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Image | 2013 Year in Review
2013 Year in Review
by David Collum

Every year, friend-of-the-site David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. Moreover, he has graciously selected PeakProsperity.com as the site where it will be published in full. It's quite longer than our usual posts, but worth the time to read in full.

2013 Year in Review
 by David Collum

Every year, friend-of-the-site David Collum writes a detailed "Year in Review" synopsis full of keen perspective and plenty of wit. This year's is no exception. Moreover, he has graciously selected PeakProsperity.com as the site where it will be published in full. It's quite longer than our usual posts, but worth the time to read in full.

Image | The Case for a Crash
The Case for a Crash
by charleshughsmith

We’ve recently been treated to two mutually exclusive forecasts: that the Great Bull Market will run until 2016 or 2018, so no worries; and that markets are exhibiting bubble-like characteristics that presage another crash.

So which forecast is more likely the correct one?
The Case for a Crash
 by charleshughsmith

We’ve recently been treated to two mutually exclusive forecasts: that the Great Bull Market will run until 2016 or 2018, so no worries; and that markets are exhibiting bubble-like characteristics that presage another crash.

So which forecast is more likely the correct one?
Image | The Case for Cash
The Case for Cash
 PREVIEW
by charleshughsmith

Executive Summary

  • Why the next stock market decline could be in excess of 50%
  • What historic indicators of coming decline are telling us
  • The case for holding cash now
  • If the market does roll over substantially in early 2014, how long may the decline last?

If you have not yet read The Case for a Crash, available free to all readers, please click here to read it first.

In Part I, we attempted to answer the question, Which forecast is more likely to be accurate: that the Bull market in stocks will continue for years to come, or the market will swan-dive in yet another multi-year crash?

We concluded that there was little historical evidence to support the claim that the S&P 500 will extend higher for an additional three to five years.

Here in Part II, we’ll look for clues about the possible amplitude and timing of the decline that the five-year cycle of the “new normal” suggests is likely.

(A reminder on gold: I detailed a forecast on gold earlier this year based on price action around key support/resistance levels, and nothing in recent price action has caused me to amend that forecast.  I have also noted that gold does not correlate well with either stocks or the U.S. dollar; i.e., its dynamics are largely independent of stocks and the USD. To the degree that gold is viewed as a “risk-off” safe-haven asset, it should do well if “risk-on” assets such as stocks crater.)

Forecasting the Amplitude of the Next Decline

A number of technical analysts have noted this megaphone pattern in the stock market, a pattern formed by alternating higher highs and lower lows.  This is one basis of forecasts for the SPX to drop to the 500-600 level in the next downdraft, potentially retracing the entire Bull advance from 1995. 

While this megaphone may not play out, it establishes a potential target for a crushing drop from current highs…

The Case for Cash
 PREVIEW by charleshughsmith

Executive Summary

  • Why the next stock market decline could be in excess of 50%
  • What historic indicators of coming decline are telling us
  • The case for holding cash now
  • If the market does roll over substantially in early 2014, how long may the decline last?

If you have not yet read The Case for a Crash, available free to all readers, please click here to read it first.

In Part I, we attempted to answer the question, Which forecast is more likely to be accurate: that the Bull market in stocks will continue for years to come, or the market will swan-dive in yet another multi-year crash?

We concluded that there was little historical evidence to support the claim that the S&P 500 will extend higher for an additional three to five years.

Here in Part II, we’ll look for clues about the possible amplitude and timing of the decline that the five-year cycle of the “new normal” suggests is likely.

(A reminder on gold: I detailed a forecast on gold earlier this year based on price action around key support/resistance levels, and nothing in recent price action has caused me to amend that forecast.  I have also noted that gold does not correlate well with either stocks or the U.S. dollar; i.e., its dynamics are largely independent of stocks and the USD. To the degree that gold is viewed as a “risk-off” safe-haven asset, it should do well if “risk-on” assets such as stocks crater.)

Forecasting the Amplitude of the Next Decline

A number of technical analysts have noted this megaphone pattern in the stock market, a pattern formed by alternating higher highs and lower lows.  This is one basis of forecasts for the SPX to drop to the 500-600 level in the next downdraft, potentially retracing the entire Bull advance from 1995. 

While this megaphone may not play out, it establishes a potential target for a crushing drop from current highs…

Image | The S&P 500 Is Now a Gambler’s Paradise With 76.9% Up Days in May So Far
The S&P 500 Is Now a Gambler’s Paradise With 76.9% Up Days in May So Far
by Chris Martenson

Everyone knows the odds of winning in a casino are worse than 50% (often much worse depending on the game played). So who wouldn't rush to a casino, where instead, the odds were overwhelmingly in the gambler's favor?

That's the promise of today's stock market, which has been experiencing an aberrantly high percentage of up days all year. Toss your money into the market, and on any given day, you're much likelier to make money than not.

The S&P 500 Is Now a Gambler’s Paradise With 76.9% Up Days in May So Far
 by Chris Martenson

Everyone knows the odds of winning in a casino are worse than 50% (often much worse depending on the game played). So who wouldn't rush to a casino, where instead, the odds were overwhelmingly in the gambler's favor?

That's the promise of today's stock market, which has been experiencing an aberrantly high percentage of up days all year. Toss your money into the market, and on any given day, you're much likelier to make money than not.

Image | Why This Recovery Is Coming to an End
Why This Recovery Is Coming to an End
 PREVIEW
by Gregor Macdonald

Executive Summary

  • Fertility rates are experiencing a "natural decrease" at record levels across the U.S.
  • Poverty rates are rising across the country, despite the "recovering" economy
  • What exactly is "powering" U.S. economic growth? Perhaps much less than realized.
  • Why we are likely in the calm before the storm when corporate profits peak right before an economic downturn
  • The 3 most likely scenarios for the stock market from here

If you have not yet read Part I: Marking the 4-Year Reflationary Rally: How Much Better Off Are We Really?, available free to all readers, please click here to read it first.

One of the challenges the U.S. stock market will increasingly face in the years ahead is continued growth in the Dependency Ratio. The U.S. Census Bureau alerted us to this trend back in 2010. For keen observers of demographics, this couldn’t have been a surprise). The rate at which the Dependency Ratio is growing, and is set to grow further, is accelerating:

The U.S. Census Bureau reported today that the dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages, is projected to climb rapidly from 22 in 2010 to 35 in 2030. This time period coincides with the time when baby boomers are moving into the 65 and older age category…The expected steep rise in the dependency ratio over the next two decades reflects the projected proportion of people 65 and older climbing from 13 percent to 19 percent of the total population over the period, with the percentage in the 20 to 64 age range falling from 60 percent to 55 percent…“This rapid growth of the older population may present challenges in the next two decades,” said Victoria Velkoff, assistant chief for estimates and projections for the Census Bureau's Population Division. “It's also noteworthy that those 85 and older — who often require additional caregiving and support — would increase from about 14 percent of the older population today to 21 percent in 2050.”

This is precisely one of the key, ongoing headwinds that faced Japan's stock market for 20 years. When Japan's economy moved steadily into its low-growth phase, unable to generate sufficient jobs, fertility rates and household formation declined rapidly. As I explained in The Arrival of Japan's Sunset, these will not be cured by the current devaluation of the yen, despite naïve cheerleading. And neither will they be solved here in the U.S.

But in contrast to Japan, the United States is only just embarking on its slow growth phase. Its demographically challenged culture and economy will reinforce each other as we move ahead in time. And, it's not just the retiring class of workers that will massively increase the Dependency Ratio in the U.S. in years ahead…

Why This Recovery Is Coming to an End
 PREVIEW by Gregor Macdonald

Executive Summary

  • Fertility rates are experiencing a "natural decrease" at record levels across the U.S.
  • Poverty rates are rising across the country, despite the "recovering" economy
  • What exactly is "powering" U.S. economic growth? Perhaps much less than realized.
  • Why we are likely in the calm before the storm when corporate profits peak right before an economic downturn
  • The 3 most likely scenarios for the stock market from here

If you have not yet read Part I: Marking the 4-Year Reflationary Rally: How Much Better Off Are We Really?, available free to all readers, please click here to read it first.

One of the challenges the U.S. stock market will increasingly face in the years ahead is continued growth in the Dependency Ratio. The U.S. Census Bureau alerted us to this trend back in 2010. For keen observers of demographics, this couldn’t have been a surprise). The rate at which the Dependency Ratio is growing, and is set to grow further, is accelerating:

The U.S. Census Bureau reported today that the dependency ratio, or the number of people 65 and older to every 100 people of traditional working ages, is projected to climb rapidly from 22 in 2010 to 35 in 2030. This time period coincides with the time when baby boomers are moving into the 65 and older age category…The expected steep rise in the dependency ratio over the next two decades reflects the projected proportion of people 65 and older climbing from 13 percent to 19 percent of the total population over the period, with the percentage in the 20 to 64 age range falling from 60 percent to 55 percent…“This rapid growth of the older population may present challenges in the next two decades,” said Victoria Velkoff, assistant chief for estimates and projections for the Census Bureau's Population Division. “It's also noteworthy that those 85 and older — who often require additional caregiving and support — would increase from about 14 percent of the older population today to 21 percent in 2050.”

This is precisely one of the key, ongoing headwinds that faced Japan's stock market for 20 years. When Japan's economy moved steadily into its low-growth phase, unable to generate sufficient jobs, fertility rates and household formation declined rapidly. As I explained in The Arrival of Japan's Sunset, these will not be cured by the current devaluation of the yen, despite naïve cheerleading. And neither will they be solved here in the U.S.

But in contrast to Japan, the United States is only just embarking on its slow growth phase. Its demographically challenged culture and economy will reinforce each other as we move ahead in time. And, it's not just the retiring class of workers that will massively increase the Dependency Ratio in the U.S. in years ahead…

Image | Marking the 4-Year Reflationary Rally: How Much Better Off Are We Really?
Marking the 4-Year Reflationary Rally: How Much Better Off Are We Really?
by Gregor Macdonald

The U.S. stock market rally has recently passed its fourth anniversary after the terrifying lows of March 9, 2009.

During that time, massive and unconventional reflationary policy from the Federal Reserve has managed to lift the S&P 500 by nearly 70%. But perhaps even more improbably, it has finally (?) built a floor under U.S. residential real estate prices.
Marking the 4-Year Reflationary Rally: How Much Better Off Are We Really?
 by Gregor Macdonald

The U.S. stock market rally has recently passed its fourth anniversary after the terrifying lows of March 9, 2009.

During that time, massive and unconventional reflationary policy from the Federal Reserve has managed to lift the S&P 500 by nearly 70%. But perhaps even more improbably, it has finally (?) built a floor under U.S. residential real estate prices.
Image | Where Stock Prices Are Headed Over the Next Year
Where Stock Prices Are Headed Over the Next Year
 PREVIEW
by Gregor Macdonald

Executive Summary

  • Why household balance sheets are worse off than advertised
  • Why the recent rosy BLS jobs numbers actually mean bad news
  • How the Fed is squeezing investor capital out of other traditional asset pools and into the stock market
  • Expect to see the stock market moving higher in 2013; that is, until QE3 fails
  • What to expect if QE3 fails sooner than anticipated

If you have not yet read Part I: The Future of Gold, Oil & the Dollar, available free to all readers, please click here to read it first.

Market historians have recently started to point out that the current advance in the S&P500 is now 40 months old and has made gains of over 115% since the March 2009 lows. In other words, the doubling from the lows in price and the duration of the advance now late in its third year together suggest that a cyclical top is near. Furthermore, despite some noise in U.S. macro data – which has been briefly more hopeful, yet remains well within the phase of stagnation – earnings estimates have been coming down as the world economy continues to shift into lower gear.

Perhaps for the first time in a while, we can actually say that the Fed's decision to start QE3 was moderately anticipatory, in contrast to its ad-hoc and reactive policymaking over the past five years. It is not merely that the Fed soberly accepted that the economy was not getting better. The stagnant, tractionless macro data over the past year has spoken quite loudly to that fact. Indeed, the U.S. economy is merely treading water, and the Fed's move to QE3 serves as a sharp retort to those who would relentlessly attempt to portray stagnation as recovery.

Where Stock Prices Are Headed Over the Next Year
 PREVIEW by Gregor Macdonald

Executive Summary

  • Why household balance sheets are worse off than advertised
  • Why the recent rosy BLS jobs numbers actually mean bad news
  • How the Fed is squeezing investor capital out of other traditional asset pools and into the stock market
  • Expect to see the stock market moving higher in 2013; that is, until QE3 fails
  • What to expect if QE3 fails sooner than anticipated

If you have not yet read Part I: The Future of Gold, Oil & the Dollar, available free to all readers, please click here to read it first.

Market historians have recently started to point out that the current advance in the S&P500 is now 40 months old and has made gains of over 115% since the March 2009 lows. In other words, the doubling from the lows in price and the duration of the advance now late in its third year together suggest that a cyclical top is near. Furthermore, despite some noise in U.S. macro data – which has been briefly more hopeful, yet remains well within the phase of stagnation – earnings estimates have been coming down as the world economy continues to shift into lower gear.

Perhaps for the first time in a while, we can actually say that the Fed's decision to start QE3 was moderately anticipatory, in contrast to its ad-hoc and reactive policymaking over the past five years. It is not merely that the Fed soberly accepted that the economy was not getting better. The stagnant, tractionless macro data over the past year has spoken quite loudly to that fact. Indeed, the U.S. economy is merely treading water, and the Fed's move to QE3 serves as a sharp retort to those who would relentlessly attempt to portray stagnation as recovery.

Image | The Future of Gold, Oil & the Dollar
The Future of Gold, Oil & the Dollar
by Gregor Macdonald

The ability of reflationary policy to mute the worst risks of debt deflation has been a source of enormous frustration for stock market bears ever since the 2008 collapse. Yes, the initial moderate rally out of the S&P500’s black hole was perhaps not so surprising in 2009. Bombed-out stock markets can always manage some sort of rally. But the ability of the rally to continue through 2010, and then 2011, and now 2012 has been quite vexing and painful for bearish investors.

Indeed, the entire post-2008 market phase has now produced an era of consistently poor performance for hedge funds. Recent data, for example, shows that an incredible 90% of hedge funds are underperforming the S&P500 through mid-September.

Will the pain continue?

The Future of Gold, Oil & the Dollar
 by Gregor Macdonald

The ability of reflationary policy to mute the worst risks of debt deflation has been a source of enormous frustration for stock market bears ever since the 2008 collapse. Yes, the initial moderate rally out of the S&P500’s black hole was perhaps not so surprising in 2009. Bombed-out stock markets can always manage some sort of rally. But the ability of the rally to continue through 2010, and then 2011, and now 2012 has been quite vexing and painful for bearish investors.

Indeed, the entire post-2008 market phase has now produced an era of consistently poor performance for hedge funds. Recent data, for example, shows that an incredible 90% of hedge funds are underperforming the S&P500 through mid-September.

Will the pain continue?

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