Dow Stock Market Trend Forecast 2015 by Nadeem Walayat
Stock-Markets / Stock Markets 2015 Feb 03, 2015 - 01:48 AM GMTBy: Nadeem_Walayat
The stock market has had wild roller coaster ride during January in the wake of the euro-zone crisis where one of the best days of the year (+275) is immediately followed by the worst day of the year (-335) the effect of which is to literally grind the strength out of the stocks bull market rally of 2014 with stomach churning moves that have been encouraging the perma-bears to literally scream at the top of their lungs that this time, THIS TIME the bull market really is over! Which has been regurgitated at length by the mainstream media and BlogosFear backed by supporting reasons coalescing around euro-zone collapse, end of Fed QE, and possible interest rate hikes being just around the corner, all of this despite the FACT that stocks actually do quite nicely during the early years of RATE hiking cycles! In fact its rate CUTS that stocks bulls need to worry about for they signal WEAKNESS ahead. Then there’s China weakness, Europe recession, ISIS and not forgetting EBOLA! So plenty of doom for the bears to play pick and mix with for reasons why Bull Market End Time is here!
Why Invest in Stocks?
Yes the stocks markets are manipulated where the manipulation reveals itself in the price charts. However, how do you think the rich continue to get richer every year whilst the rest (workers) have seen their earnings stagnate or FALL for a decade!
The rich get rich by leveraging themselves to the exponential inflation mega-trend by owning income generating capital assets that 99% of workers (wage slaves) service and will never be able to obtain as a consequence of debt and inflation as they find that the purchasing power of their earnings is constantly being eroded by real inflation that never tends to match the governments inflation indices and by virtue of real inflation most people in a society become vested interests towards political party bribes whom they are expected to vote zombie style at each election to continue to be in receipt of hand outs (printed money) to fill the gap between earnings and inflation, a gap in economic productivity that is continuously being siphoned off by the elite as a consequence of the elite holding most of the income generating assets in society. Thus Inflation + Capital results in an spiral towards which the wage slaves own less and less capital whilst the elite continue to concentrate wealth in their hands.
This is why house prices have been rising whilst real terms average wages have been falling because the wealth the economy generates is further being concentrated into the hands of the elite who re-invest it into capital assets such as property pushing up prices which further reduces available supply for the wage slaves hence why most people including academic economists just cannot understand how house prices can be rising when average earnings have been falling. THE WEALTH GENERATED BY THE ECONOMY (wage slaves) IS BEING RE-INVESTED BY THE ELITE INTO CAPITAL ASSETS SUCH AS HOUSING and Stocks, and this is a reinforcing cycle that ultimately ends when the elite (0.1%) own virtually ALL of the assets (over 90%) resulting in a society that is PRIMED for a REVOLUTION!
The only way for individuals to break out of the debt system is as I have voiced countless times in many articles and several ebook's (FREE DOWNLOAD) is to NOT borrow money and to accumulate income generating assets the most familiar of which to most would be rental properties and lesser stocks given that I deem stocks to be a higher risk asset class than properties.
Stocks Bull Market 2014 Review
The stocks bull market raged on for another year to close at Dow 17,823 (+7.5%) following the Dow's most recent all time high set just a few days earlier at 18,103. This despite widespread calls of bear markets and even crashes that coalesced around a series of bad news events such as surrounding the US debt ceiling triggering a government shutdown and not forgetting Octobers end of QE apocalypse, with such doom calls always reaching their most vocal just at the end of every correction.
In the real world my automatic response to people asking me about what’s happening to the stock market is to say "It's October, this is what always happens in October before we get the Santa rally ".
Therefore 2014 was another year for my very, very simple investing strategy that once more paid off, and which I iterated throughout the year -
" The Greater the deviation from the stock market high then the Greater the Buying Opportunity Presented".
Furthermore, I brought forward a reminder of what to expect at the worst point of every correction -
03 Oct 2013 - U.S. Government Shutdown Great for Stocks Bull Market, Bears Will be Crucified Again
I keep being reminded of the movie SPARTICUS where the slaves are lined up at the end just like market commentators line up at the depths of market corrections to once more proclaim that they too are ALL Sparticus! Calling THE Top! However, we all know what happens at the end of the movie, as they all end up getting crucified, and we don't have to look far to see what happened following EACH end of the bull market final top call of just this year! Let alone a bull market that is now well into its fifth year.
The bottom line is this the US government shutdown is GREAT NEWS! because for bull markets to persist and continue they NEED BAD NEWS every few months, THEY NEED MOST PEOPLE TO BE SKEPTICAL, TOO AFRAID TO INVEST! And so it continues to be the case for the DURATION OF THIS BULL MARKET, where over 90%, NINTEY PERCENT OF Market commentators have been WRONG and continue to be WRONG, Everyone who has just proclaimed its END IS WRONG and Will BE CRUCIFIED, just as they have been crucified at every market turn for the past FIVE YEARS !
YOU WANT TO LOVE MARKETS THAT ARE HATED!
YOU WANT TO BE AFRAID OF MARKETS THAT ARE LOVED!
UNDERSTAND THIS - THIS stocks stealth bull market is one of the GREATEST bull markets in HISTORY!
of course a real life crucifixion would mean the fools would would ceased and desisted in their demented ramblings, but that is one of the negatives of the passing of the Pagan Roman Empire. Instead the so called market commentators march on as if nothing happened despite spouting more garbage because clearly they NEVER put their own money on the line, which is the real secret for arriving at the most probable outcome. This is why virtually every time I write an article on the stocks bull market I get so many comments and reasons to explain why I this time I am wrong and it has ended.
Instead I have to reiterate what I have voiced for the duration of the stocks stealth bull market in over 200 articles (Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470 ), my strategy has been very, very simple, no black box voodoo to sell garbage to the unsuspecting masses but simply this - " The Greater the deviation from the stock market high then the Greater the Buying Opportunity Presented". And, you can't get any simpler than that !
My last in-depth analysis of the year concluded in the following trend forecast into the End of January 2015.
12 Oct 2014 - Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015
Stock Market Forecast Conclusion
My final conclusion is for the Dow to continue its volatile trend lower into Mid November towards 15,350 , probably bottoming out around 15,500. To be followed by a rally to 17,100 by the end of this year, following which I expect a weak January with Dow probably ending the month below 16,500 having traded down to 16,350.
That I subsequently refined in November to conclude in an end of year trend to above 18,000 ahead of a significant January correction -
23 Nov 2014 - Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome
My long standing view remains that the stock market rally will continue into the end of the year when I expected the Dow to be trading north of 18,000.
EBOLA PLAGUE
The mainstream media focus may have shifted elsewhere but the Ebola plague continues despite desperate attempts at containment which have partially succeeded in some areas. However, Ebola cases and deaths are still doubling every couple of months to now stand at 9,000 dead and 22,500 infected.
Therefore despite some positive developments in terms of buying time to produce a vaccine and treatments in enough quantity to make a difference, Ebola still represents a major black swan risk for the global economy for the whole of 2015.
Stock Market Fall Out
In terms of stock market trend so far the outbreaks have been contained to West Africa and thus had little effect on stock market trend. Which as long as this trend persists apart from the occasional story of a patient here or there which the markets have now grown immune to, then so should the stock market shrug off Ebola for 2015.
Where stock investors are concerned, a number of biotech stocks in a race to deliver an Ebola cure that I am sure many of the worlds governments will be forced to stockpile at great expense just as they did with Avian Flu. There are several contenders such as ZMapp which cured two U.S. healthcare workers. However the problem is in gearing up production of these potential vaccines to the quantities that governments are demanding which is still near a year away.
Age of Reason World Map 2015
The following map illustrates the current state of the evolution of humanity from the 'Age of Religion' to the 'Age of Reason' as peoples and nations attempt to literally pull themselves out of the iron grip of ancient ideologies towards ENLIGHTENMENT where humanity really does start to understand the true nature of the universe, utilisation of which triggers exponential leaps in development as we have seen in China that has done in 30 years what took the West 300 years to achieve.
The key point that stands out from the world map is that the most religious countries also tend to be the poorest. However, the automatic western response of sending aid to poor countries just does not work for the fundamental reason that many aspects of civil society are skewed towards the veneration a deity such as in religious schools that continuously draws resources away from education based on the 'Age of Reason'.
Even western nations such as the United States are partially crippling themselves by wallowing in exposure to the 'Age of Religion' whilst competitor nations such as China have far surpassed the likes of the United States in terms of Enlightenment. Though of course whilst important, Religiousness is only one factor as there are others such as Freedom of Thought, Human Rights, the Rule of Law and of course Democracy, all of which are found lacking in China, far behind the United States though again the trends are in the OPPOSITE direction, where China is slowly liberalising whilst the United States is slowly turning into a totalitarian state as its security apparatus seeks ultimately spy on virtually everyone on the planet. effectively seeking to turn all westerners into slaves as the thought police seeks to monitor every action.
Where the Islamic world is concerned, it is primed for a reformation that the West should encourage as a matter of the utmost priority as the means of bringing about Armageddon will only become easier to obtain with each passing year which is why given the current trends I don't see the middle east region surviving much beyond 2030, unless the Age of Reason starts to prevail in Islamic nations whilst also continuing its trend in all nations.
So instead of the mainstream media's obsession with the 'clash of civilisations' nonsense or fearing Islamification instead in reality it is Islam that fears the West for what it represents - ENLIGHTENMENT, and it is this that is resulting in schools being blown up across Afghanistan and Pakistan, hundreds of school girls being kidnapped in Nigeria. Islam, Muslims, even Christians, Jews and Hindus FEAR the truth of what Western Secular Education reveals. Whilst western civilisation has over 400 years painfully detached itself from the what Christian Ideology actually is, other ideologies across the middle east still crave the end of the world so that they may ascend into paradise for eternity for the Islamic world is literally living on borrowed time as Islamic nations cannot compete against Rationality and are not just sinking but imploding into chaos and anarchy promoting huge waves of migration to Europe and North America.
The Islamic Reformation for most of the worlds muslims could happen far more quickly than the West's 400+ year long march towards secularism that firmly put the Christian death cult in its box. An Islamic Reformation within the next 30 years would result in a world where today's slogans of Islamification and Fundamentalism just would no longer be relevant, for Islam or Judaism or the many other 'religions' would not have to go through the painful process of discovery from Galileo to Darwin to Einstein to Planck to Watson and Crick, for the knowledge already exists! It would be totally unnecessary for muslims to suffer as the first century of the Christian Reformation that was forced to open its eyes slowly over several centuries.
Those that think that the Islamic world (muslims) cannot change need to remember that all it can take is just one man to change, to open his mind to enlightenment and soon the rest will follow, for that is how Islam started with ONE MAN!
Islam Age of Reason and the Stock Market
If as I suspect that the coming decades will witness an accelerating outbreak of Enlightenment across the Islamic world then this should act as just as big a boost to humanity than what we have seen during the last 30 years in China, for the Islamic world's starting point is several decades advanced from when China started to become Enlightened. Therefore amidst present day crisis of civil wars and stagnation there exist huge multi-decade investment opportunities as we see the Islamic world mirror the western world much as China has done economically. of course it won't be an easy ride for there are many dictatorships to fall such as Saudi Arabia before we get there and it does not help with US led western support for religious fundamentalist states such as Israel and Saudi Arabia, but this next decade or so could be the last chance for the region to become ENLIGHTENED, either that or the religions will utilise technology to bring about fulfillment of prophecy.
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch
Greeks recently voted for Syriza as the largest party on 36.3% that put the radical left party within a couple of seats of securing a majority of 151 in Greece's 300 seat parliament which includes automatically getting allotted an extra 50 seats. Syriza soon achieved an overall majority by going into coalition with a small right wing UKIPesk party of 13 MP's. The people of Greece having had enough of near 5 years of economic austerity that had yet to fully succeed in correcting the preceding decade long partying spending and corrupt kickbacks binge at the euro-zones expense. Now the people of Greece have effectively done a deal with the devil that promises to return Greece to the good old party days of rampant debt printing (fake government debt statistics) and corrupt governance all without the consequences of accelerating double digit inflation as a consequence of being within the euro-zone.
Greece had already been black mailing the eurozone for a good 5 years in the lead to the current vote, where bailout after bailout followed as the Troika stepped forward to effectively finance the whole of Greece's annual interest payments so that Greece's corrupt politicians and government institutions stopped bearing the costs of an exponentially rising debt mountain that even after several hair-cuts still stands at 175% of GDP that Syriza in the lead upto the election made clear that in large part (50%) would either be written off or defaulted upon and in the process blowing a hole in the Euro-zone. However as I warned in an earlier article that a 50% write off would just be a starting point as Syriza would periodically seek to demand further ECB debt write offs so that the Euro-zone was forced to perpetually finance Greece's partying -
12 Jan 2015 - Greece Blackmailing Euro-Zone Again, 50% Debt Write Off Or Default
The starting point for a Syriza Government will be for 50% of Greece's debt to be written off, I say a starting point because it will be a perpetual revolving door of never ending write offs as further Eurozone / ECB loans will every so often be subject to further write offs, just as when Greece had the Drachma and used to print as much money as needed that caused persistently high inflation. So by printing euros for Greece German tax payers will be subsidising Greece in perpetuity through the Inflation it causes. However, this would be just the tip of the Eurozone crisis iceberg for any Greek debt write off will soon trigger similar demands amongst other debt ridden PIIGS nations and thus fracture the euro-zone.
Greece threatening a unilateral debt default that would result in Greece being kicked out of the the Eurozone is set against the fact that opinion polls repeatedly state that 75% of Greeks do not want Greece to exit the Eurozone. So it is not black and white that Syriza will actually deliver on its debt default threats.
The truth of Greece's debt situation is indicative of the fundamental flaw right at the heart of the Eurozone which is that Greece has no choice but to borrow form the Eurozone to pay interest on eurozone debt and the eurozone as long as it is deemed politically expedient to keep Greece within the Eurozone then will continue to loan debt to Greece to pay interest on Eurozone (ECB) debt. This is a perpetual debt infinity loop because of the fundamental flaw for the lack of a proper mechanism for TRANSFER payments within the Eurozone, much as takes place in every member state where the governments make transfer payments (government spending) to SUBSIDISE the less affluent, less economically capable regions.
Furthermore, the truth is that Germany and the ECB is in large part to blame for the current crisis for the Troika's (ECB, IMF and EC) policy has always been one of kicking the can down the road through the mantra of austerity being necessary to to reconstruct the Greek economy into an exporting economy that would deliver economic growth. The flaw here is that as a consequence of being in the Eurozone Greece cannot compete against Germany or any of the other low tax eurozone nations such as Ireland, so is stuck in a downward spiral.
The calculations being made at the ECB is to whether use of more smoke and mirrors to hide further subsidies to Greece that in all but name would amount to a debt write off with more later, or whether now the euro-zone could survive a Greece Exit.
Grexit - Greece Euro-zone Exit
A Syriza majority government will embolden the radical left to embark on a suicide mission to demand freshly printed ECB Euros to finance an ever expanding socialist spending binge where the price expected to be paid will be by the rest of the euro-zone in terms of printing money to finance unproductive activities such as the public sector and the life styles of corrupt politicians. This puts Greece ultimately on the track towards being ejected out of the Eurozone with the consequences of there being high inflation (at least 30%) if not an hyperinflationary panic event for Greece and its new currency.
Greece Contagion
The last time Syriza threatened to seize power in Greece was in Mid 2012 which put the markets on red alert for financial armageddon that triggered banks literally to start exploding across the euro-zone most notable of which was Spain's Bankia.
08 Jun 2012 - Bankruptia Spain To Seek Imminent German Bailout to Limit Greece Election Contagion
Reuters has let the cat out of the bag Friday concerning secret panic driven talks concerning an imminent bailout of Spain's bankrupt banks, possibly as early as Saturday afternoon. Which follows fast on the heels of the credit ratings agency Fitch downgrading of Spanish Government bonds to just above junk status less than 2 weeks away from the contagion inducing Greek elections. All of which were contributing to what amounts to a state of Financial Armageddon in progress as a chain reaction of detonations takes place across the Euro-zone.
Reuters - Spain Poised for bailout request
"Spain has so far resisted pressure to seek a bailout for its crippled banking sector. But sources say Madrid is now poised to ask for help. It's expected to apply for European funds over the weekend. That would make Spain the fourth - and largest - country to seek a bailout since the euro zone debt crisis began. Two senior EU officials say euro zone finance ministers will hold a conference call to discuss the aid package. "
Meanwhile a whole host of Spanish Government Ministers have been busy all week denying that a bailout was imminent and that Spain did not need a bailout as they attempted to fight to keep their jobs as Spain would effectively follow Greece, Ireland and Portugal in giving up control of most aspects of their economy over to Germany.
ECB QE Money Printing
This time around with lessons learned the ECB has laid the ground work to cushion the immediate contagion consequences of a Syriza election victory on the Eurozone banking system under the cover of fighting deflation by announcing that the European central bank would print Euro 60 billion every month to a total Euro 1.2 trillion to buy mostly government bonds held by the banks (initially excluding Greece). This illustrates the degree to which the ECB feared the Greece Election results as it goes against virtually every statement made of the past 5 years that the ECB would not print money (QE). However given the crisis that the euro-zone will soon find itself in the rate of monthly money printing could easily double or even triple so that a couple of years from now the Euro-zone could have monetized as much debt as Japan has (60% of GDP, UK 25%, US 25%).
Possible Mechanisms for Greece Euro-zone Exit
Greece will effectively run out of money by the end of February, by which time if Syriza has made good on threats of starting to default on debt then the euro-zone will likely withhold payment of the next tranche of bailout monies due by then of approx Euro 8 billion that could embolden Greece to threaten a default on total debt of Euro 250 billion most of which it owes to other euro-zone members (Euro 200 billion). Understanding fully that a total default would mean an near immediate exit from the eurozone that could trigger other highly indebted in permanent economic depression members such as Spain and Portugal to possibly also declare their intentions for an more orderly default / exit from the eurozone. Additionally, Germany after 5 years of funding the Greek black hole has finally indicated that Germany would now be prepared to see Greece leave the euro-zone, so signaling that euro-zone would no longer bend over backwards to keep Greece within the Euro-zone as no matter what the Greeks state regarding the guilt of others, namely Germany piling debt on top of debt. The fact is that greece should NOT be in the Euro-zone. The Greeks cannot have it both ways, they either stay and service the debt / slowly inflate it away or leave and print their own currency i.e. hyper-inflate.
However, in the wake of the Syriza election victory, there has been an accelerating run on Greece's bankrupt banks which means rather than Greece having a few weeks, the situation may spiral out of control in a matter of days!
The unfolding Greek crisis will probably trigger a series of Euro-zone summits during the year where the terms for exit from the Euro-zone will be agreed upon. What is unknown at this time is whether Greece will also have to leave the European Union as the Lisbon Treaty implies. My opinion is that Greece will be allowed to remain in the European Union to salvage something from the unfolding chaos.
Hyperinflation Consequences for Greece
In conjunction with the summits formulating the mechanisms for Greece and potentially others to leave the euro-zone there will be real world consequences for Greece in terms of the currency in circulation as a new currency would need to be printed and distributed (we may in the interim see vouchers or even photocopier paper currency used to pay public sector wages) causing chaos across Greece in terms of the standing of contracts such as Mortgages made in Euro's but no longer honoured in Euro's triggering a collapse of its banking system (already well underway) as no one will want to hold its new currency. This would result in a continuation of the slide of the Euro and a collapse in the value of the new currency (when eventually printed) potentially in the form of an hyperinflation panic event, i.e. we will see the Greek inflation rate soar as a consequence of Greece no longer being able to buy any goods or services from abroad due to the capital markets being closed to Greece. I had previously estimated that Greece could experience an annualised inflation rate of at least 30%, which given the nature of the new government that would do nothing to address the requirements of capital markets could probably soar far higher amidst a panic driven spike as any money left in Greece flooded out of the country before capital controls came into force.
Greece Exit Consequences for the Euro-zone
All of the weak euro-zone countries are waking up to the fact that they have been in a state of denial because they are NOT Germany they cannot compete against Germany that effectively holds a captured market for its goods and services that they purchase with German loans, and therefore are only delaying the inevitable by remaining in a currency union with Germany that ensures their economies are also in a state of slow motion death spiral of economic collapse. In which respect they are in fact making the economic pain of their populations far worse as a consequence of dragging out economic collapse over many years if not decades rather than months as would have been the case had they had their own currencies and money printing presses such as that deployed by the UK that has successfully used smoke and mirrors inflation to mask the truth that Britain is in worse state in terms if indebtedness than most of the euro-zone countries.
Greece exiting the Euro-zone would put immediate pressure on all of the other weak Euro-zone members, with Spain and Portugal the next targets for exit as a consequence of these countries being on the same unserviceable debt fuelled economic collapse trajectories as Greece with voters swinging to the far left and right for answers to. In my opinion Spain and Portugal will both exit the Euro-zone within 12 months of Greece leaving.
The following list suggests the probable order of Eurozone exits from the single currency based on debt to GDP coupled with the the level of economic contraction to date.
- Greece
- Spain
- Portugal
- Italy
- Belgium
- France
Though I have to state that courtesy of ECB bond buying there is no sign of contagion yet in the other PIIGS nations as illustrated by low 10 year bond market yields, most of which are trading at well below 2% i.e. Spain 1.5%, apart from Greece's debt which has now nudged above 10%, though even here it is still well below the 2012 crisis highs of over 33% (that it may soon revisit before the end of February!).
The wild card in all of this is Germany for as I originally speculated over 4 years ago (May 2010) Germany may decide to alleviate pressure on the rest Eurozone by planning its own exit. However all this would amount to is a desperate belated attempt to buy more time to slow down the rate of collapse of the Euro-zone so as to allow the financial system to better survive a breakup of the whole eurozone.
Consequences of Euro-zone Collapse
Whilst contagion amongst euro-zone members may be a slow motion affair as countries line up one by one for an orderly exit, however the contagion amongst the banking sector will be immediate and europe wide as credit markets could freeze once more even despite ECB money printing that has the potential to accelerate the collapse of the euro-zone as the potential bailout costs for preventing financial armageddon soar far beyond the means of any of the euro-zone member states to cover.
of course the worlds central banks will do their utmost as they did during 2008 and then again in 2012 to prevent financial armageddon by trying to contain the damage through a myriad of means that they are now well rehearsed in such as bank capitalisation's, providing foreign currency swaps, and in the final instance introduction of capital controls and bank bail-ins cyprus style.
The bottom line is that it now looks probable that Greece will leave the Euro-zone within the next 12 months, during which time it will become clearer which other euro-zone members will start to formulate their own exits from the perpetual economic depression of the euro-zone. Especially if after the initial pain (inflation) the Greek economy actually does start to recover strongly which could result in a stampede collapse of the euro-zone.
Implications for the Stock Market
Active market participants tend to ignore much of the media hype that surrounds what is going in Greece and the euro-zone and instead focus on the real news which is that despite German resistance, the announcement that the ECB WILL PRINT MONEY. It does not matter if the amount announced was more or less than expected, for once money printing starts it does not tend to end with QE1, instead the Euro-zone as has been the case for much of the rest of the world can look forwards to QE2,QE3,QE4 which means a lot of asset price inflation that will not just impact on european assets but liquidity will actually flood out into the stronger markets such as the UK and US as a consequence of posing LESS risk to market participants than the euro-zone.
Therefore whilst the media was focused on the end of US QE, despite the likelihood the Fed has many such tricks up its sleeves to flood the markets with liquidity. The reality is one of continuous rampant global money printing which ensures that expectations of deflation will always be a delusion, as I wrote 5 years ago in the Inflation Mega-trend ebook (FREE DOWNLOAD).
The worlds economies swim in an ocean of inflation that is punctuated by occasional ripples of deflation which is illustrated by the perpetual upward curve of general prices as measured by the Consumer Price Index (CPI). Inflation in the long-run impacts on virtually all commodities and asset prices.
Therefore despite increasing market volatility due to uncertainty, however in the long-run Greece / the euro-zone crisis will have little effect on the Dow in terms of the year on year bull market trend.
OIL PRICE CRASH
Whilst most ordinary people across the UK are reaping the benefits of the oil price crash to below $50 that has resulted in energy bills being cut by 10% and the price at the petrol pumps nudging to below £1 a litre not seen since 2009. However, there is one part of the UK where its largest industry is in a state of collapse and along with it the regional economy and that is Scotland and its North Sea Oil industry which has been thrown into turmoil.
Just as spectacular as the collapse in the oil price has been the collapse in the SNP's Economic Baldrick-esk Master Plan for an Independent Scotland that was wholly based on reaping huge rewards from North Sea oil exports where SNP propaganda had convinced many Scots to Vote to effectively commit economic and social suicide by voting Yes in last Septembers referendum that came close to achieving the catastrophe on the basis of propaganda implying upwards of £7 billion in North Sea oil tax revenues that would be raised to finance Scotland's budgetary black hole, which in the fever pitch of the campaign had reached the heights of £11 billion so as to exaggerate the degree to which Scotland could prosper and fill the void left by the withdrawal of the English subsidy that currently amounts to £9 billion per year.
Even the Governor of the Bank of England did not mince his words by warning "the Scottish economy was heading for a “negative shock”.
The problem with SNP economic propaganda is that it was based on a oil price being well NORTH of £100 per barrel, however a sub $50 oil price does not just mean that an Independent Scotland would have made half the forecast tax revenues i.e. £3.5 to £5 billion, instead the reality is that an Independant Scotland would have faced would be near ZERO TAX Revenues as the average break even price for crude oil is $60 a barrel. Additionally IS would have had to bear the costs of the collapse in the oil industry such as job losses and reduction in other indirect taxes.
North Sea oil companies making losses means many closures and job losses and the longer the oil price persists below $70 then not only will there be no future investment but also a literal collapse in Scotland's oil industry the signs for which were illustrated today with BP's announcing 10% Job losses in its North Sea operations. BP also stated that it expected the oil price to remain below $60 for the next THREE YEARS! Which means many small to medium sized oil companies will go out of business over the next year which illustrates the magnetite of the ineptitude of the SNP's campaign for Independence built upon the oil industry as Scotland Voting Yes would already be in a state of economic collapse, bankrupt much as I warned in a series of articles that would happen and worse during the referendum campaign and why Scotland voting Yes would be tantamount to Scotland committing suicide as excerpted below:
- 17 Sep 2014 - Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency
- 14 Sep 2014 - Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK
- 12 Sep 2014 - Main Reason Why Scotland Will Vote NO to Independence, 70% Probability
- 07 Sep 2014 - Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK?
- 02 Sep 2014 - Independent Scotland Currency, Plan A, B, C or D - British or Scottish Pound?
Oil Price Crash Implications for the Stock Market
My long-standing view is that along as GDP is not collapsing, which given US GDP Expectations of 3% for 2015 is not, then a low / falling oil price should be good for the US and much of the global economy and conversely apart form those sectors reliant on a high oil price then this should boost demand in an economy and thus most stock market sectors should benefit from falling energy costs.
The negative impact of falling oil prices is that it could be and actually is a sign of slowing global demand, i.e. its a sign of a weakening global economy, namely the euro-zone and China which will impact on US stocks as revenues and profits from foreign markets fall. Complicating the situation further is that as a consequence of the fracking boom, US oil production during the past 5 years has soared by approaching 50% to around 15m barrels per day which now even exceeds Saudi oil production by at least 2 million barrels per day.
Therefore the overall picture is one of substantially increasing supply coupled with a slowing demand that will remain a net strong positive for most US Stocks for 2015, especially those reliant on energy costs such as the airlines and transportation companies, conversely those sectors reliant on high oil prices will suffer such as the oil exploration and drilling and services companies.
The stock oil price graph further illustrates an overall inverse relationship between oil and general stock prices, that is along as GDP is growing and not contracting (recession). So despite at least some negative blowback from the a weak euro-zone, slowing China and suffering oil sector. Overall a low oil price should boost the US economy and stock market, so after the market has fully come to terms with the ongoing collapse in oil price then the stock market should resolve to a bullish trend.
U.S. DOLLAR AND THE STOCK MARKET
My in depth US Dollar analysis of Mid December concluded in the following trend forecast for the 2015 to converge towards a peak in the US Dollar by August 2015 to a spike above USD100 before retreating towards 92 by the end of the year.
14 Dec 2014 - U.S. Dollar Collapse? USD Index Trend Forecast 2015
USD Trend Forecast 2015 Conclusion
My USD Trend forecast conclusion for 2015 is that after the current correction is over by around USD85, that the USD then trends higher towards a target of 98 by mid summer 2014, probably terminating in a spike to just above 100 before correcting back towards 92 by the end of the year as illustrated by the following trend forecast graph.
Implications for the Stock Market
Fundamentally a strong US Dollar tends to be negative for international stocks because it reduces revenues in foreign currency and makes US exports more expensive, conversely it boosts domestic consumer stocks as the costs of imports falls as the same dollar can buy more foreign goods and services i.e. as we have seen with the fall in the crude oil price.
The Dow / USD chart clearly illustrates that the a strong or weak US Dollar does not translate into any significant impact on the stock market. Therefore the stock market CAN and HAS continued to rise along WITH a strong US Dollar, as well as not forgetting that a strong dollar means foreigners buying dollar assets such as stocks and housing.
STOCK MARKET QE AND INTEREST RATES
From QE1, to QE2 to QE3, the Fed since before this stocks bull market began has been printing money and buying mostly government bonds from their fellow bankster brethren the successful result of which has been to suppress interest rates and generate artificial profits for the banks to continue to bank as bonuses for fictitious performance levels. Where the stock market is concerned is that the flood of some $5 trillion of money printing has in part driven the stocks bull market, much as I voiced would right at the start of this bull market in March 2009.
With the apparent end of QE many analysts concluded that it was all over, and that rates were set to rise which spells doom for the stock market, all without realising two fundamental factors.
1. After all that blood, sweat and tears, is the Fed really going to pull the rug out from under the stock market? I don't think so! Be under no delusion, money printing STILL continues through various open market operations. Therefore QE is NOT REALLY OVER. There WILL be QE4!
Another point to consider is that its the EFFECT and not the CAUSE that we need to focus on i.e. US bond prices and where bonds stand there is no sign of an end of the US Treasury bond bull market. In fact the END of QE has seen bond prices literally soar! Which reveals the truth of what really is going on!
2. Yes, it is likely that the Fed will start to raise rates during 2015, we can probably expect the first and only rate rise of the year around August. However the facts are that the early years of a rate hiking cycle tend to be BULLISH for stock prices, for the interest rate rises tend to take place in a climate of economic strength NOT weakness. Instead it is interest rate CUTS that bulls usually need to fear for they signal weakness ahead as was the case during 2008 and into mid 2009.
Furthermore remember that Fed is just one central bank, yes the most powerful but one, and in this respect what is termed as 'currency wars' best describes the global money printing battle which basically means those nations that do not print money will eventually be forced to print money else see there currency soar against the rampant money printers. We have seen this play out with the European Central Bank which has been forced to start printing money. So another reason why the Fed will print money for if it does not that the US Dollar will continue to soar that will result in falling demand as exports diminish and cheap imports swamp the US market.
Therefore contrary to the growing bearish consensus, I see the announcement for the 'end of QE' as a red herring, as I don't think it will have either a bullish or bearish effect on the bull markets primary trend as in my opinion QE has not really ended, just the Fed pressing the pause button for a few months. So, yes whilst this implies greater volatility as the market trend is not being smoothed out as we have witnessed during January's wild gyrations, but NO, the 6 year stocks bull market has not come to an end.
DEFLATION
Academics and the mainstream continue to obsess over the fears of always imminent deflation. However as the US CPI graph clearly illustrates there has been NO Persistence DEFLATION, even the Great Recession is merely a minor blip, and thus there WILL BE NO DEFLATION for the obvious reasons that -
a. Total Debt is NOT Deleveraging it is expanding. The bankrupt banks (bankster's) never went bankrupt instead transferred their debts over to the tax payers.
b. Governments such as the US can and DO PRINT MONEY! How can there be deflation when the government can just print an infinite amount of money ? There can't! Therefore the whole deflation argument amounts to nothing more than government / central bank propaganda so that they CAN GET AWAY with PRINTING MONEY to BUY votes, to line their pockets, to funnel to their 0.1% masters!
Deflation IS a DELUSION !
There will NEVER be persistent deflation! There will never be debt deleveraging. Instead the trend is one of exponential inflation. This is why many market commentators miss whole bull markets whilst banging the drums of always imminent DEFLATION which translates into an always imminent crash or bear market that has FAILED to materialise for SIX YEARS!
Therefore all prices, including asset prices such as stocks will continue to be leveraged to and oscillate around an exponential inflation mega-trend. Only thing that matters is that central banks print money!
MOVING AVERAGES
The Dow has fallen towards its 200day moving average as the target for normal deep corrections that usually results in a resumption of the bull market. With the more minor corrections contained by the 100 day moving average. Whilst last October's low did break 200 day moving average,however I don't expect similar for now or the NEXT correction, i.e. for the 200 day to continue to hold which implies that Januarys volatility is about as bad it gets for 2015 i.e. indicative of a volatility trend similar to that of 2014.
In terms of price action this suggests that the Dow should be gearing up for a trend to a new all time high by late April, before experiencing its next significant correction during the Summer months, back down towards the 200 day moving average.
ELLIOTT WAVES
Where EWT is concerned I like to keep things simple, none of this double zig zag nonsense and its like but a simple 5 or 7 wave impulse advance followed by an ABC correction.
The Dow resolves to a bullish Elliott Wave pattern i.e. implies that the Dow should now embark on a trend to a new all time high, probably before the end of March! So contrary to much of the building picture so far. Thereafter suggests a summer ABC correction back down to around 17,500 to coincide with "Sell in May and Go Away".
Elliott Wave Implied Fantasy Pattern
My last stocks ebook of March 2013 (near 2 years ago) (FREE DOWNLOAD) concluded in the following Elliott Wave mega-trend wave pattern as a rough guide for how long and far the stocks bull market could continue.
To date the Dow is actually ahead of the wave pattern, i.e. the trend implies Dow 16k for Feb 2015, against actual of 17,200. of course it is still a fantasy pattern because no one can put their money on one tool let alone on one chart! Still when something works, then one has to pay attention to it. Especially when you consider that most Dow long-term charts conclude in an ABCD pattern that always implies the end of the 'bear market rally' as being imminent, that's imminent for 6 years now!
DOW CHANNELS
The Dow's three upper channels have managed to contain most of the Dow's price action for the past 15 months, where the Dow repeatedly targets highs at the top of the central channel and correction lows at the third channel having only breached during October 2014, which still resolved in a trend back to the second channel.
Current price action is toying with a break of Channel 3, which would imply a trend to Channel 4 or about 16,500 that would then put the Dow in a trend pattern between Channel 3 and 4 that implies at least Dow 19k before year end and probably above 19,500 during December.
TREND ANALYSIS
The stocks bull market clearly remains in tact as the Dow continues to put in a series of new highs with higher lows. The last major low is 15,855 and the last high is 18,103. The Dow is trading near the recent low of 17,136, a break below which could trigger a downtrend towards the major low. The current price action implies a trading range for some time of between 18,103 and as low as 15855, though I expect significant support around 16,300. So the Dow could spend the first 6 months of the year going nowhere and IN negative territory for much of this time period.
The bottom line is that there is NO sign of a TREND REVERSAL, therefore the stocks bull market remains intact.
PRICE TARGETS - Upside price targets are 18,100, 18,500, 19000 and 19,500. Downside are 17,130, 16,000, 15855,and then 15,350. Therefore if 17,130 breaks then the Dow could quickly plunge to below 16,000. Whilst a trend to new all time highs would carry the Dow to over 19,000.
MACD - The MACD is continuing to unwind its overbought state since late November. However, it has further to go to reach an oversold state, therefore implies a few more weeks of weakness to prime the market for a run to new highs.
VOLATILITY - VIX
The VIX is showing diminishing volatility spikes. Which implies the market is coming to terms with uncertainty, so whilst the mainstream press may be in a panic over Greece, the markets are actually calming down. Whilst this is not indicative of an immediate run to new all time highs, neither does it suggest a significant break lower i.e. more along the lines of the Dow entering a trading range.
MARKET VALUATIONS
Yes after a near 6 year bull run the stock market is not exactly cheap with the S&P trading on a PE of 18, 12 is cheap, 18 is a little over valued. But this does not translate into an end of the bull market start of a bear market. For bull markets usually tend to peak at bubble extremes, which given 6 years of trend implies we are still several years away, so in terms of valuations this bull market could run for several more years!
Formulating a Stock Market Forecast
A very volatile January with the Dow whipsawing all over the place gives an indication of what to expect for much of 2015 which also makes it difficult to conclude in an intra-year trend forecast, especially for the first half of the year.
Key questions to answer -
1. 17,823 - Will the Dow Close Up for its Seventh Year in a Row?
Despite the Dow currently being down 3.5% on the start of the year, nevertheless I do expect the Dow to recover the current and probably deeper subsequent intra-year negative trading to end UP on the year for the SEVENTH YEAR! Which means that the Dow will close above 17,823.
2. How Strong will the Dow close by year end ?
The last 6 years of the bull market have seen the following annual gains:
This is an ageing mature bull market so it is very unlikely that we are going to see gains the likes of 2009 or 2013. Much of this analysis is converging towards the Dow to be trading at a high of between 19,000 and 19,600 during December 2015, a gain of between 6.6% and 10%. The midway point being 8.3%, 19,300. Therefore I am expecting the Dow to end the year between 19,000 and 19,300.
3. Trend Trajectory for 2015?
The trend for the first half of 2015 will probably resolve in a volatile difficult to call trading range i.e. the Dow should peak late April then fall during May, but it could just as well do the exact opposite trend this year. The Dow could easily trade at both extremes i.e. set new all time highs AND new lows for the year. Following a volatile first half trend, the Dow should then converge to a Summer correction low that would set the scene for the Dow to enter into a bull trend to a series of new highs continuing into the end of the year and likely experience a correction along the way from Mid September to Late October, finally peaking during December before turning a little lower into the end of the year.
Dow Stock Market Forecast 2015 Conclusion
My final conclusion is for the Dow to spend the first half of 2015 in a wide volatile trading range as it continues to unwind the 2014 bull run and sets the scene for the next series of bull runs to new all time highs. I expect the Dow to have started its bull run by early August off of an summer low and then continue into the end of the year, punctuated by an October correction low. I further expect the Dow to be trading well above 19,000 during December 2015 and probably above 19,500, before closing at around Dow 19,150 for a 7.5% gain for the year as illustrated by the following trend forecast graph for 2015.
The bottom line is don't be frightened by first half weakness, yes it may look grim if we see the Dow trading under 16k, but all it would represent is a deeper buying opportunity before the market resolves to above Dow 19k.
My next analysis will probably take an in-depth look at the probable outcome of the May UK General Election, so ensure you remain subscribed to my always free newsletter for this and ongoing detailed analysis and trend forecasts throughout 2015.
Your seventh year stocks bull market analyst.
Source and Comments: http://www.marketoracle.co.uk/Article49270.html
By Nadeem Walayat
Copyright © 2005-2015 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.
Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.
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