|Optimism is fully bought
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- By Bill Bonner
We saw the old year out in Business Class on Air France. We feted it with champagne and woke up in 2015 thinking about you.
Many dear readers wrote to offer best wishes for the New Year. Others wrote with compliments on our book or new newsletter. Thanks to all...and best wishes to you for 2015. We hope to help make it a good year for you.
Often, readers accuse us of 'negativity' or excessive 'pessimism. ' Typically, they also ask for 'solutions.' Perhaps the beginning of a new year would be a good time to address the issue.
Chris presented a list of things that might happen this year. They were, for the most part, extrapolations of the trends already underway. Trends continue until they end...which often takes many years. 'More of the same' is usually what happens.
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That doesn't make it the best bet, however. The best bet has to take into account the consequences of being wrong. That's where the negativity comes in. The stock market may continue to go up in 2015. Investors may continue praying to Saint Janet, with positive results.
GDP may continue growing.
But what if they don't happen?
The major media, Washington and Wall Street will be happy to tell you why things will be cheery and bright in 2015. And look at the price action last year. Bloomberg:
How could it get better than that? Which is just the point: you probably can't. Optimism is fully bought. So, even if 2015 turns out to be a good year, there may be little profit in it.
"Investors and traders over the last number of years have been conditioned to buy on the dip," said Quincy Krosby, a market strategist based in Newark, New Jersey, at Prudential Financial Inc., which oversees $1 trillion in assets. "This year was no exception."
Stocks have dropped on 107 days in 2014, two more than in 2013, and never once declined more than three straight times, a first in data compiled by Bloomberg going back to 2000. Stocks jumped an average of 0.1 percent on days after they fell, helping underpin a 235-point advance in the S&P 500 that pushed its 10-year annualized return to 7.8 percent. It was minus 4.5 percent as recently as March 2009.
Companies are doing what they can to keep shares aloft. Through the first three quarters of the year they spent $515 billion on repurchases, a rate that were it maintained would trail only 2007 for the highest level ever, Birinyi data show.
But if things don't turn out as hoped, the losses could be staggering. Then you would hear some real wailing and gnashing of teeth! Which is why a little 'negativity' might be a good thing; it's in oversold..
That in mind, here is a little more of it...a brief review of some discontinuities - some trends that could surprise us in 2015:
Stocks could go down. Why not? They've gone up for 6 years in a row. They've got to go down sometime.
Bonds could also go down. There's been a bull market in bonds since 1982. That has to end sometime too.
Oil could go up. The Fed's bubble in the oil market has burst. Now, output should be falling...while the Fed still holds its key rate near zero...and central banks of Japan, China and Europe are still pumping.
Inflation could surprise us. We've gotten used to falling inflation rates and Everyday Low Prices. The CPI has been going down for 33 years. But there's no law that says it has to keep going down. And when price increases go back above 2%, what major central bank will have the courage to tighten up?
Those are just the most obvious and inevitable trend changes. There are also wars, crashes, and natural disasters that we can't foresee but that could be devastating to millions of people.
Any one of these things - the inevitable or the unforeseeable - could trigger Jim Rickard's "25 year recession." A bear market in stocks could last a quarter century - as Japan's has. The US economy could go into a 25-year slump, as Japan's has. The government could react as Japan's has...and go broke, as Japan's will.
What are the solutions?
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
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