2016 Macro Level Socio-Economic Forecast
2016 Macro Level Global Events Forecast [Part 1]
US Domestic Equity Markets Summary
For those that have been following along with really any economic narrative circa 2015, the name of the game has been “market resiliency”. So much so that even a dreaded 25 basis point increase by the Fed (first rate hike in a decade), barely even got the attention of US domestic capital markets. In fact, equity traders have seen bigger point per day movements on earnings reporting days than they did when the Federal Reserve announced its 25 basis point rate hike.
Based upon Evolution 4.0 forward looking information, look for the upward trend in US equities to continue. So far (according to Evolution 4.0) the upward movement / resiliency of the markets have been largely the product of ZIRP (zero interest rate policy), easy lending standards, ROI from various “bail outs / TARP” programs [financial sector] and the after effects of corporate workforce streamlining post 2008. In other words, most corporations have not hired back the oversized work forces that they had prior to 2008. However, as our late colleague had often spoken about, “inflation / hyper inflation has not reared its head yet”.
2016 looks to be the “year the inflation really starts” according to Evolution 4.0 information. As the world continues to “de-dollarize” and move to more stable currencies (the Yuan, amongst others), and as the petro-dollar scheme begins to unravel, where will those US dollars be going? Right back into the issuing nation as has happened time and time again through economic history. With countless amounts of US dollars and US dollar denominated financial instruments in circulation, Evolution 4.0 indicates that a sizable portion of those will be returning to the US domestic economy. A combination of economic forces (such as the prospect of a metals backed Yuan / Eurasian Trade Zone Currency) mean that the dollar will be seen as less and less desirable. Additionally, the recent rate hike vis a vi the Federal Reserve has opened the door for “additional measures to counter de/stag flation”. Therefore there is a better than average chance that “appropriate measure to stimulate the domestic economy” will be taken right about the same time the inflation starts. In two words: Hyper inflation.
Those who study economic history will know that a massive influx of capital by way of inflationary forces typically results in a major upturn in equities markets. Why? The availability of capital (while consumer price index, cost of goods / services, etc has not yet adjusted) means additional liquidity in which to invest with. Based upon Evolution 4.0 information, 2016 will usher in the “age of inflation”. Once again, if we had to select one reason as to why, we again say “de dollarization”. Also indicated through Evolution 4.0 research is the more frequent announcements of either a metals backed Yuan, or metals backed BRICS nation(s) currencies.
Asset Class Headlines
Something else Evolution Consulting has done a tremendous amount of research on is the various paper asset classes (financial instruments) and so called “asset bubbles”. In the words of our development team: “Economically speaking, most paper asset classes at this point look like a bandolier of firecrackers”. In other words, when one “asset class bubble” bursts, many others will soon follow. Based upon Evolution 4.0 research, the potentially most dangerous of those asset classes are SLABS (Student Loan Asset Backed Securities). The securitized student loans by way of Sally Mae (Government Sponsored Enterprise) are constructed almost identical to the “sub prime mortgages” of Fanny Mae and Freddy Mac infamy. Though “backed” [guaranteed] by the US Department of Education, the steadily increasing 1.25 trillion dollars in student debt is increasing in net USD at about the same rate [proportionate] as the 90 day default rate on said loans. Therefore, based upon Evolution 4.0 analysis, we consider the SLABS asset classes effectively a ticking time bomb. Additional metrics researched including real unemployment and wage growth indicate a similar unsustainable formula as the notion of real estate appreciating 6% in value per year forever. Much like sub-prime mortgage securities there is a “critical mass” whereupon the asset class will inevitably implode. It is unknown at this time as to the level of “additional derivatives” [such as CDO/CDS] associated with SLABS but that is something we will be doing extensive research on in the not too distant future.
Another asset class to keep an eye on in 2016 is commercial real estate. Much like the convoluted sub prime mortgage crisis of 2008, at the same time, the same level of convoluted commercial mortgages were being created. The most fundamental difference is average size of loan as well as length of loan terms. That means a lot of the “adjustable” functionality such as “balloon payments”, ARM’s etc. have not yet come due. 2016 would be ten years from 2006 when the underwriting of commercial sub prime mortgages was approaching a crescendo). Ten and fifteen year “adjustable” terms are most common in commercial real estate. While we have only done preliminary research on the commercial real estate mortgage market, what we have discovered is this. A potential “mark to market” event whereupon there is re-valuation of commercial real estate can represent a potential catalyst for a much broader implosion. We ask that those reading this keep in mind that many (but not all) banks predicated some of their “liquid” value that allows them to function as depositary institutes upon “owned real estate” value. A dramatic “mark to market” from a glut of commercial inventory vis a vi a systemic default could spell disaster for banks that do use real estate value as part of their “minimum depository levels” to function.
2016: The Year Metals Investors Have Been Waiting For
Those that have been investing in gold and silver as a hedge against financial instability, based upon our research you will all be very happy very soon. According to Evolution 4.0 research, the inevitability of “natural” market forces (such as supply and demand) being unleashed in the metals market is exactly that: inevitable. Additionally, the result of increased main stream headlines involving the “metals backing” of currencies such as the Rouble and the Yuan will inevitably drive metals prices higher even on pure speculation. An important note: As with any supply and demand based free-market space, the repression and “containment” of metals valuations for so long have created something of a “flashpoint” type situation for valuations. In other words, the move upwards for metals will not be “slow and subtle”. Rather with supply “squeezed” out of the market by way of the “repress metals prices to the point investors sell metals to avert losses to create supply for those that know” routine out of the way, now comes the “fools rally”.
Very Important Note: Our late colleague mentioned multiple times to “not sell metals into a metals spot valuation rally”. We could not agree more. The idea is to be holding the metals until after the “new system” of economics is in place whereupon the purchasing power of metals will be exponentially greater than it is now. Evolution 4.0 research has concluded that post “Economic Reset” purchasing power in terms of goods and services will be on the order of about ten thousand US dollars in “today’s money”. Please note that is also a rough estimate and subject to additional research.
Those that have been manipulating and repressing metals in the name of prolonging the inevitable obliteration of “fiat” (non asset backed currencies) have run out of options effectively. Continue metal valuation repression whereupon the manipulation becomes very obvious at which point metals “flashpoint” rally because of the manipulation. Option two is to step back and allow market forces to take over and the same “flashpoint” dramatic upward rally takes place. Based upon Evolution 4.0 information, those seeking to acquire physical metals have now only the “sell into strength” portion of the wealth transfer left to acquire said metals. In other words, those who have been investing in metals selling off metals into spot valuation strength with a “buy low, sell high” mentality. Once again, we discourage the selling of metals into spot valuation pricing increases due to the earlier reference to purchasing power. We again will say that the increased mention and discussion of metals backed BRICS (non US) based currencies will only increase the speed and ferocity of a metals market rally.
Based upon Evolution 4.0 information, 2016 will see metals valuations surpassing the previous highs of 2015 as supply / availability of metals comes into question. According to Evolution 4.0 information, there can be (in some cases) up to 100 “claims” or “ownership rights” per one ounce of metal (gold and silver). Therefore, such news begins to become openly discussed; desirability of metals will only increase. Look for a noticeable upturn in the valuation of metals as early as January/February of 2016.
The “Kill em’ all” mentality
2015 was the year of the “mass shooting” and the year of the “police shooting”. Ferguson, Chicago, Baltimore and many others have seen social tensions reaching levels not seen since the 1860’s in the United States. Look for that tension to continue to increase in what we have come to call “nation: mad max”.
Most notably, the bombastic presidential run (still in progress) of one Donald Trump has provided additional lit matches into a lake of social/racial gasoline in the united states. In terms of forward looking information, the trend in 2016 is likely going to be “call for vengeance” crimes against Muslims. Much like immediately following the events of 9/11, “patriots” will likely begin targeting mosques, and other Islamic centers in various “crimes of vengeance”. While the idea that trump may be “stirring the pot” has been addressed, he may have pulled the band-aid that holds American society together far enough to initiate something entirely new. Based upon Evolution 4.0 forward looking information, the “police shooting” trend (Chicago, Baltimore, Ferguson) and the “mass shooting” events such as San Bernardino, Bataclan, etc) are going to start to “merge”. In other words, what we are seeing is the “re-definition” of “sides” in a largely invisible, ideological conflict. The “sides” can be defined based upon Evolution 4.0 as the “desirable” and the “undesirable”. In future editions of Wirehaus, we will be delving a bit more into what constitutes “desirable” as opposed to “undesirable” in so far as sociological terms.
However, once again based upon Evolution 4.0 forward looking information, the trend of “national restructuring” is likely going to continued thanks largely in part to the fact that “what is ok to talk about” in terms of national leadership has been re-defined vis a vi the Trump candidacy. We do often joke around about the fact that “he could quit running for office today” and he has “already done more than most candidates that actually hold office” as far as political open-debate.
Most of this information points to something that was spoken about by our late colleague who often spoke of “the purge”. Essentially what he was referencing was / is the elimination of the less desirable members of any nations’ population for the sake of the improvement of the quality of life for the few. As he so often said “quality over quantity”. Trump seems to have at least initiated the beginnings of “purge mentality” amongst a substantial number of Americans. However, based upon our research (and as we have illustrated in Wirehaus), the Trump candidacy is likely something of a “canary in a coal mine” / “litmus test” for something far greater. Those following the Trump campaign need only realize that most of the issues that he has addressed in a way very rarely seen have been purely socioeconomic / socio-nationalist.
That said, stay tuned for Part 2 of the 2016 macro level socio-economic forecast by way of Evolution 4.0.
On behalf of the entire team at Evolution Consulting, here's wishing you a happy and prosperous new year.
