Despite my hesitation in writing another
piece like this, people seem to love prediction articles. It used
to be an easier task to simply identify and go with the trends, but so much
is now up to the whims of central planners that it is nearly impossible to
have much accuracy. These are just my best guesses and I will make sure to
revisit them in another 12 months to see how well they held up. Here are my
seven predictions for 2016:
#1) The stock market corrects sharply from overbought levels,
driven partly by increasing interest rates. The S&P 500 will drop
by 25% or more during 2016 as a global recession unfolds. Economic data
shows patterns similar to what was witnessed right before the last recession.
The FED has little wiggle room to prop it up like they did last time around,
but may be forced to reverse course on rates and introduce a new stimulus
program by year end.
#2) The USD continues to strengthen versus other currencies,
as the FED raises rates and other central banks continue to cut their rates.
Our fractional reserve fiat monetary system is a great scourge on the world
in my view. It enriches the few at the expense of the many and must be
enforced at the barrel of a gun. We will likely see an increased trend of
de-dollarization during 2016, particularly as the BRICS nations move away
from using the USD in trade. Nevertheless, the USD remains the best of the
fiat currencies and it will likely benefit from its perception as a safe
haven when investors begin to flee stocks en masse.
#3) The unemployment rate reverses course and moves higher during
2016. The official unemployment rate (U3) has been cut in half since
the financial crisis unfolded in 2008. It spiked to 10% during 2009, but has
since dropped to just 5% in late 2015. Of course, a large portion of this
decline was driven by a lower participation rate, sacrificing quality for
quantity, more part-time jobs and BLS manipulation of data to brighten the
overall jobs landscape. Alternative calculations of true unemployment
remain near all-time highs around 24%. In 2016, the U3 unemployment number
will stop falling and eventually begin to move higher for the first time in
years.
#4) Home prices flatline and begin to trend lower during the
second half of the year. Home prices have put in an impressive
rebound over the past five years, but the rally is losing steam. During 2016,
I expect a continuation of modest price gains in the first half of the year,
then flatlining price growth and an eventual drop in home prices by the end
of the year. This trend will be driven by rising interest rates
that make homes less affordable, an increasing supply of new homes
hitting the market and another peak in the median home price/median
income ratio.
#5) Gold will finally carve out a base and bottom in the $950 to
$1,050 range. The gold price will show a high level of
volatility and ultimately close out 2016 with a gain of 20% or more. The
silver price will follow gold, with a higher level of volatility in both
directions. Precious metals will likely get dragged down initially in any
economic crisis, but the monetary will bounce back quickly and re-assert
themselves as true safe haven assets. With such a small level of
investor participation in gold and silver currently, it will not take much a
shift of funds into this relatively tiny market to move the prices
significantly higher.
#6) Energy prices will continue to dip in the first half of 2016,
but will eventually find a bottom and trend higher. The price
of oil will test $30/barrel and dip as low as $25/barrel, but will
bounce sharply and end the year closer to $50/barrel.
#7) The price of bitcoin will rocket to a new high above $1,200
during 2016. Bitcoin will gain greater acceptance in the mainstream
financial world and the blockchain technology will flourish as it finds a
variety of new uses. As the global recession intensifies and currency wars
continue, people around the world will turn to bitcoin as a means of
protecting their wealth and transferring it across borders.
#Bonus Predictions: Increased tensions with Russia
in the Middle East, thousands of U.S. boots on the ground, ISIS is
effectively wiped out, an assassination attempt on Donald Trump, Bernie
Sanders giving Clinton a close race for the Democratic nomination, more
domestic terrorism and mass shootings in the election year, executive action
by Obama to increase gun control, unusual weather patterns causing a spike in
natural disasters, a big earthquake hits California, Golden State beats the
Cavs in the NBA finals, marijuana legalization sweeps the nation.
We will be positioning the Gold Stock Bull portfolio to take advantage of
these trends in 2016. If you aren’t already a premium member, you can sign
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if you sign up today. Happy new year!
