NOT-Predictions for 2020
- Gary Christenson, Deviant Investor
In the red corner, unpayable debt threatens to crush the US economy, stock and bond markets, and main street Americans.
In the green corner, the levitating power of the Fed might save the economy, stock and bond markets, and Wall Street Banks.
Red or green? Who wins?
Breaking news: Apple stock closed over $315. The S&P 500 Index closed over 3,300 in January. Liquidity rules, for now...
Miles Franklin sponsored this article by Gary Christenson. The opinions are his.
Can one, or even five $trillion of additional QE and "not QE" save stock and bond markets from their over-bought, over-valued bubble status? Will massive QE bring inflation or hyper-inflation? Can Fed currency creation delay a recession and reelect President Trump? Will those created currency units prevent American voters from electing socialists who will... oh never mind...
NOT-Predictions for 2020!
Rather than read the tea leaves and discern possibilities for 2020, look at what we know, what worked in the past, what will continue...
DEBT: This is a "no-brainer." Debt will increase. Look at total credit market debt from the St. Louis Fed for the past 60 years in four-year averages - up, up and away on an exponential trajectory. Debt creation slowed after the financial crisis, but $100 trillion total US debt is in sight. More currency units in circulation means each one buys less. Devaluation is a given.
Apple stock sold for less than $1 (split-adjusted) in 1997. It traded at $315 in January. Microsoft stock sold for less than $2 in 1993. It traded at $166 in January. By most measures both stocks are too high, over-bought, over-valued and priced to perfection. Regardless, they can rise higher.
The 14 period RSI (relative strength index) is a timing indicator (from 0 - 100). When over 70, markets are often at or near a peak. Note the red circles on the monthly and weekly charts.
A high monthly and weekly RSI shows a danger zone, not a guarantee of a correction.
Examine similar charts of Microsoft stock.
Daily charts (not shown) for both stocks also show over-bought conditions, as measured by the RSI.
The last time Apple's combined RSI (daily + weekly + monthly) was this high was 12 years ago. It lost over 60% after that RSI peak.
The last time Microsoft's combined RSI (daily + weekly + monthly) was this high was 23 years ago. It corrected and then climbed much higher, but it might not this time.
Both stocks are too high. Over-valued markets fall, bubbles always collapse, although timing is uncertain. What is the risk to reward ratio for over-valued stocks? Are they worth the risk of a huge downdraft?
However, some believe the Fed has their back, markets will rise forever, and QE will support over-valued markets. They must ignore the stock market crashes in 1987, 2000 and 2008. They must ignore many crashes in crude oil, sugar, silver, and gold. They must ignore crazy politics, monetary failures, costly wars, "adjusted" statistics from government agencies, and a shortage of truthful responses from politicians and central bankers.
The DOW hit a high in 1966 and regained that high in 1982, measured in devalued dollars. The DOW hit a high in 1929 and reached that high again in 1954, measured in devalued dollars. The DOW hit a high in 2007 and rose again to that high in 2013 after the Fed engaged in "emergency" measures and created $trillions of new digital dollars. Regaining lost market tops can take a long time.
Some people think stocks will rise much higher in 2020. Others disagree.
From Graham Summers:
"Forget earnings, forget the economy, forget the trade deal, forget all of the stuff the media tells you to focus on. The markets care about one thing and one thing only: LIQUIDITY."
"We're talking about the S&P 500 hitting 4,000 by year-end 2020."
[Possible, but is this a risk you want to accept?]
From Stewart Thompson of gracelandupdates.com
"Bonds can rally as a safe-haven when debt is not a major issue. When it is an issue, gold rallies while bonds languish. As the debt problem intensifies, bonds swoon, the dollar essentially incinerates, and gold skyrockets."
From David Stockman at deepstateclassified.com:
"Yet cheaper debt and richer share prices are one of the most toxic consequences of monetary central planning. It provides powerful incentives to the CEOs and CFOs to borrow at sub-economic costs, use the proceeds to fund stock buybacks, increasing per-share earnings and expand multiples." [with no benefit to the "Main-Street" economy...]
"These forms of financial engineering redistribute financial wealth to the top 10% and 1% of households..." [They own most of the stock market.]
From Jim Rickards:
"Current global debt levels are simply not sustainable. Debt actually is sustainable if the debt is used for projects with positive returns and if the economy supporting the debt is growing faster than the debt itself. But neither of those conditions applies today."
From Bill Blain:
"Global central banks know that to take their fingers off the monetary easy dead-man's switch will destroy confidence. If they do extract the proverbial digit, then the all-out contagion consequences could make 2008 look like a slightly runny nose."
From Antonius Aquinas:
"Through the creation of money, banks stealthy transfer wealth to those who control the money supply and those closely associated with it."
CONCLUSIONS:
US stock markets are too high. History shows that over-valued markets correct. The last ten years have proven that central bank liquidity injections levitate markets. Pick one for 2020. Regardless, stock market risk appears high and potential rewards appear low.Investing in Apple stock may work in the long term, but in the short term it could resemble back-to-back four putts on a PGA Sunday afternoon.Betting on Microsoft stock is a crowded bet. It might turn into a right-hand OB slice on a dogleg left.Gold (and silver) are well below all-time highs, showing strength, and are nowhere near over-valued. Risk is low and potential reward is high. The banking cartel will devalue fiat currencies and push gold prices higher.Gold (and silver) are protection from QE4ever, bond market monetization, and crazy political nonsense.Miles Franklin will recycle dollars from over-valued stocks into real money gold and silver with thousands of years of proven safety. Consider risk and reward.
Gary Christenson
The Deviant Investor