First Weekend New Year 2015
My Weekly Newspaper Column
Where We’re Headed in 2015
It’s been an interesting fifty years.
Art Cashin, on his 50th Year Anniversary of the Floor of the NYSE
Today we examine various cycles and trends to lay a framework for what lies ahead in 2015.
Numerous historic cycles converge in and around this time period.
- At 233 year anniversary of the founding of America since the victory at Yorktown
- A 150 year anniversary of the end of the US Civil War, 1865
- The one hundred year anniversary of the start of WW I, 1914
- That set the stage for the disastrous Russian WW I experience leading to the 1917 Revolution
- The seventy year anniversary of the Battle of the Bulge in late 1944
- The forty year anniversary of the December, 1974 low in the stock market at Dow 577-that concluded a punishing 50% two year drop in stock prices
- Eight years earlier the Dow was recovering from the July 8, 1932 low of Dow 41.22
- The forty year anniversary of the first OPEC Oil Embargo, 1974
- The twenty year anniversary of the Republican takeover in the Senate and House
- A recurring fifteen year time span marking the ascension of Gorbachev in 19865 and then Putin in 2000
- A Fibonacci eight year cycle from the 2008 market high in stocks and oil
Cycles do matter in nature and human events. The recurrence of so many anniversaries in one year heightens the probability of a reversal in markets and the human condition (war).
Major Defining Market Issue-Deflation
The forty year bull market in stocks began with President Ford wearing a Whip Inflation now button. It is ending with the inability of Central Banks to fight deflation. Deflation is a collapse of the general price level. Governments have historically and recently fought this with large injections of money, ie debt. The idea is that all this money will start chasing too few goods and re igniting an inflation cycle. Except, that has not happened.
Today Western Europe is stalled again, after the Portugal, Italy, Greece, Spain PIGS crisis of 2011. All those countries promised austerity in that they violated their European Union pledges regarding deficit spending. Now the economies and stock markets of Italy, Greece, and Spain are sinking again. Brazil has once again regained its reputation as the country of the future, but not today.
Japan is in recession. The economy is the US is seen as improving amid one of the slowest recoveries on record. The Quantitative Easing FED money has soared stock prices but resulting in lettle new job creation. Worse, most of the new employment has been in the energy sector which is now in a downturn.
But the most interesting event is the implosion of Russia, just after months of hosting the Winter Olympics, designed to showcase Russian accomplishment. One half of the Russian export economy is based on selling oil and related products. Now that income has been slashed with the ruble falling to 60 to one against the US Dollar.
The Shangahai exchange is up 50% in the last few months. India has also been on a roll since electing a new government. Clearly the economic center of the world is moving to Asia.
The naysayers against the US Dollar have been proved wrong. The US Dollar has soared 12.5% since taking off last August. The reason is the looming world-wide debt crisis. The ‘recovery’ since 2009 has seen record issuance of government and private debt. Most of this debt is denominated in U S Dollars. The Brazilian Real, Turkish Lira, Chilean and Mexican Peso, and Russian Ruble are all at multi-year lows. This may be one bright spot for tourism in that the US buck will buy more in other countries. But it suggests other countries have far less with which to purchase US goods.
Energy and Commodity Prices
The effect of a rising dollar is to cheapen energy and commodity prices. While $2 gasoline prices are proliferating in the USA, this is wrecking commodity exporters from Western Australia to Canada not to mention emerging markets like Indonesia.
Forty years ago OPEC restricted oil flows, raising prices. Now OPEC has produced a reverse embargo, one can have all the oil one wants at ever lower prices.
This is what we mean by a convergence of cycles reversing markets that have been in place for some time. As we write today December 31 oil prices are falling again. Prices of energy and service companies just appear to have just crested at another high in a decided downtrend price channel.
Social Mood and War Cycles
Already writers are suggesting that Putin’s play in the Ukraine is finished and that his economy is in a shambles. Perhaps but that was the story for Germany in the 1930s as it prepared for war and again in 1944 when it launched the unexpected counter-offensive, the Battle of the Bulge. In similar fashion, the crisis in Russia is much more likely to result in a another expansionary movement. This is especially true as he has met no real Western military resistance to his venture in Crimea.
The Bottom Line
When I entered the securities business in 1973, the markets were at a new high, just over Dow 1,000. No one expected a 50% drop in two years. Forty years later we have the same scenario but with a much higher destructive potential as prices are 18x higher. The most reliable market indicator is the NYSE Advance Decline line. It is still headed up. We will report on any change of direction.
As we enter 2015,
Stay wary, alert, and very very nimble
Art Cashin’s final memo for 2014