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Mark's Market Blog

12-28-14: Mark's Bold Predictions for 2015.

By Mark Lawrence

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We had a short week because of Christmas; volume was low, momentum was uninspiring. None the less stocks went up and made new all-time highs in a continuation of the Santa Clause rally, and everyone expects they will continue to go up next week in a similar uninspiring fashion. It's noteworthy that although the DOW and S&P are making new highs, the VIX volatility index is not making new lows. If the market were your girlfriend this would be a disturbingly mixed message. We finished the week at S&P 2089 and it looks like we'll finish the year at about S&P 2100.


S&P 500 July 5 2014 to December 26 2014

A couple months ago a black guy in Ferguson robbed a liqueur store then attacked a policeman then got dead. A riot / shopping spree peaceful demonstration ensued. A couple weeks ago a black guy with a history of selling untaxed cigarettes was standing around in NYC and got jumped without cause or warning by a cop who put him in a choke hold; he wound up dead. More "peaceful demonstrations." A week ago a black guy posted a bunch of incoherent rantings on his facebook page, then went home and shot his wife. He then drove to Brooklyn and shot a couple policemen who were just sitting in their car eating donuts and drinking coffee. Then he shot himself. No one in the press took note, but there were a couple thousand police and firemen who attended his funeral. This week a black teenager in Ferguson pulled a gun on a cop; he got dead. The NYC gang Black Guerilla Family has threatened to storm NYPD precincts and "shoot it out" with them - showing clearly to my eyes that these guys don't read the news and have no clue how militarized the police are and how quickly they would lose. Here's what I think is the interesting part: for the first time I can remember, whites are now angry. Blacks, of course, have been angry for some time. I'm reading all over the internet things about how blacks should pull their pants up, learn english, finish high school, get a job, marry before having kids, and quit stealing and living on drugs and knocking out white pedestrians and pulling guns on people. I see blacks sick of living in a police state where seemingly everyone but them is safe and upwardly mobile and rich. For the first time since the '60s I see the faint wisps of smoke of a full on race wildfire. Meanwhile, our denier-in-chief was asked if the country is more racially divided now compared to when he took office six years ago. President Obama cluelessly answered. "No, I actually think that it's probably in its day-to-day interactions less racially divided."

Google is working on Android M, their operating system for cars. This should scare you. Android M will come with a bunch of Google's self- driving code, code which would take the auto manufacturers many years and a billion dollars to duplicate. Android M and your car will be internet connected 24/7. Android M is navigation, entertainment, information, search, phone calls, and Google's driving software - your car is the ultimate mobile phone. The price? Google gets the car data. GPS and cameras tell them where you are. Speedometer and accelerometer data tell them where you're going and how much of a hurry you're in. They know where you park and for how long. They know who's in the car with you (your car is a mobile hot spot, and of course all your friends and family have smart phones). They can deduce where you work, where you shop, what you eat for lunch, where you exercise, who you're having an affair with. And they will sell this data and customized ads that appear on your main dashboard screen ("Get your mistress Sandra that special diamond bracelet at Kay Jewelers up ahead on your right! Just found out Sandra has two other lovers, Michael on Mondays and Roger on Wednesdays? Dump the slut and find a new mistress at AshleyMadison.com! Touch here to activate your free trial account, we'll fill in your personal details for you.") If you ask for a local restaurant or movie times, it's Google who will get paid for feeding you the preferred answers. And I promise you it will be only a year or two before governments get a piece of this - they will first claim it's to find kidnapped kids, then it will be about finding armed criminals and deadbeat dads, but no matter the claim they'll have instant access to everything about everyone. And when you no longer own a car, when you just call on your smart phone for a driverless car to come pick you up and take you somewhere, now you really don't have any control over this information. Don't get confused about this: the car companies are putting up a real fight, but it's because they want to own the data and sell it to advertisers, they don't want to share this huge potential revenue stream with Google. "The data that we collect is our data and not Google's data," Audi CEO Rupert Stadler said, echoing comments from. Volkswagen CEO Martin Winterkorn and Daimler-Benz CEO Dieter Zetsche. No one thinks you have any right to privacy, that's not even part of the discussion. Imagine the police come impound your car because, although they can't prove who was driving, someone went 108 mph. Imagine you get sued and your car gets subpoenaed - or Ford gets subpoenaed, you're not even part of the process of protecting your data. And next imagine your car getting hacked and the data being stolen by. . . I'm gonna stick with Harleys and folding maps. And even that will only last so long - soon enough there will be required retro fit data modules for motorcycles and old cars, "so the driverless cars and traffic management systems know you're there."

2000 years ago there was a senile old guy with vitamin deficiencies and sun stroke who wrote of the end of days. Rivers would run red as with blood, the sky will turn dark, there will be famine, plagues and earthquakes. And we would all wear the mark of the beast, without which we cannot participate in commerce. Thirty years ago I was told the mark of the beast would be a bar code tattoo we would all have to have. Ten years ago I was told the mark of the beast would be an RFID chip embedded under our skin. Now it turns out the mark of the beast is nearly here and it's voluntary: it's a smart phone running Apple Pay or Google Wallet. It's in our purse or back pocket. In a couple more years it will make Visa cards just as obsolete as checks and cash are now, and it will allow anyone to track us anywhere.

Japan is setting new records for printing money but is afraid no one will spend it. So this week the government announced a new stimulus package worth $30 billion, showering money on consumers and small businesses and funding lots of construction projects.

1998 was a rough year. Russia imploded and defaulted on their bonds. There was a US hedge fund, Long Term Capital Management, started by a couple guys with a Nobel prize in economics for figuring out the real value of a futures contract - presuming things didn't change much. With some manhattan sleezeballs experts they started up this fund, promised fantastic returns, and got lots of billions of dollars to play with. When Russia went down things changed, fast, and LTCM's calculations went out the window. Suddenly they looked bankrupt and it looked like ten or fifteen Wall Street banks would go down with them. Greenspan had been chairman of the Fed for about a year and suddenly he's faced with the potential end of life as we know it (EOLAWKI) - rich Wall Street guys might all go broke! He collected representatives from all the banks and LTCM and locked them in a room and told them "You're staying here until you figure out a way to solve this." Just over a year later Greenspan got the end of the internet bubble, another crash that looked like it might be the EOLAWKI. Greenspan decided on a new policy - print money without limit, without a view to inflating other bubbles, without any mitigation, until everyone seemed to feel better. This is believed to be a large component of the housing crash of 2007 which led to the financial crash of 2008 which led to Greenspan's successor, Bernanke, initiating a money printing program that made Greenspan look like an unschooled amateur. Did it all work?

Greenspan spoke to just this issue a couple weeks ago. He said his bond-buying program from 1987 to 2006 to was ultimately a mixed bag. He said that the purchases of Treasury and mortgage-backed securities did help lift asset prices and lower borrowing costs. But it didn't do much for the real economy. Effective demand is dead in the water and the effort to boost it via bond buying has not worked, said Mr. Greenspan. Boosting asset prices, however, has been a terrific success. Greenspan went on to say, "I don't think it’s possible for the Fed to end its easy-money policies in a trouble-free manner.... Recent episodes in which Fed officials hinted at a shift toward higher interest rates have unleashed significant volatility in markets, so there is no reason to suspect that the actual process of boosting rates would be any different. I think that real pressure is going to occur not by the initiation by the Federal Reserve, but by the markets themselves."

Spain is in trouble: high unemployment, shaky banks, empty houses, questionable government policies. So guess what they do? A new law with the Orwellian name the Law for Citizen Security. It outlaws virtually all forms of political protest including all non-violent forms. But not with penal charges: most criminal cases brought against non-violent political demonstrators are promptly thrown out of court. Instead it's civil administrative charges. That way, the government can circumvent the traditional checks and balances of the criminal justice system while pocketing millions in administrative fines. Here's a sample list of fines the government will impose for political protest or civil disobedience:

But this can't happen here, right?

Health stuff: The WHO just released a new guide line: 22g of sugar per day. What does this mean? The average american eats 156 pounds of sugar a year, about 200 grams of sugar a day. A teaspoon of sugar or a sugar cube is 4 grams, so those little packets in your coffee add up quick. What can you eat? Fruits come in surprisingly consistently at about 15g - 20g each, so you can have an apple or an orange or a grapefruit or a peach or pear or quarter pineapple. Canned fruit? Forget it - even in light syrup these guys are loaded down with 60g - 100g per can. There's new "no sugar added" canned fruits; they have 40g - 60g sugar plus some kind of artificial sweetener to help you develop cancer or something. Dried fruits are out too - raisins, dried cranberries or cherries, banana chips are all just flavored sugar. The little single serving size cups of fruit or applesauce for children's lunch boxes come in at about 20g - 25g, so they're ok. A can of coke is two days worth of sugar. A big gulp is about a weeks worth. Fruit juice is around 35g - 40g per cup; a large glass is holds nearly a week's worth of sugar. Basically all sweetened beverages are out - learn to like water or unsweetened tea or black coffee. Flavor your water or tea with a slice of lemon or lime or cucumber or a sprig of mint. Candy, pastries, donuts, cookies, pies, cakes are just over, they're not going to be part of your life anymore. Watch out for non-fat and low-fat foods: most of the molecules that we taste are fat soluble, so non-fat foods are typically loaded up with sugar and salt so that they taste like something. Several studies show the quickest way to lose weight is to eliminate sugar from your diet. And the quickest way to gain it back is to eat sugar.

Other people's S&P predictions for 2014

Other people's S&P predictions for 2015

  • David Bianco, Deutsche Bank: 1,850
  • Brian Belski, BMO: 1,900
  • Barry Knapp, Barclays: 1,900
  • David Kostin, Goldman Sachs: 1,900
  • Michael Kurtz, Nomura: 1,925
  • Sean Darby, Jefferies: 1,950
  • Jonathan Golub, RBC: 1,950
  • Julian Emanuel, UBS: 1,950
  • Andrew Garthwaite, Credit Suisse: 1,960
  • Tobias Levkovich, Citigroup: 1,975
  • Savita Subramanian, Bank of America: 2,000
  • Adam Parker, Morgan Stanley: 2,014
  • John Stoltzfus, Oppenheimer: 2,014
  • Tom Lee, JP Morgan: 2,075
  • It looks like we'll wind up 2014 at about S&P 2,100.
  • Credit Suisse's Andrew Garthwaite: 2,100
  • Goldman Sachs' David Kostin: 2,100
  • Barclays' Jonathan Glionna: 2,100
  • Deutsche Bank's David Bianco: 2,150
  • BTIG's Dan Greenhaus: 2,200
  • Citi's Tobias Levkovich: 2,200
  • B of A Merrill Lynch's Savita Subramanian: 2,200
  • UBS' Julian Emanuel: 2,225
  • BMO's Brian Belski: 2,250
  • Morgan Stanley's Adam Parker: 2,275
  • Oppenheimer's John Stoltzfus: 2,311
  • RBC's Jonathan Golub: 2,325
  • Fundstrat Global Advisors' Tom Lee: 2,325

Notice that the 2014 predictions were all low by 100 - 250 points. My sense is most or all of the 2015 predictions will also prove to be low. I believe this boom / bust cycle has a couple years left to run. Mark Twain said, "History never repeats itself but it rhymes." I think we're rhyming with about 1998, looking forwards to an epic crash two or three years out. Must we crash? Currently it's believed that politicians can spend as much as they want, their central bank can print the money to support this, and the piper never need be paid. I'm not a member of that religion. In my beliefs choices have consequences. In this future poem Obama corresponds to Harding, famous if at all for his administration's corruption; the next president is Coolidge, witty but ineffective; and the next after that is Hoover, who will take the fall for the next Great Depression. In 1998 we had a collapse of Russia, which brought down LTCM, which almost brought down the US banking system. In 2015 perhaps we'll have a collapse of Russia due to falling oil prices; which will also bring down US frackers funded by junk bonds, which will rock the US banking system. Not to worry, 1998 was followed by a relatively uneventful 1999 as Greenspan rose to the occasion and started his epic money printing policy, and I suspect 2015 will be followed by a relatively uneventful 2016 as central banks the world over start a new round of money printing that will make Greenspan look like a piker.

Mark's Bold Predictions.

First, how did I do on my 2014 predictions?

  • The US economy will continue to grow for the first six to nine months of 2014, anemically. Implicitly I thought the 4th quarter would be bad. In fact we're picking up steam.

  • Europe will muddle through, deteriorating slightly. Yup.

  • China will somehow manage to not have a major banking crisis this year. Yup.

  • The US and Iran will move away from being enemies. Behind the scenes we're cooperating more and more on this ISIL stuff.

  • The correction that is majorly overdue in the stock market will happen. Nope.

  • Late in 2014 we will start our next recession, but it won't be recognized until 2015. Not even close, the economy is great.

  • In November republicans solidify their majority in the house and take the senate. Yup.

    Mark's Predictions for 2015:

    1. Absent external events like Russia starting a war or Europe going up in flames, the US and the US markets will do reasonably well in 2015. The S&P 500 will hit 2300. 2015 is the third year of the presidential cycle; markets have been up in such years for 76 straight years. 2015 is also a year ending in 5; such years have been up for 130 years. So you see the tea leaves and other portents are very positive. I'm on the bullish side of the table above, expecting a 10% gain in the S&P.

    2. Inflation will stay low due to the rising dollar and cheap gas. The Fed will not raise rates until the fall. The first rate rise will not crash the markets.

    3. Volatility will return to US markets. We will have at least a couple 10% corrections.

    4. A fresh euro crisis will emerge. It will be handled, but we will all get the sense that the European Central Bank is running out of consensus and bullets.

    5. In about May when Ukraine thaws the situation there will heat up again.

    6. China will somehow manage to not have a major banking crisis this year. They're going to hold off on this until it's simply crushing.

    7. China has already built more stuff in China than they can digest, so they'll start building things in surrounding countries - highways, train tracks, bridges and stations, dams - it's going to look like a Marshall plan run by China for Burma, Thailand, Vietnam, Siberia. China needs to put people to work, they need to keep their iron and concrete factories open, and they need better access to raw materials and new customers.

    8. Tensions between China and Japan will flare up and make the news a couple of times. Japan will quietly start to re-arm.

    9. Things will start to happen to N.Korea. We will deny that we had anything to do with it.

    10. Obama will make some sort of nuclear agreement with Iran. It won't be ratified by the republicans.

    11. Much of Obama's amnesty for illegals will be blocked by the courts. He went too far too fast, it's not going to happen.

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