Six months of Sideways Action and what about the 2018 Surprise Forecasts

Euphoria

In the midst of the euphoria this morning on stock prices, here is a look at what has occurred over the past six months as the Fracture that unfolded between January and March went into a holding pattern over the past six months.  I am referring here again to our Fracture Index that we use to keep things in perspective. The chart is updated through 10:00 AM CDT this morning.

When we look at the inputs for this chart here is what we see comparing March 27, 2018 data to September 20, 2018 data.

Stocks are up 11.1 %

Gold is down 10.2 %

Dollar is up 5.2 %

Commodities are down 1.9 %

Yield (30 to 2) Curve is down 19.5 %

F3 Fracture Index up 2.6 %

So even with stocks weighted 3 times the value of the other individual inputs we see the Fracture Index up only 2.6 % over this time period. (a loss of 2.6 % in our portfolio over that time as portfolio is a reciprocal of the index).  All this as the risks to the markets are increasing exponentially. (you will note that the Fracture Index is down 47.0 % since the Fracture date January 26, 2018, a return on the portfolio of 47 %).

 

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And since we are trying to get Perspective, as we see it, 8 of the 9 forecasts published back in July have a real chance of occurring especially number 4 and 5.  We have missed badly on number 3.

2018 Economic Surprises

With all the Wall Street Guru’s putting out their potential surprises for 2018, I am thinking why not do this myself, there is enough craziness in the mix to allow a little more mixing to provide some outside the box probabilities.

We have discussed at length the fact the we have seen 17 years where Washington has tried multiple attempts to provide solid real economic growth and yet all the results are just face saving bluster created out of artificial money.

These surprises are kind of built around a premise that no one would agree with them so in a crazy time they have a decent probability of occurring.

  1. In a 2018 + vein, over the next three years look for fed fund rates to trade over 30 year bond rates by at lease a point.
  2. This is the beginning of the end of the dominating influence of Saudi Arabia in world events. It is a desert, people.
  3. With that said, look for oil to start a 3 year slide to under $ 10 a barrel in 2020.  The bounce from the 2016 lows has been a god send for them but it is history.
  4. Brexit will be rescinded one way or another.
  5. The Euro has the potential to scream higher with Britain in place and oil prices dropping.
  6. The Yen is at the core of the world stupidity bubble, may even replace the Bernanke QE stupidity bubble.  What will Abe do with all this crap they own?  You will probably see the yen scream upwards as this unwinds.
  7. The dollar will plummet as the US 2017 Corporate Tax Change based inventory buildup unwinds and trade issues multiply and US status deteriorates.
  8. Stocks will run into a headwind as all this rolls out.  I would not attempt to talk about how low is low.
  9. And lastly, Gold by default will go back to haven status, heading to new all time highs over the next three years.

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