Forward. Thank you for providing us with so much information which we can use or misuse at our own risk. It is always interesting, and sometimes very valuable. Best of luck to you, your organization, and your clients (us).
An interesting and informative read – keep up the good work and all the best for the new year.
Dr. Weiss,
Thank you for the informative articles! One question, Why do you and Larry Edelson point to austerity as the cause of the problems in Europe? Isn’t the real problem that Europe simply does not want to stimulate the productive part of the economy, the private sector, as evidenced by their insistence that reduced big government spending be accompanied by tax increases (which pulls wealth out of the private economy and moves it to big government). Wouldn’t the appropriate solution be to cut big government spending while simultaneously reducing taxes and eliminating burdensome regulations (along with anything else that impedes the growth of the private market)?
Thanks again and Happy New Year!
Hi Martin
At some point we are going to revisit global debt and the issues surrounding default. Finding the appropriate risk free positions across a basket of investments is becoming more of a challenge. The controlling of risk return by the central banks is designed to send us all broke at the same time. How do we counter these risks is an interesting question.
Interesting material indeed, proved also information on Africa, have a nice holiday
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major causes of deflation: over-mechanization-robotics in the middle of massive population explosion. what did you expect? this is what happened on an introductory scale in the 1820’s; heritage of proprietary banking, i.e., post-solomonic era banking by the Egyptian temple bankers and Judeo/Israel alliance through historic “European” banking syndicates of 1100AD to 20th century. Same old-same old. What’s next? Bernard Baruch meet Bitcoin-fish or cut bait.
missmike you have it correctly. Throw in AI in a decade or so and the problem gets worse. The young will not sit still and watch their life erode away. Civil unrest will become the order of the day. That is why all countries are beefing up and militarizing their police forces.
thanks for the great videos dr weiss. i especially enjoyed you advice on index annuities. i’ve never like annuities, nor insurance companies for that matter, because they seem to be a greedy middle man between me and my money. your video interview with mike larson explained the annuity choices in a way i never understood until now. the video is a must-view for anyone buying an annuity.
Kudos for your excellent comprehensive summary.
I take issue with only one point: I think that the actions by central bankers (“puppeteers?”) to restore credit (what you call “to stop deflation”) were the best one could do to clean the mess left by the greedy financial institutions. These actions proved largely successful, as the recession is almost over – at least in the US.
Uri As my old grandmother used to say “Never count your chickens before they are hatched” Your giving the US way way to much credit. Quit reading the government’s rubber numbers. 33% of the population is not participating in the “end” of the recession 20 trillion in debt and a total overall debt of 200 trillion does this just go poof? Yes unemployment numbers are falling but only because so many have exhausted their benefits. Greedy bankers are now getting bolder after the bailout they run the show. They the US are sailing on a sea of credit and this is the year their life boat springs a leak. You will never squeeze greed out of the system it will only get worse.
During the 1930’s depression technology surged. General Motors alone introduced automatic transmissions and power steering to the marketplace of everyday. GM’s Electro Motive Corporation built and sold hundreds of diesel-electric railway locomotives that switched freight yards, pulled the new lightweight passenger trains built by Budd, Pullman-Standard and American Car & Foundry among others. And in November 1939 forever changed the way railroads move freight with their freight hauling FT 103 locomotive demonstrator, sold almost 1200 by 1945. Radios became widespread and affordable. Television took its first steps and movies got color. The Pennsylvania Railroad undertook the largest electrification project on record, most of which still serves Amtrak and introduced the legendary GG1 locomotive and with Union Switch and Signal a signaling system that had Amtrak kept it could have prevented their last Corridor wreck. Boeing and Douglas reinvented the airplane this was the time of the 247’s and DC-3’s. The 1930’s on the downside were also the time the World’s major powers rearmed themselves with ever better toys. In the Soviet Union Stalin kept rebuilding the place, a carry over from the 1920’s. In this country make work projects rebuilt the infrastructure, some of which is falling apart today, But in Rome they still drive on the Appian Way and a Roman built bridge near the Spanish-Portuguese border still hauls traffic sixteen centuries later.
Respected Dr. Weiss,
I am as old as you are! I consider you to be MOST BRILLIANT THINKER to apply in stock market and economy. Many thanks for this. I am ELITE member. Please comment world is in mode of political and bureaucratic corruption on ALL level of Government, Shameless, Characterless politicians lying in everyday affairs. Their motto is redistributing wealth and REWARD NON working MORE REWARDS and penalize working people. Wish you and ALL around u A HAPPY< HEALTHY NEWYEAR.
Mangubhai Patel