Planet Yelnick

A Look Back at Predictions 2013

Looking back at Predictions made for 2013, Glenn Neely did very well for traders, and the infamous Martin Armstrong did well for big picture thinkers. My favorite pundit was Yves Lamoureux, who had a number of bold calls, on Gold topping and China bottoming (at least momentarily).   

I didn't post a list of predictions, but did show how post-election years normally turn out - weak. 2013 however did very well for stocks. In contrast, 2012 was very true to normal patterns. Several posts of mine hit the nail on the head: that the cleantech bubble had burst, and that AAPL had peaked. 

I will take a stab at 10 predictions for 2014 in my next post. 

Looking back farther, we can say that stocks bottomed in March 2009 just as the Powers That Be relaxed the ill-advised Basil requirements to mark-to-market - do that with toxic mortgages and the whole banking sector is insolvent.

That wasn't the start of our faux recovery - that appears to have begin in Oct 2011, after the biggest stock drop since 2008. Credit QE (pun intended). The turn is clear in this chart from Business Insider, showing stocks over gold (stocks in real money):

How long will this continue? A lot call for a top in 2014, but Martin Armstrong looks out to late 2015. The current tech boom we are should go at least into 2015 if not 2016. 

The 1929 Meme – Don't Believe It

I like to run comparison charts, that this is 1987, or 2007, or 1937, etc., that often get passed around on the Internet. Some have plausibility due to similar historical and economic conditions - 1937 for example matches 2015 if we analogize the 1915-1919 auto bubble to the tech bubble of 1994-99, and then the credit bubble of 1925-29 to the recent housing bubble of 2004-08. In that case the crash of 1929 matches the crash of 2008. The attempt to reflate the economy in 1933-37 due to revaluing gold would be analogized to the Fed's QE from 2010-now, attempting to keep interest rates low to reflate the economy. Plausible, maybe. 

Most of these comparisons, however, are simply eye-candy, pattern matching of little predictive power. Some are simply bogus. Here is one of a high level of bogosity:

This comes from a seemingly credible source, Tom McClellan of the McClellan Market Report, and it was brought to his attention by well-known chart diviner, Tom Demark. The bogosity is in the two axes: the 1929 axis covers a 100% range, from 200 to 400 (right axis), whereas the current Dow covers a relatively minor 25% range, from 12400 to 15600 (left axis). On a fair comparison (100% to 100%), the red chart should be only 1/4th the slope of the 1929 chart, and wouldn't match it at all. It would show a much more anemic rise, meaning it would be much less likely to have a dramatic fall.

Don't believe it. Whatever correction we are in is not the big one.  

Yves Expects a Correction, Will Avoid Equities in 2014

Yves Lamoureux has been on a roll recently. He made a prescient China Top call in 2007 (reported here), then turned bullish early this year and says he is up 25%. In October he predicted stocks 'crashing up' (reported here) and they have. Now he has become cautious. His current view on the S&P is reposted below. But first, a few comments from him:

We find that the study of the yield curve has a powerful predictive ability. Where we disagree with most is on the size of the drop. Market opinion would have this ending wave drop in a C wave fashion. Drops of over 50% would therefore be possible. Our count view this pullback as a wave 2. The yield curve agrees with us on this matter.

 

Our tactical approach now is to avoid the S&P as we see it likely to turn out as being a big disappointment for returns in 2014.

Instead of US Equities, he is looking into emerging market equities. Also, he suggests now is the time for a short-term play back into gold. He sees a rise to $1500 before it falls back to his target of $1000 in 2014.  

Here is his reasoning on the S&P:

How often have you seen us get worried this year on stocks? Never! We held a courageous bull stance all year and never let go. This was taped in January with Jeff Macke.

This cannot be a permanent state of affairs. Many studies are pointing to risk ahead. We would prefer to leave some upsides to others. The best part about reducing risk is also pocketing handsome profits.

Conditions are quickly deteriorating. We did preview the chart of money velocities. It is falling to such an extent that we are shocked. Perhaps the uncertainty created by taper is to blame in part. We are asked about our view of bonds if stocks fall.

We mentioned in the past that this would become a nightmare for asset allocators. We believe in the positive synchronicity of both bonds and stocks to revert to an historic correlation. We think bondscan fall while stocks fall too.

The bond bear is really just at the onset. There is incredible damage ahead for people who have enjoyed bonds for decades. To them, there are no other alternatives certainly not stocks. They will suffer in the same way that stock holders did for a little bit more than the last decade. We had been over the same period very wary of stocks and had always preferred the safety of bonds. Oh my! How things change.

The rotation out of bonds to stocks will continue and remains the foundation of our strong bull market case in stocks to come. We think we are now providing investors ample time to re-balance portfolios accordingly. Now is the time to take some evasive action!

We understand that we cannot go to cash in a big way as clients will be less than delighted. Guess what? People who feared the market, now, want a bigger stock representation. We try to use our contacts intelligently to measure the pulse of investors. We think this represents applied behavioral studies at its best. We feel that this high is a perfect point to take money off the table.

We continue to be huge bulls on Asia. We think that the Shanghai market has begun a multi-year bull market. Our advise stands to rotate out of expensive markets like the S&P and go to emerging markets that now offer tremendous cheap values.

One of the really big mistake of retail investors is to feel comfortable with their own regional markets.

This will be a costly mistake for  years to come. As many emerging markets appear to go into the next stage of growth. They will also gain an exponential revaluation. They will go into bubble mode!