As we head into 2017, how should one be positioned? Let’s explore that idea with a trio of contrarian indicators.
The one idea most widely agreed upon is that Trump will spur inflation and treasuries are the last place to be.
This headline says it all.
The nearly always wrong Harry Dent threw in the towel on his stock market crash prediction on December 19.
Please consider Economist who Predicted a 17,000-Point Stock-Market Crash Just 10 Days Ago is Suddenly Bullish.
Harry Dent is bullish.
Dent, an economist and one of the biggest doubters of the stock market’s rise since the end of the recession, said he no longer believes a crash is imminent for the market after persistently calling for a massive drop over the past seven years.
What changed the mind of the man who said that the market would be “cut in half” in 2011, called for a “year and a half” long crash in 2013, and said the Dow could fall 17,000 points as recently as December 10?
The markets ability to withstand the election of Donald Trump.
“All of my research pointed to signs that the end was near,” wrote Dent in a blog post last week. “The Dow was set to shed thousands of points in short order. How much has changed since November 8.”
“No matter how irrational this market is, I admit I’ve gotten the timing wrong,” said Dent.
I discussed gold on December 27 in Financial Times, Barron’s Tout Death of Gold.
Here are the pertinent headlines.
End of a Golden Era
For Whom the Bell Tolls
- Gold is despised
- Treasuries are despised
- Harry “wrong way” Dent is suddenly bullish
Finally, please consider Dow 20,000: Another Magazine Curse? Amusing Cover Flashbacks From Economist, Newsweek, Others.
Mike “Mish” Shedlock
Fred Rogers said:
US Treasury yields have nothing to do with inflation — they are openly manipulated by one buyer trying to corner the market: the FOMC.
Yellen has lost control, her intellectual view of both herself and the world is clearly wrong. She and Bernanke are scrambling to save face or find someone else to blame.
If inflation had been a driver, yields never would have gone as low as they did.
Anyone buying Treasuries here is betting central banks (the Fed in particular) will somehow regain credibility.
Everyone who pays their own bills knows prices for most things have been going up more than CPI for a very long time.
Obamacare is screwing Americans for 25-30% more every year (with healthcare representing 15% of GDP). Healthcare costs ALONE mean cost of living is climbing at least 3% yoy — more than the yield on a 30yr bond today.
I have no idea if Trump will drive inflation — but only a fool believes CPI inflation was ever as low as the fools at the Federal Reserve were claiming.
The slow death of Bernanke/Yellen’s credibility is what is causing yields to rise now.
Bill Jones said:
It’s clearly time to have a Muslim head of the Fed.
Thirty years of Ashkenazi have resulted in the destruction of retirees, the impoverishment of the middle class and the biggest financial asset bubble in history.
It is time for someone who eschews Usury.
“Harry “wrong way” Dent is suddenly bullish”.
Analysis: Harry Dent is probably groping for attention because he has a new book coming out.
Dent is more reliable indicator than a Time magazine cover.
I will change my portfolio strategy to be more in cash.
I still think dollar has more to run because Euro has so many problems but when you start thinking about the lengths corporations have gone in their stock buybacks funded with corporate debt and consider that debt funded stock buybacks have to end with rates rising quickly after Trump won it is clear that the stock price boosting impact of stock buybacks will end when stock buybacks are no longer acceptable with debt in a higher rate environment this means there will be downward pressure on stock prices unless average-investors are sucked into the market to replace stock buyback buying.
Furthermore the companies who earn large part of their profits outside of USA will soon disappoint in their earnings because earnings in dollars are taking a hit when dollar is rising and Euro and other currencies like pound are crashing.
A company which earns 50% of it’s profits outside of USA will experience 15% earnings hit in their corporate earnings just based on dollar rising 30% even if they earn same amount of profits in foreign currencies because dollar has risen so much.
Do you have a problem with private companies that CAN only finance with debt? Or must they only grow organically? Mars, Cargill, Albertsons – All bad companies??? Was Dell a good company a few years ago, but now that it is private it is an evil company.
Do you realize what it is that you keep saying, again and again?
Yes, I’m sure you read it somewhere that you trust, but think it through, it makes absolutely no sense. Zero!
Debt for GROWING the company and GROWING the business is GOOD.
Debt to make stock buybacks so the CEO and other bosses get more money from their options because stock is higher due to buybacks and the CEO is considered a genious because the stock is higher due to buybacks are BAD.
Using debt for stock buybacks shows that the CEO and other leadership in the company including the board are CLUELESS.
I am avoiding every company that has done stock buybacks with debt and committed that stupidity in a low rate environment no less that is now removing itself after interest rates are increasing rapidly.
You should teach class at Wharton – *facepalm*
A problem with punctuation.
Commas? We don’t need no stinkin’ commas!
Truth seeker said:
Mish, what do you think about what Kyle Bass says here about taking delivery of 1billion in gold for UT.
Stockmarket crash is coming because Harry “always wrong” Dent has become a bull.
I thought the market still had some time to run but Dent never fails to predict the wrong result so a stock crash must be coming.
My advice is buy cuban cigars. Best money you will ever spend.
And if you must buy harry’s books for some inexplicable reason, then set of for the wild, enjoy the open nature, and use harry’s books as survival kit, assuming the pages are of decent enough quality.
A stock market crash is coming because the price of securities cannot ultimately justify the under-lying assets. Dent has hopelessly misunderstood the situation i.e. yes, debt deflation is on the menu, but it’s been delayed by massive CB printing. Now the Fed is raising rates a sharp correction seems all the more probable.
…and how’s the quality of the underlying assets of govt bonds?
Bill Jones said:
The underlying asset of American bonds is the ability of the American government to loot its people.
It has not lessened as far as I can see.
And the winner is:
The US equity market, in the next two years as capital flees Europe and all bonds (debt) are suspect and the dollar hits 160…….then gold in the ten years after that, as ‘the really big short’ hits the US share market, and the dollar eventually gets its turn to bust.
Per Martin Armstrong’s Socrates algorithm.
I would buy Europe and Japan, not the bonds, selected equities.
I agree with the US dollar index rising much higher than it is now. My minimum upside target is 140, which doesn’t rule out your 160 target. I see potential for the USD target to be reached within 2 years since the USD has completed a multi-decade consolidating triangle wave pattern.
“Per Martin Armstrong’s Socrates algorithm”? Really?
Here are a few of his other “analyses” from the past several years:
In 2009: “Gold Headed To $5,000 And Beyond!”
In 2012 “Armstrong is still looking for gold to explode to the upside into 2015 due to the Sovereign Debt Crisis”
In 2013 he predicted the DOW would double by 2015 (then at 14k)
In 2014 he stated that $100+ crude oil was “here to stay”
Need to wait til Jan to see if stocks continue their uptrend now, or we get a pullback for a couple years, like after Reagan’s election, before heading to 40K.
To survive financially long term be boring and diversify. Jumping into the next big thing or trying to foretell the future both seldom win.
Govt bonds are considered boring, but they will be anything but. To survive requires checking your beliefs and biases at the door, think globally, and study history (back before the Great Depression).
Agreed. Diversify by nation, by geography, by global sector (EM, Developed, Comodity based, etc. ), by instruments, (stocks, sovereign debt, state debt, municipal debt, corporate debt, consumer debt), some cash, some gold, some oil exploration, some refining, some mining, need I go on? The world will not end but pieces will hiccup and quite violently imo. China is overdue for a credit crisis. I’m weighted in municipal bonds as they pay a bit more and are triple tax free, a big deal in California. I expect a rough ride and continuing flight to the dollar, the lepper with the most fingers winning the currency beauty contest once again. Gold is a wild card but things must get a lot worse to move gold imo.
I suggest pondering the following:
What if the dollar and rates are rising due to the fear of soveriegn defaults and foreign conflicts? What will rising rates and a higher dollar do to foreign balance sheets with excessive dollar-based debts? What will higher rates do to bloated balance sheets, thus the global economy, thus the US economy? What is the only market that’s big enough to absorb the global flows, especially when the govt bond bubble pops?
I also suggest reconsidering holding govt bonds and muni’s, especially funds or longer dated individual issues. Many will falsely believe their bonds will not receive a haircut before maturity. The sovereign defaults will start in Europe by 2018 and spread to Japan, before crashing upon our shores.
Bone Fish said:
There comes a time in the evolution of every successful investor when winning isn’t enough. It’s a realization that how you win and how much you win are what will matter most in 2017.
The bond trade is an interesting one because all major parties can be right and wrong, depending on the time frame. This could be the turn of the secular bull market in Treasury bonds, but this leg of the move could soon be exhausted. After all, the sentiment is extremely poor.
The early ’80s turn in the market took many years, this turn may be similar in that respect. How about this: the secular high has been made, but Treasury bond prices rally back up to the 2016 highs before dropping again. Rinse, repeat for several years. That way, everyone is right, everyone is wrong and the most people possible lose money in this market.
THAT sounds interesting.
…and the correct answer is… I have no idea.. everything is a 50/50 bet.. let’s see in a year.
Bill Jones said: