Disequilibria and risk from the international economy In 2016 we find two conditions present that put markets at risk. One is that policymakers have the wrong model of how the world works. In plying policy under misunderstood conditions markets will be at risk.
If we look back at athletic stars of the past, we often find some very interesting and educational anecdotal stories. Unlike most people, professional athletes’ lives involve constant traveling and meeting people in all professions. One interesting story was told to me by Arthur Mercante, the famous boxing referee and member of the Boxing Hall of Fame. The story was funny but quite profound as well.
I cannot express how saddened I was to get the phone call Saturday afternoon telling me that Dickie Moore had passed away Saturday morning. My contact with Dickie began in 2005 when I asked a friend I had worked with on the Montreal Stock Exchange to suggest someone for an interview; I needed a respected Quebec business person for an opinion on the economy and business. He suggested that I call Dickie Moore, the retired Montreal Canadiens’ star left winger and member of the Hockey Hall of Fame. A star? Dickie led the National Hockey League in scoring twice and won six Stanley Cups with the Canadiens.
Business television’s major mistake? Little quality technical analysis & too many poor stock picks. A much respected “Wall Street Week” panelist telephoned me in the late nineties in New York. He had seen the performance of my on-air stock recommendations made on Business Television and was so impressed that he recommended me for consideration as the senior stock analyst at a rather expensive stock investment service.
We see 2016 being a good year for the U.S. equity markets, but not a great one (or a flat one). Below are the historical , economic, and fundamental considerations contributing to this outlook. Historical Perspective · A good year usually follows a flat one: Since WWII, there have been 10 times that the S&P 500 rose or fell by less than 3% in any calendar year. In the subsequent year, it gained an average 12.8% and rose in price 80% of the time. Only in 1947-48 was one flat year followed by another flat year.
Comprehensive analysis requires monitoring of the “buys and sells” of the officers and directors personally owned shares. The bottom line is that they are the most informed of investors as they happen to work at the companies!
Our forecast still projects a 25% to 30% decline from the stock market high. The major difficulty in forecasting is such low interest rates which are artificial and eventually must end. Even if a severe decline does occur, there are so many stocks today that are overlooked and incredibly undervalued; they have already suffered harsh declines.
In recent months, the Federal Reserve has been signalling the impending end of their ultra-accommodative monetary policy. While that eventuality is understandable, they may have picked the wrong time.
The bear market in the Canadian dollar has passed its period of maximum pessimism, and important bottoming action should begin soon. Over the last four years, the Canadian dollar has been deteriorating at an ever steeper slope. Bearishness has fed upon itself and the result has been a curvilinear descent that has become so steep that the summary trend line is almost vertical. Everybody is now familiar with the perils of a resourced based economy during a period of moribund global growth.
THE NORMAL STOCK MARKET PERIODS OF 20% OR SO CORRECTIONS HAVE BEEN “PUT OFF” BY THE CORPORATE BUYBACKS COUPLED WITH NEAR ZERO INTEREST RATES. HISTORICALLY, SEVERE CORRECTIONS AND EVEN BEAR MARKETS OFFER TREMENDOUS OPPORTUNITIES TO INVEST WHILE STOCKS ARE “ON SALE.” BECAUSE OF THE ABUSE OF THE “BUYBACKS,” WE WILL SOON SEE THE “PAYBACKS’ THAT MANY OF THOSE “BUYBACK” COMPANIES’ STOCKS WILL HAVE TO ENDURE.
