Todd M. Siebert: Forecast 2016: Overcast with a chance of blood

“The crisis consists precisely in the fact that the old is dying and the new cannot be born: in this interregnum, morbid phenomena of the most varied kind come to pass.” — Antonio Gramsci, “Prison Notebooks, Volume 2”

This marks my seventh annual investment forecast for Personal Liberty Digest^®, and I will tell you that this is no lucky seven. Perhaps that is why I had to rack my brain over what typically comes to me for my first January issue. But after too many sleepless nights, it hit me like a hammer on my head: This forecast is difficult to write because the macro elements of the American economy and society are so dark and they are coalescing at a dizzying pace.

At best, the economy will limp along, battered but held together by miles of red masking known as debt. At worst, and with what I believe to be a greater probability, all this tape is unwinding. The end result will be a tumbling of asset values, huge losses on Wall Street and social unrest that may not easily be contained.

Not-so-merry a Christmas

My home town Calgary, Canada, has grown into a city of more than a million. Oil lubes the wheels of business and happiness. The holidays came and went with the usual cavalcade of traffic to and from the mega malls. But this year, shoppers carried on with a grim determination when they reached for the credit cards to spend money that has become tight under an ocean of oil and rock-bottom petroleum prices. A few days before Christmas, crude oil fell to $32 per barrel, down from $115 just 18 months ago and a couple of bucks more than the worst oil depression ever in the mid ’80s, when oil traded around $31 per barrel in inflation-adjusted dollars.

If the Greens and their friends in high places, such as President Barack Obama, were not enough, the oil sector in North America has had to deal with a glut of oil being thrown on to the market by Arab oil kingdoms. OPEC, led by our so-called Saudi Arabian friends, ended its December meeting with no production cuts or even an output ceiling.

There may be high times in 2016 for consumers except for the fact that events are not turning out that way. Even with gasoline prices below $2 per gallon, falling oil prices and a two-thirds crash in overall commodity prices are killing good-paying jobs. Oil and natural gas jobs had been among the fastest-growing job sectors in the U.S. since 2008. Energy service jobs grew by 50 percent, and exploration jobs grew by 40 percent through 2013 reported the Bureau of Labor Statistics.

Real assets take a beating

And it is just not oil. As Personal Liberty Digest^® reported on Dec. 31, mining and industrial metal jobs are being lost hand over fist. There were 104,000 fewer mining jobs in 2015 than there were in 2014. That and declining agriculture prices are turning Norman Rockwell’s vision of America into a wasteland of agriculture and mining towns, places that poets and social scientists believed were the backbone to the American way of life. The reason why is when agriculture hits tough times, there is a trickle-down impact.

In December, Tire Review reported:

“There are many issues facing our industry. Low commodity prices and the overall down market in the agricultural sector have our aftermarket and OE customers looking very close at their bottom lines,” says Scott Sloan, agricultural product manager for Titan International, which produces Goodyear branded ag tires.

Overall net farm income has dropped 33 percent since 2014. The overriding reason has been the free fall in commodity prices in 2015. Reuters reported last week that commodities were the worst-performing asset group last year.

Consider the Thomson Reuters/CoreCommodity CRB index, the accepted measure on global commodity prices that has been in place since the 1950s. It accounts in price changes for 19 key commodities that range from aluminum to coffee, lean hogs to crude oil.

In 2015 the index closed at 176.2706, the lowest level since Nov. 15, 2002.

On Dec. 9, Business Insider Australia reported:

Year to date, the index has fallen 22.86%, extending its decline from its all time peak of 473.5182 set on July 2, 2008 to 62.5%.

Bear market spills onto Wall Street

It is little wonder that the bellwether measure of paper wealth, the Dow Jones industrial average, for last year fell for the first time since the Great Recession of 2008. And last year was the first time since 1939 that the Dow has been lower than the year before a presidential election. Add in the Federal Reserve’s one-quarter point rise, its first increase in seven years, and it effectively makes the cost of Fed funds above slightly zero. It will be the first of many rate increases. But the only things that seem to be growing are:

Green schemes built around technologies that don’t exist,
Radical Islamic terrorists planning attacks inside the United States,
And jobs flipping burgers for nickel-counting consumers, who are gagging down something resembling a hamburger and real potatoes while working for minimum wage at the plethora of fast-food joints, which seem to be the only new construction underway.

That’s hardly the American dream. When you factor in that the economy is already regressing, you can bet that rising interest rates will take it off life support and toward the morgue’s doors.

But this is the rub: The U.S. Treasury has bought so much of its own debt that we will see a continuation of Latin American banking, which will destroy international confidence in the once unassailable U.S. dollar.

Uncharted territory for this grizzled analyst

I started investing in the mid-1970s. I was a kid then, so it was only a pittance of a few thousand dollars. But it was a good time and a bad time to have money in the markets. The upside was hard assets, every commodity from cattle to canola. They were booming, along with the towns around rich resource areas.

The 1970s were also a terrible time to be in stocks and bonds. Bond prices were crushed by inflation and skyrocketing interest rates. In 1969, the Dow broke 1,000 points. By 1974, it was at 600 points. In real terms, accounting for inflation, if you invested your money in the blue chip during that period, you lost nearly half of it.

What followed were the Crash of ’87, the mini-Crash of ’89 and the monster-Crash back in 2008. In each of those cases, there were not only safe-haven investments but profitable ones. When the Dow would be falling out of the sky, oil companies and especially precious metal mining companies were soaring. But 2008 broke that pattern.

Since 2008, the Dow has had a great ride up. But the only people I know making solid profits are the casinos and the gangster banksters, who were lent $1 trillion by the corrupt government in Washington. Meanwhile, the citizens have been brainwashed into believing a rising stock market equals a growing economy.

It was all done to keep the status quo in place, the rich on their hilltop mansions and congressmen in their Georgetown townhouses with their Lincoln Town Cars and personal chauffeurs. Most of these men and women whom we have elected are millionaires and have a deep disconnect with what the American people need and want — none more so than Obama, whose prescribed treatment for an economically crippled America has been little more than an aspirin for a terminal cancer patient. That and his travels, plus selfies that capture his pomposity, have turned America against the status quo and against one another.

A revived economy and racial harmony were candidate Obama’s promises eight years ago. Both promises have been broken. And continuations of such policies by his protege, presidential candidate Hillary Clinton, have already provoked anger that has spilled onto the streets of Ferguson, Missouri, and Baltimore, Maryland. It has also lead to the meteoric rise of Donald Trump, a quintessential populist and a potential iron-fisted candidate for the presidency of the United States.

Not in my nearly 60 years has the United States faced such tough times as what I see ahead of us. The 1960s was a terrible divisive time politically, but the American economy was a dynamo. In the 1970s, the economy was ill but there was a strength and unity in Washington and in big cities and small towns.

In 2016, the nation and all of North America seem rudderless, facing only more economic impoverishment and, as a byproduct of that, blood on the streets.

I can only hope that in a year from now readers will look back and call my forecast that of a despairing doomster and not as I fear, a man who was on the mark.

Yours in good times and bad,

–John Myers

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