Major U.S. Indices To All-Time Highs In 2016

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Includes: SPY
by: Michael Markowski
Summary

Current Correction Underway will be Short-Lived due to Lack of Excesses and Complacency.

Digital economy will drive the stock markets of all developed countries to all time new highs in 2016, 2017 and 2018.

Gold, Oil and agricultural commodities to remain in bear market until 2020.

Decade ending 2020 Will be Recorded by Historians as Best ever for Investors to Build dynasty wealth of 10X to 100X from a diversified portfolio.

The current correction that has been underway for the U.S. and the stock markets of other developed countries during August of 2015 is not signaling an economic collapse or recession that is similar to 2008. I believe that the lows that were made by the S&P 500, Dow 30 Industrials and NASDAQ composite indices at the market opening on Monday August 24th will prove to be the lows for the next several years.

I consider the greater than 10% decline that the three major indices experienced from their recent all-time highs to be a healthy and needed correction. This was not what I predicted for 2008. When I posted my "Look out below" blog in October of 2008 after Lehman had filed for bankruptcy, I believed that the market had much further to fall. It declined by more than 30% before it bottomed. The correction that has been underway since last week is not a precursor to another global crash and recession of the magnitude experienced in 2008, for two reasons:

1) The two previous severe and swift crashes in 1929 and 2008 were preceded by excessive speculation by the public, which is not in evidence today. The crash of 1929 occurred at the end of a decade that was appropriately named the Roaring Twenties. The decade beginning in 1920 was fraught with massive securities fraud attributable to investing having been first introduced to the public in the late 1800s, and the significant returns and dynasty wealth generated for individuals from 1880 to 1920. By 1920 investing had become ubiquitous.

The more recent crash of 2008 was caused by excess speculation in real estate precipitated by the most rampant mortgage fraud throughout the history of the United States. In my September 2007 and January 2008 reports entitled "Have Wall Street's Brokers been Pigging Out?" and "Brokerages and the Sub Prime Crash" I initially explained and reiterated why a "day of reckoning" and collapse was coming for the USA's five largest brokers including Lehman, Bear Stearns and Merrill Lynch.

2) The second and more important reason is the current lack of complacency; complacency was the other ingredient that caused the stock-market crashes of 1929 and 2008. The longer the period between crashes (79 years from 1929 to 2008), the more complacent investors become. The logic is simple: If a crash can be remembered, an investor will always have cash reserved to prepare for the next crash and will therefore never become complacent.

The sentiment readings in the table below for the three previous weeks before the combined 1,000-point decline of the Dow Industrials on the 20th and 21st of August is a perfect example. The table depicts the results from the most recent weekly sentiment survey that was taken by the American Association of Individual Investors (AAII). There were more individual investors who predicted that the market would go down (33.3%) or stay the same (39.9%) than predicted that the market would go up (26.8%). Based on 73% of those questioned by the survey who were fully prepared for a crash, the complacency rate was very low. Because of such a low complacency rate, it is unlikely that there will be another crash that rivals 1929's and 2008's any time soon or in the lifetimes of everyone who was at an age of 20 or above when the last crash occurred in 2008.

AAII Individual Investor Sentiment

Readings for Last Three Weeks

Sentiment

Week 8/21/15

Week 8/14/15

Week 8/7/15

Bullish

26.8%

30.5%

24.3%

Bearish

33.3%

36.1%

31.7%

Neutral

39.9%

33.4%

44.0%

Absent a severe and swift market crash the likelihood that the U.S. economy will go into a recession is low. The U.S. economy has recently been growing and adding jobs. The unemployment rate is at its lowest since 2008.

The recent decline of the U.S. major indices - including the S&P 500, Dow 30 Industrials, and NASDAQ - was instigated by the slowing of China's economic growth rate. In response, the Chinese central bank (PBOC) devalued its Yuan currency by 2%. The August 11, 2015 devaluation resulted in the Chinese economy being more competitive against all the world's economies. The announcement sent shock waves throughout the world's stock markets.

The U.S. stock market indices are best positioned to withstand China's devaluation for two reasons:

· The U.S. is the world's safe haven for non-US investors. The U.S. Dollar is the world's largest reserve currency, and the U.S. economy is significantly stronger than the economies of Europe and Japan, which have the world's second and third largest reserve currencies, respectively. As a result of the appreciation of the U.S. Dollar against both the Euro and the Yen over the last two years, the U.S. Dollar is the exclusive currency into which non-U.S. investors are transferring their monies. For more details on the U.S. Dollar's competitive advantage over the Euro and the Yen, see my May 2013 article "Put a Fork in the Bear".

· Dividend yields on large global U.S. companies. The vast majority of all of the companies in the Dow Jones Industrial composite and the S&P 500 indices pay cash dividends and regularly increase them. There are several U.S. companies, including Apple, that have better and bigger Balance Sheets than a majority of all the world's countries. The shares of these global U.S. companies are the preferred investments by non-U.S. investors.

The competitive advantage that the U.S. Dollar has over all other currencies is unlikely to end soon. China's recent devaluation of its Yuan will exacerbate the destabilization of all of the world's currencies, except the U.S. Dollar, the Swiss Franc and the British Pound Sterling. The devaluing of the Chinese currency will result in devaluations of all Asian currencies including the Japanese Yen and the South Korean Won.

Even though the U.S. markets and the shares of U.S. companies are best positioned for the future, damage was inflicted from the recent significant decline of the Dow Industrials, S&P 500 and NASDAQ composite indices. It will take months for the major U.S. indices to form the price bases that they will need to pierce their 2015 all-time highs.

Based on the my experiences with all of the market crashes that have occurred since my career in the capital markets began in 1977, I believe that the probability is 90% that the intraday lows for the Dow Industrials (15370.33), S&P 500 (1867.01) and NASDAQ (4292.14) that were made on Monday August 24th will be their lows for 2015. I am currently predicting that the three major U.S. indices will go to new all-time highs in 2016.

China's devaluation of its currency has certainly wreaked havoc on the stock markets of all of the world's other developed and emerging countries. I predict that all of the stock markets of the US and all of the world's other developed countries will recover fully and hit new annual highs in 2016, 2017, 2018 and 2019. I am also predicting that the stock markets of the emerging countries including the BRIC countries of Brazil, China, India and Russia will remain volatile and will underperform for the rest of the decade.

The rationale for my five year predictions for the stock markets in the developed and emerging countries were originally formulated and contained in my December 2013 "SEC's Lifting of 1933 Non-Solicitation Ban Will Lift Markets 100% Higher" report. The crux of my original 2013 prediction that the world's major stock markets would go to five consecutive all-time highs from 2014 to 2018 was based on the transition of the global economy from industrial to digital, which began in 1996. The digital economy began to grow exponentially with the introduction of the Smart-, or Web-enabled phones in 2007. The base of global online consumers will grow from 1.3 billion at the end of 2007 to 4.5 billion in 2018 according to Ericsson's projections. The primary beneficiaries of this staggering increase in global online consumers will be the world's largest companies that are domiciled in the world's developed countries.

The global companies best positioned to capitalize and which I am recommending are in the table below:

Share Prices of Companies Well Positioned
for Digital Economy Growth

Company

Price 8-25-2015

52-Wk High 2015

52-Wk Low 2015

Facebook (NASDAQ:FB)

$83.00

$99.24

$70.32

Google (NASDAQ:GOOG)

582.06

678.64

486.23

Amazon (NASDAQ:AMZN)

466.37

580.57

284.00

LinkedIn (LNKD)

169.94

276.18

165.01

Priceline (PCLN)

1,178.81

1,395.00

990.69

Walt Disney (NYSE:DIS)

95.89

122.08

78.54

Netflix (NASDAQ:NFLX)

101.52

129.29

45.08

Based on the emergence of the hyper-growth digital economy, I am predicting the following for the stock markets of developed countries:

· U.S. Stock indices Dow Jones Industrials to go to 30000.0, S&P 500 to 5000.0 and NASDAQ to 10000.0 by 2019.

· Major Stock indices for all developed countries including Japan, South Korea, Germany, France, Canada and Italy to double by 2019.

The exponential growth potential that I have envisioned for the digital economy over the next five years was the rationale behind the establishment of the Dynasty Wealth Investing community. I am projecting that there will be at least 1,000 new public and private companies that will emerge and appreciate by 10-to-100 times from 2015 to the end of the decade. Dynasty Wealth is focused on identifying these companies and producing ongoing research on them for its investor users and members.

The following are updates or reiterations for my predictions that I originally made in May of 2013 on the asset classes below. My rationale or thesis for the making of these predictions is available in my May 22, 2013, report titled "Put a Fork in the Bear":

  • Gold - Has declined to new annual lows for 2013, 2014 and 2015 as predicted. Most recently the price has rallied after falling to a new multi-year low earlier in 2015. The rally was due to gold's being considered as a safe haven during economic crises or during periods of significant stock-market volatility. Gold will go to new multi-year lows in 2016 and 2017, and to below $1,000 by 2018.
  • U.S. Dollar/Euro - The Euro has fallen significantly against the U.S. Dollar since the original prediction was made. The U.S. Dollar will be at parity with the Euro by the end of 2016, and will go to a premium in 2017.
  • U.S. Dollar/Yen - The Dollar went to consecutive new annual highs versus the Yen in 2014 and 2015 as predicted. The exchange rate of the U.S. Dollar will increase from the recent high of 124 to 160 Yen, a new 25-year high by 2020. Devaluation of the Yuan by China will accelerate weakness of the Yen versus the U.S. Dollar in as much as Japan will have to remain competitive.
  • Petroleum - As predicted a barrel of oil fell from over $100 in 2013 to $50 per barrel in 2015. Oil will not get back to $60 per barrel until 2020 at the earliest because the strong U.S. Dollar will keep oil prices low.
  • Agricultural commodities - Corn, beans and grains hit multi-year lows as predicted and will continue in their bear markets until at least 2020 because they are all priced in U.S. Dollars.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.