The dawn of a new year brings with it fresh hopes, aspirations, and a blank slate just waiting to be filled. With the arrival of 2018, the time has come to seize those dreams with both hands. Yet, amidst the anticipation, one must recognize the blend of factors within our control and those that lie outside of it.
Undoubtedly, certain annoyances, like preventing your neighbor’s cat from using your yard as its personal restroom, are challenging to tackle. Life will unfold day by day in a harmonious tension of the positive and negative. Expect nothing less.
But what does the future hold in detail? What’s in store for stocks, the 10-Year Treasury note, gold, bitcoin, and everything in between? Are we on the brink of World War III? Will we witness the end of Hillary Clinton’s public life?
In this piece, we aim to explore these questions thoughtfully. Predicting the future is as much art as it is science, paralleling the complexities of Federal Reserve monetary policy or analyzing market patterns.
Our Approach and a Disclaimer
“Past performance is no guarantee of future results,” your broker might say. Thus, we take a different approach, weaving connections between seemingly disparate elements with the lightheartedness of a clever jest.
Let’s be clear: our method is as unscientific as consulting your neighborhood fortune teller. We delve into a mix of fact and fiction, employing induction, deduction, speculative interpolation, and even a touch of metaphysical pondering to arrive at precise conclusions.
That said, a disclaimer is in order. As King Solomon wisely noted:
“A fool also is full of words: a man cannot tell what shall be; and what shall be after him, who can tell him?” – Ecclesiastes 10:14
With that in mind, feel free to judge today’s musings as foolish – perhaps they’re crafted by a complete fool. You can decide for yourself.
Now, let’s sharpen our pencils and face the limitations ahead. What follows are some simple predictions and suspicions for the year to come, all offered in good fun. We encourage you to print this off and pin it to your office corkboard, so you can check off each forecast as it unfolds.
Several Simple Predictions for 2018
Stocks
To kick things off, President Trump’s initial surge in market optimism will likely persist into the New Year. The GOP’s tax reform is poised to provide a significant short-term boost to corporations, enhancing their earnings. This will, in turn, fuel stock prices, driving the Dow Jones Industrial Average to approximately 28,152.
However, the Federal Reserve’s attempts to shrink its balance sheet and increase credit costs may soon dampen this decade-long bull market. Expect a notable correction around late summer, triggering a 10 percent drop in the market.
Algorithmic traders will likely respond by buying dips, as usual, causing stocks to bounce back temporarily. Yet, this time may not see a new all-time high. Savvy investors may seize this opportunity to shift to cash.
By October, this programmed buying could shift to selling, triggering a significant downturn. Valuation metrics will matter again, ushering in a bear market that could see the S&P 500 decline by as much as 60 percent over the next few years.
The outlook for Treasury investors? Brace yourselves for potentially even steeper losses.
Treasuries
As we wrap up the year, the yield on the 10-Year Treasury note has quietly risen above 2.4 percent. This seems historically low, especially considering it bottomed at 1.34 percent in early July 2016—a dramatic rise of nearly 80 percent in just 18 months. What should we make of this change?
The last time we saw such low rates was in the early 1940s, where the 10-Year Treasury hovered around 2 percent. Following that, a long-term increase in interest rates spanned the next four decades.
In 1981, the cycle peaked above 15 percent, leading to comments from financial experts like Dr. Franz Pick, who described bonds as “guaranteed certificates of confiscation.”
Historically, these cycles become apparent only in hindsight. So what can we expect now? Is it possible that credit markets are gearing up to enter a long-term rising interest rate trend?
The truth is, we’re uncertain. We’ve predicted the end of the Treasury bond bubble for eight years, only to be misled by numerous twists along the way. Instead of rising, yields have declined below what seemed imaginable.
Nonetheless, we believe the mix of fiat money and extreme central bank interventions will ultimately reverse this tide. We are confident that 2018 will mark the beginning of a significant uptrend in yields, leading to increased costs of credit for decades to come. This shift will have far-reaching consequences.
Gold
Gold has had a tumultuous journey since reaching a peak of $1,895 per ounce in 2011. By early 2015, its value plummeted to $1,200 and dipped further to $1,060 by the year’s end—a staggering 44 percent loss. As we close 2017, gold stands at about $1,290 per ounce.
The factors that drove gold up 645 percent from 2001 to 2011 remain relevant. National debt continues to rise, currently exceeding $20.6 trillion, and doubts about the dollar’s status as the world’s reserve currency persist.
The broader understanding that the recovery is flimsy and that Federal Reserve actions have inflated asset prices into a speculative frenzy will, sooner or later, burst the stock market bubble. The repercussions of irresponsible money printing, mounting debt, and impending inflation will resurface. Gold will reestablish its position as the ultimate safe haven.
Despite the challenges of the past few years, gold’s price has recently stabilized and appears set for a significant rebound. Additionally, many gold mining stocks are currently undervalued, presenting a potentially lucrative investment opportunity.
Bitcoin
Bitcoin’s remarkable ascent in 2017 has captured significant attention. Its future price trajectory hinges largely on the global sentiment toward the dollar and fiat currencies. However, recent spikes in Bitcoin’s value show signs of speculative mania driven by the public.
Cyber-security expert John McAfee has made headlines by claiming he will consume an outrageous item on live TV if Bitcoin doesn’t reach $1 million by 2020. Is he outrageous or utterly convinced?
Conversely, Peter Schiff of Euro Pacific Capital predicts Bitcoin and other cryptocurrencies will plummet to $0. Who holds the truth here?
In our view, neither stance fully captures reality. Bitcoin isn’t headed to either extreme. The one constant is that blockchain technology will endure. This innovative technology stands to revolutionize numerous sectors.
In 2018, more individuals will come to recognize that Bitcoin and its counterparts provide substantial upgrades to the outdated services offered by banks and other intermediaries. Expect a surge of innovative blockchain applications arising across supply chain management, healthcare, peer-to-peer transactions, voting, big data, records management, cyber-security, and more.
Geopolitical Turmoil
2018 is likely to echo the chaos of its predecessor. As the global and U.S. economies inch toward recession, leaders will seek scapegoats for their failings, redirecting public frustration outward.
Global tensions are primed for escalation. The disputes in the South China Sea over the Spratly Islands among China, Malaysia, the Philippines, Taiwan, and Vietnam will heat up, while age-old disagreements between Japan and China over the Senkaku-Diaoyu Islands will deepen.
These long-standing conflicts will complicate collaborative efforts to address North Korea’s nuclear ambitions. Moreover, the burgeoning alliance of Russia, Iran, and China centered around the petro-yuan will further diminish U.S. influence and undermine the petro-dollar.
Proxy conflicts will escalate in the Middle East, particularly in Syria and Yemen, with military buildups and heated rhetoric escalating. Expect new narratives to rally the public in favor of war, possibly culminating in a significant confrontation between superpowers like Iran and Saudi Arabia by year’s end.
The Fate of Hillary Clinton
This New Year may also signify the end of Hillary Clinton’s political saga—if not literally, then certainly metaphorically. Her political aspirations appear beyond redemption, yet she faces further reputational decline.
Hillary has faced scrutiny for her various transgressions, particularly surrounding the Uranium One controversy. While her allies may shield her to an extent, President Trump’s recent executive order seems to target individuals linked to her.
While she may evade prosecution, the public will view her through a lens of disrepute, mistrust, and disdain, not unlike the negative attention surrounding O.J. Simpson. Even those close to her may distance themselves.
Concluding Thoughts
As we look ahead, 2018 promises to be a year filled with both familiar and uncharted experiences. We encourage you to embrace all that it has to offer.
Wishing you a prosperous and healthy New Year!
Sincerely,
MN Gordon
for Economic Prism
Return from Several Simple Suppositions and Suspicions for 2018 to Economic Prism
