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Before I tell you what my team and I think is most likely to happen in 2016 and beyond, I want to show you how soothsaying economists typically stumble and mumble their way through the next-year-forecast exercise.
Most opt for the easy way out. They look at last year’s trends.
They blindly assume those trends will continue.
And presto — they deliver a seemingly intelligent forecast for any economy, any market, any stock.
Some not-so-stellar examples from the past …
In early 1929, prognosticators using this approach told investors that the following year would be the best ever in the century for stock investors. It was the worst.
In late 1930, they warned that blue-chip gold stocks would languish or even crash in the 1930s. They tripled and quadrupled in value.
Or consider these widely believed “expert forecasts” of the last seven decades …
1945: The post-World War II era will bring another Great Depression. (Instead, we got a great postwar boom.)
1970: No president will dare devalue the dollar or take America off the gold standard. (President Richard Nixon did both on Aug. 15, 1971.)
1972: Gold prices will never exceed $200 per ounce. (It went about four times higher than that by 1980 … and then nearly 10 times higher in more recent years.)
1976: U.S. government bonds will always be the safest investments in the world. (Bond investors lost up to half their principal value in bonds before 1980, again in 1981 and still a third time in 1994.)
1999: U.S. technology stocks are the single best place for your money. (Tech stock investors lost an average of 75% of their money between 2000 and 2003 and up to 99% of their money in some of Wall Street’s darlings.)
2006: U.S. residential real estate will appreciate by an average of at least 5% per year between 2007 and 2009. (Average home prices fell 9% in 2007, 18.6% in 2008 and 3% in 2009.)
2007: America’s financial giants — including Fannie Mae, Bank of America, Merrill Lynch, Washington Mutual, AIG, Bear Sterns and Lehman Brothers — are too big to fail. (All became effectively insolvent in the 2008-2009 Debt Crisis. And whether the U.S. government bailed them out or not, investors saw their shares plunge by as much as 99%.)
2013: Oil prices will stay above $100 per barrel and then go even higher by 2020. (They plunged in half starting in late 2014 and are now close to one-third their peak prices of 2014). Â
Not exactly a track record to be proud of, is it?
So why do nearly all economists continue to use this disaster-prone method? Because, not surprisingly, it’s right as much as 50% of the time, which, in the fuzzy world of crystal-ball gazing, is actually considered “a big win.”
Another reason: It doesn’t require much deep thinking.
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An even “safer” approach is simply to predict no change. Economists say stocks will close the year at pretty much the same level they’re at today. Ditto for bonds, commodities, and real estate. Then they can always claim they never get any forecast completely wrong.
On the other extreme are the daredevils. Every year, they make the same shocking predictions about the future in the hope that (a) someday they’ll be right and (b) most investors will be so impressed, they’ll forget or forgive the prior years of premature calls.
All of these pitfalls are human. We are human, too. Ergo, we’re not immune to the same ones. What sets us apart is these three things:
First, a keen awareness of where we are right now in the context of major historic cycles. (This helps explain the forecasting success of our colleague Larry Edelson.)
Second is our exhaustive, daily analysis of millions of pieces of company data with intelligent computer models. This is why our Weiss Ratings were named by Barron’s as the “leader in identifying the most vulnerable companies” and how we warned investors, ahead of time, of every one of the giant 2008-09 financial failures I cited earlier.
Third, and perhaps most important: True independence. No payment whatsoever for our ratings by the companies we rate. No conflicts of interest. Complete freedom to think independently and speak out independently.
World Conflicts That Could Get a Lot Worse
Each year, the Center of Foreign Relations conducts a survey of government officials, academics, and foreign policy experts to rank each global threat by their likelihood of occurring and their potential impact on U.S. interests.
Their map, last updated on Dec. 29, tells you the story in a nutshell:
The red areas, representing conflicts that are worsening, are concentrated in Syria and Iraq, irradiating out over a wide swath to the West and the East — into North and Central Africa, South Asia and Southeast Asia.
The orange areas, representing conflicts that aren’t getting any worse or any better, include Ukraine, North Korea and the South China Sea.
Green areas (major conflicts that are improving) are virtually non-existent.
For America, the threats viewed as the highest priority include:
- Intensification of the civil war in Iraq
- Large-scale attacks on the U.S. homeland or ally
- Cyber attacks on U.S. critical infrastructure
- The escalation of the Syrian civil war, and
- Rising violence in Afghanistan.
This doesn’t necessarily mean there aren’t bigger wars and revolutions elsewhere. What it means is that the consensus of U.S. analysts sees these among the most threatening to Americans.
My view: Precisely as the map vividly illustrates, the cancer of civil war in Syria and Iraq has metastasized and spread globally. This will continue to drive massive amounts of flight capital to the United States, the one country perceived to be the safest haven, even if the United States is, itself, subject to some attacks.
Larry Edelson has dubbed it the “Global Money Tsunami.” And as I’ll detail in a moment, we continue to view it as a dominant force.
The-Crash-Is-Coming Forecasters
Rich Dad Poor Dad author Robert Kiyosaki is a good, consistent example of this group. Â
He says his forecast of a stock market crash in 2016 is based on a guess, a mathematical formula and the sheer stupidity of our government. But he also admits it could be postponed until 2020 and doesn’t deny he first made the prediction in 2002.
“If you’re sitting there hoping the market is going to keep going up,” he warns, “you better take some lap around the rosary beads and pray because you might get hammered. That is really my concern. I hope I am wrong. The job of a prophet is to be wrong so people can take action and not get hurt by this.”
My view: He’s right about the risk. But risk is one thing; a reliable forecast is another thing entirely.
More-of-the-Same Forecasts
Forbes contributor and economist Bill Conerly seems to be in the current-trend-is-the-future-trend school, at least with regard to his vision for 2016. He forecasts a new year that will look pretty much the same as 2015, but with a “different texture.”
He says housing will be a bit stronger (as it was in 2015). He says business spending will grow somewhat (as it did in 2015). And he says foreign trade will be the one obvious drag (also like 2015).
GDP and employment? Same growth pace as the past few years.
Inflation? Same dull, muted trend, except maybe for some stronger wages here and there.
Interest rates: Up, but gradually.
Stocks: Another year without recession means a benign environment for equities.
Black Swans
My view: Bah! There are simply too many potential Black Swan events that could make mincemeat of this outlook, and our colleague Mike Larson names quite a few:
- The bubble in bonds — especially corporate bonds — that’s already bursting, with potentially widespread impacts on debt and equity financing in 2016.
- A spreading global economic slowdown, already morphing into recession; and in some regions, into depression. Epicenters in Brazil, Russia, China and other emerging markets. Risk of decline in Western Europe, Japan and ultimately the United States.
- Fed rate hikes that are so late in the last cycle, they’re actually too early in the next cycle. In other words, tightening right into the global slowdown.
- All told, reminiscent of 2008, when supposedly “isolated, peripheral and contained” collapses eventually infected mainstream domestic sectors and international megabanks.
Will these roosters all come home to roost in 2016? Will they be strong enough to offset or reverse the massive flight of fear money to the United States?
All possible. And all worthy of our — and your — continued vigilance.
But Larry says the convergence of powerful historical cycles integrates — or trumps — all of the above. He sees …
A continued ramp-up of a major global war cycle through 2020.
A government debt-driven collapse of the European Union and the euro …
Followed later by a similar fate for Japan …
And finally, the ultimate nation to fall victim to collapsing debt — the United States.
Until then, however, he insists that the Global Money Tsunami will remain the dominant force that makes or breaks global stock markets.
And until then, the fear money will continue to gush from political and economic turmoil — from the Middle East, from emerging markets, from Europe and Asia — to the United States.
Follow that flow, and you should fare well.
Good luck and God bless!
Martin
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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.
{ 32 comments }
Part of the uncertainty is fifteen years of buffoons in the White House. There was no compelling reason to go into Iraq and remove Saddam. There was no compelling reason to involve this country in the Syrian civil war. In both cases our so-called leadership has taken a bad situation and made it a lot worse. If this country had not done those two things, especially the first ISIL would not exist today. Obama was so eager to run out of Iraq without leaving a government behind that represented all the Iraqis instead of one that only represented a religious minority ISIL would not exist today. And ISIL is the lightning rod for other terrorist groups today in so many areas, even right here in the good old USofA.
Ted is right, just we need to point the finger back at ourselves for electing the buffoons in the white house and in congress. If our leaders are so paralyzed by their polls that they are not even willing to debate going to war with ISIS and plan how they are going to pay for a war, then we’ll continue to be the safe place other money is running to and then the house of cards will collapse.
I am surprised to read your conclusions that money from far off lands will pour into the USA for safe haven, as this seems to fly into the face of predictions made by Larry regarding gold as the safe haven we should turn to. The world including US companies all need inflation to facilitate repayment of debts incurred from falsified interest rates of recent years; and those outside the US will have to buy US dollars to make repayment of their dollar based loans incurred due to low interest rates for past dollar loans. This will make the price of an Airbuss less than a Boeing and a Toyoya cheaper than Fords an Chevies as foreign currencies are converted to dollars to repay dollar loans; and any strengthening of the US dollar will only hurt what remains of American industry and tourism, amongst other things. Furthermore, countries would quickly impose capital controls once such a mass exit got underway. The cycle will read more like “What goes around, comes around.”
Interesting but you failed to make your predictions on the Dow, S&P, and Nasdaq. Excellent analysis but No real predictions.
It’s necessary to read between the lines. The Weiss group are predicting the markets to rise, but deliberately not providing specific targets. To get specific info, it’s necessary to subscribe to Safe Money and Real Wealth newsletters, which are inexpensive compared to the profits that can be made. Larry and the SuperCycles (name of new rock band?) make for interesting and useful reading, to understand what’s going on in the markets, and to predict when various ups, downs and crashes will occur. .
bears, bears, everywhere bears. i guess i’m the only bull left in the market. i see low rates, cheap oil, full employment, and won’t be surprised if housing does well this year, just like cars are selling like hotcakes.
three up waves in an expansion. the first up wave, some forward looking people get in. the second up wave, most people get in. the third up wave, everyone gets in. the third up wave is coming up next. after the third up wave, i’ll become a bear.
but i agree with the bears in that there’s no bargains out there right now and the upside is limited, but one last up wave to ride before a recession sets in.
It is a good time to be a bear. This break has been coming for a long time. It might just be starting……or we might have one more push upward. Either way, 2016 will be a big down year.
i hope you’re right, john. it will be a good time to buy. but i won’t be surprised to see another 10% year.
To $1000 gold. Cars selling? Really? How many are paid for and how many are leased or financed? If you have paid attention, the car loan bubble rife with sub prime debt. As a shop owner, new cars are technical marvels that are throw away. It is a tread mill that gets more difficult to stay on. If you consider mal investment, a new vehicle is the best way to destroy wealth. Buy a 70k SUV, drive it a block and presto you just lost$20k.
BLS totally invents the labor stats. Simply look at the total numbers of people who pay zero income tax and the number of food stamps issued.
Rents at record levels because no one can afford a house or lost their house. And this is with record low mortgage rates!
50% of 25 years old still living at home.
Total unsustainable fiât currency the likes of which the world has never known. Talk about houses of cards. Trillion is the new billion. Simply keep adding on zeros. Perfect!
And now a new word for the lexicon, quadrillion, when speaking about the derivative bubble! When I have to use exponential notation it becomes irrelevant.
Stock market that it dominated by hyper speed computers that scalp the individual investor.
Reserve currency status and the military threat of the US is the only reason we are not in free fall. But these things are not sustainable. The only solution is honest money and free markets. We are in uncharted waters here. I subscribe to many viewpoints and I am not positive for the near future. There is an event horizon very close.
Charger John
people are buying cars like crazy because they’re going back to work in droves. with rates this low, they won’t be living at home much longer, they’ll be buying houses. the next up wave is just around the corner.
Going back to work? Lowest participation rate ever. 94 million not even looking. Most new jobs are part time. Get your head out of Obama’s arse.
As the father of twentysomethings, I must disagree. These millenials have a different world than us. A 30k/yr job means a 50k student loan if they are lucky enough. Buying a car then losing it to the bank does not count. When the car payment, insurance and phone bill required to keep said 11.50/hr job after taxes is more than half of money earned, it does not work. That makes NO mention of rent or student loan. Then again, minimum wage workers were buying 200k houses 10 years ago and that lasted for a whole year, until the ARM moved and the 450/mo. mortgage went to 250% of gross earnings of buyer. How’d that work out for them and the lending banks?
$1000 gold could be right, and it would agree with Larry’s prediction of foreign money seeking safety, with the U.S. being the seeming safety net for the world. BUT… there is the matter of some $600 Trillion of debt floating around the world, most of it with nothing but promises supporting it. Someday that bubble will pop, and the results will be anything but pretty. Will that happen soon, or late? No one can say with any surety, and there is always the possibility that the pressure could fizz out slowly enough to make little difference. That doesn’t seem to happen very often in the markets, though.
we’ve almost closed the gap on the deficit and will soon be running at a surplus, something the experts said was impossible too.
We owe almost 20 trillion and some estimate unfunded total liabilities north of 100 trillion. We will never have a surplus of anything
$1,000 G — Regardless of which party rules, it’s very unlikely that the US budget will have a surplus. Need to remember the national debt which requires $450 Billion a year for interest payments alone — and these grow every year. Jeff G hit the nail on the head with the National Debt figures — it’s not a pretty picture. Add to this the Social Security and Medicare fiascos just a few short years away: Baby Boom generation is retiring en masse, with fewer workers left for each retiree, which will bankrupt the system, or force major cuts in payments and services.
Don’t know where you got your information. According to the Congresisonal budhet Office:
“According to the Congressional Budget Office’s estimates, this year’s deficit will be noticeably smaller than what the agency projected in March, and fiscal year 2015 will mark the sixth consecutive year in which the deficit has declined as a percentage of gross domestic product (GDP) since it peaked in 2009. Over the next 10 years, however, the budget outlook remains much the same as CBO described earlier this year: If current laws generally remain unchanged, within a few years the deficit will begin to rise again relative to GDP, and by 2025, debt held by the public will be higher relative to the size of the economy than it is now.”
Also, the fact that the budget deficit is smaller now compared to 2009 is no great shakes, considering the huge drop in the economy that occurred immediately after the recent financial meltdown. The long term projection, if you believe the governments own figures, is increasing unpayable debt. Congress has shown no financial discipline and the recent budget deal increasing military expenditures was completley unnecessary, since the US already wastes more on military expenditures by a huge percentage, than any other country.
All these people who insist history will repeat itself, including cycles, are basing their predictions of the future on the past. When taking my MBA courses, the first thing that was taught in the Investments course was never base one’s conclusion on history. Instead, we were taught to analyze the current facts and their probable outcomes. The accumulation of probable outcomes is then used to predict the economic outcome of any investment decision. Nowadays, analyzing the facts is extremely difficult with so many lies and so much propaganda coming out of Washington and the central banks.
I agree most if not all economic indicators are backward looking. The market is forward looking at earnings. If all you had was repeating historical cycles how easy would that be to capture. Making up some headlines from 80 years ago certainly does not make wise investments for the future. Its probably incredibly easy to create after the fact compared to until. A bear market shouldnt be intimidating or fearful, more of an opportunity than anything else. If the market was to sell off into extinction…
I have no earthly idea what will happen in the future……I can guess like everyone else, but I see absolutely no value in that! I prefer to read a number of really smart “experts” in the market “business” and try to decide who may be more nearly correct.
I do not know what I am to do with my money that I have in my retirement account, I am retired and am 72 years old what is your suggestions for me?
One could pull half off it and use for what you saving it on, vacation, housing, vehicle, education etc.? Purchase an Indian 10y govt bond 7.8% with the othrr half. Thats 550 basis point higher than similar U.S. bond and Im thinking not helluva lot of inflation in the rupee. Abeerdeen is overweight.
I do not know what I am to do with my money that I have in my retirement account, I am retired and am 72 years old what is your suggestions for me? I do not remember when I asked you any questions before .
I do not remember when I asked you any questions before .
what is the future in the market?
The market will rise… or maybe decline. I think I know what it SHOULD do, but not what it WILL do. Nor does any honest investor. It will do what it will do, however. Anyone who says any different is trying to sell you a bridge over the East River.
I keep asking Larry and Mr. Weiss the same thing with no clear answer. If Europe is continuing on a downward spiral and the people over there are looking for the “only creditable”, valid and profitable place to put their investment money being taken out of the various European stock markets to invest in the stocks of the U.S., then why oh why isn’t our market going up like crazy????? And its not an answer to ditto the same things printed in this article as you’re still telling us to expect huge gains by participating in our stock market (various and specific stocks only understood & timed on gold, etc.). I see and after visiting with 3 different broker friends of mine who see the same: No obvious outpour of European monies in our investment groupings or stocks over here. Call me puzzled as this has been referred to by the past 6 months in our news letters.
Thank You
This economic crisis is actually a great hill baby sitting co-op crisis. A baby sitting cooperative is an association of young couples with congressional jobs who were willing to baby sit each other’s children. One couples decision to go out was another’s opportunity to baby sit. But opportunities to baby sit became hard to find. So the baby sitting co-op went into a recession.
As usual they do a good job of pointing out the errors other market “analysts” have made. But what, pray tell, are Weiss’s predictions for 2016?
Oy Vey Martin,
People is glass houses should not throw stones at others!
You and your team of shysters have been wrong for so long on so many things and caused so many losses to so many people it is not funny…..so zip it clown!!