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TAKE IT ALL IN: Markets Will Go Parabolic SOON!
Forget about the long-term for a moment – there are some crazy challenges on the horizon, some of which I’ll discuss on Sunday’s upcoming letter. These will shape the level of your salary, the profitability of the company you’re employed with, and the competitive advantage of the western world (specifically in terms of technology and manufacturing), but put these aside for a second. Think only about the short-term – the next 6-12 months, between now and the 2020 elections.
Put the big structural obstacles on the back burner for the time being, and focus only on what’s straight ahead. If you’re a trader, this is critical for you. Or, if you’re only an buy-hold investor, start to rotate your portfolio today in anticipation of what’s coming, since there are a number of unusually monumental trends in place that are sure to bust the U.S. equities markets right open.
Between this D-Day that is a few years down the road (3-7 years ahead) and present day, the reality is that investors do not find many places to earn a decent return with a high degree of safety attached to it, so they’ve flocked to U.S. equities for nearly a decade.
Interest rates at these levels make it so that stocks have an arbitrage over cash, since their growth curves, along with their dividend yields, far outweigh the unfavorable returns that bonds generate.
Therefore, stocks are trading at all-time highs again. The unique aspect of this is that prices are headed higher in the face of high cash levels and outflows – people are under-invested, while prices rise. This means that the buyers are willing to pay more for their shares (a clear sign that CEOs and buybacks are a large part of this rally), because CEOs aren’t buying back shares on dips, but are on autopilot.
The retail public, foreign money, and many institutions (to a large extent) are not taking part in this rally.
There’s so much cash on the sidelines waiting for a China-U.S. deal to happen before they enter back. There’s also the fear of Brexit, the problems in Germany, and the uncertainty over interest rates policy in the U.S. (are we going to see more hikes, or was this the end of it, and cuts are next?), which are all actually sowing doubt and fear in the minds of investors.
Check out how fund managers are positioned:
Smart Money doesn’t believe in broad inflation (that is, inflation in everyday items), which is caused by higher wages and velocity of money.
They continue to see the rising levels of debt as a roadblock to meaningful growth, and they believe that central banks aren’t about to change the way they do business.
Slow growth, low inflation is the prevailing theme.
93% Of Investors Generate Annual Returns, Which Barely Beat Inflation.
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The three big question marks are: (1) what happens when slow growth turns into solid growth? (2) What happens when low inflation pivots into higher inflation? And (3) what happens when companies meaningfully reduce buybacks?
All economic conditions are cyclical and this one is such, as well.
Fund managers know that a recession is now a matter of 12-18 months away, as labor market tightness is eating into profit margins, and the economy gravitates toward this “slow growth, low inflation” environment.
In the short-term, the NASDAQ 100 just hit an all-time high. I see no reason why the Dow Jones and the S&P 500 won’t soon join in.
Contrary to many, my target for the NASDAQ is only 25% away from current levels. There’s much talk about a phenomenal “Blow-Off Top” scenario, but our research points to the fact that we’re already midway through it. Some are calling for 12,000 – 14,000 for this cycle, but that sort of buying momentum doesn’t sound plausible, unless Asian middle-class starts buying the indices.
For the S&P 500, we see 3,000 points as a major hurdle and so we don’t see more than a 20% upside, at the most. With the Dow Jones, we anticipate 30,000 to be close to the peak, so 20% from here once more.
The downside is more like 30%, so to us, the prospect of generating 10%+ returns from other assets, and not blue-chip stocks, is VERY attractive. Instead of risking 30% in order to make 25%, we’re looking elsewhere.
This Sunday, I’ll issue our exclusive letter about the change that Trump’s presidency has brought – or, rather, solidified – to the world.
The next decade is going to be so much different than this one!
Governments Have Amassed ungodly Debt Piles and Have Promised Retirees Unreasonable Amounts of Entitlements, Not In Line with Income Tax Collections. The House of Cards Is Set To Be Worse than 2008! Rising Interest Rates Can Topple The Fiat Monetary Structure, Leaving Investors with Less Than Half of Their Equity Intact!