BROAD
MARKET
The
world market has 2 models for 2015.
I
believe 2015 will be setting up for another and the final bull year
in equities. We are entering a period where the real economy (main
street) which lagged the paper economy for many years has finally
caught up and GDP has hit levels that very few analysts projected
many years ago. This action is similar to 1999.
We
are at cross roads in the market because the GDP is starting to make
the US the best house in a bad neighborhood. Europe is currently doing
very poorly while the US has continued to outpace all developed nations.
Now let's look at the S&P below:
The
S&P is telling us the rotation of stimulus is affecting every
single asset price in the US economy. Every single dollar has a little
bit of stimulus attached to the unit level.
Now let's look at Europe 5 year history:
Global
Stimulus across borders has created a higher valuation environments
where P/Es are massively expanded. The rich has gotten richer.
So where are we headed?
We
can easily continue the rise higher because the real economy is running
nicely. I see we head higher next year to S&P (2250-2350) area.
The bull market is entering its 7th year and generally markets parabolic
when they stretch beyond expectations. The main reason I think we can
actually keep moving up beyond most consensus estimates is oil is a form
of stimulus. The latest collapse in oil has added a big boost to the US
economy.
Now
if oil prices stay low for a long period of time this may continue to
help all companies across the board especially Airlines to continue
their pace higher. The S&P may continue to ramp to maybe
(2400-2500) area in 2015.
Low oil is great for most sectors because oil is a TAX on the economy. The rich saudis are not needed anymore.
Another factor that can help propel prices higher is near zero interest rates will not affect the market. Even if they raise rates for a a while it still won't have a negative affect on equities until interest rates go beyond 4-5%. We are currently at zero and it may take a while to get to 4-5% because you have a relaxed fed. This move from 0 to 5 may take 2 years thus giving a good chance equities continue their ramp into 2015. Low interest rates for Houses, Autos, Businesses and so forth won't feel the pinch of higher interest rates as long as the real economy keeps moving.
Most
people forget so easily and adjust very quickly to a changing
environment. The main reason for this is people don't like to be left
out in the cold.
Head winds:
The dangers I see for 2015
A. Euro-zone Crises with the stimulus
B. Shale out junk bond collapse
C. China Housing Collapse
D. Russia war with US
Head winds:
The dangers I see for 2015
A. Euro-zone Crises with the stimulus
B. Shale out junk bond collapse
C. China Housing Collapse
D. Russia war with US
Euro zone crises:
Euro
zone has started to print more money to stimulate their slowing economy
and some economists think that it may backfire and drag us down during
some time next year because inflation will begin to creep up. The MCX
could drop down to 12,000
So what I see in the markets next 6 months out?
Market Forcast 1 for 2015:
I
see a correction early next year down to S&P 1800 level. After this
correction we ramp and head to the 2300-2500 possible targets.
A few head winds exist such as a few Shale companies go bankrupt and the Junk bond market crashes that
will bring this market down into correction mode first half of 2015. Another problem could be
the Euro Zone stimulus program back fires and brings down all markets
due to fear. Finally the china housing bubble could pop around this time.
Market Forcast 2 for 2015:
Then either a few Shale companies go bankrupt and the Junk bond market crashes that
will bring this market down into correction mode first half of 2015 or
the Euro Zone stimulus program back fires and brings down all markets
due to fear. Finally it could be the china housing bubble popping around this time.
How will 2015 end?
Why? The government is keeping a close eye on bubbles. Bubbles have been the biggest killer of a market in the past 15 years. The stock bubble of 1999. The housing bubble of 2007. and the junk bubble of 2014? I don't think so.
Government oversight has gotten intense and its hard for bubbles to bring down the market.
Where are the bubbles?
It's harder than ever for a bubble to exist. High capital levels, stress tests and vigilant watch dogs keep eyes on these dangerous nuances of the capital markets.
1)
I see a bubble in Venture capital funding for tech Start-ups. Most of
these companies have no real earnings and are valued at insane levels.
They are two many tourist angel investors who do not want to miss out
on the next big thing. Companies like UBER, Google, Linked IN etc.
2)
The next bubble I see is in Junk bonds. I hear around 30% of new junk
bonds are shale oil related. This can be very dangerous if all these
companies go bankrupt.
We should be fine in 2015 only geopolitical risks are on the table
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