Economic Recap: The Good, the Bad and the Ugly

As we move into 2015, most of our forecasts from recent years and from the beginning of 2014 have come true:

1. Oil has crashed again.

2. Gold keeps weakening after its second crash in early 2013.

3. Commodities continue to weaken.

4. Emerging markets keep under performing from the commodity collapse and debt pressures, especially U.S. dominated debts that hurt more with a rising dollar.

5. China keeps slowing even as it continues to over-report growth and its real estate bubble keeps showing more fissures.

6. Germany keeps under performing forecasts as its underlying demographics are the weakest ahead despite its admirable fiscal responsibility.

7. Greece is looking at defaulting again after getting the most bail-outs… surprise, surprise, surprise…

But in early 2014, I expected the U.S. and global bubble in stocks to start to peak in the first half… and it obviously didn’t…

But it wasn’t until the latter part of 2014 with stocks bumping up against the massive megaphone patternrn that goes back to 1994 when we started to warnrn investors that 17,200 plus was a good time to start to sell.

And that looked good at first, especially with the sharp and near 10% crash into October 15 where I finally gave a sell signal on one of our key trend indicators that was violated below 1,850 on the S&P 500.

But the markets rallied stronger for five weeks than at any time in U.S. stock market history… That was both a sign of short-term strength and greater evidence that we’re in an irrational bubble!

Bubbles just will not take no for an answer. They are as remarkable as Creation itself… but just as destructive at times.

That rebound forced me to reconsider the scenarios ahead. Now it looks more like the markets will go even higher to 19,000+ on the Dow into the early part of 2015, most likely around mid- to late March on our best cycles.

But I’ve been looking for at least a minor setback is likely in January after the Santa Claus rally in late 2014 which is beginning, much like occurred in late 2013 into early 2014.

Late March to late September now looks like the greatest danger period for 2015; it will likely extend into late 2015 and even on into late 2016. I still see a Dow as low as 5,500 to 6,500 on this next and larger crash.

Fed and central bank suppression of interest rates has made the U.S. stock market the last resort for investing. That’s why it’s the last bubble; it’s ignoring the risks that the junk bond sector is starting to see as the fracking bubble is clearly bursting.

Since early 2011, commodities have been underperforming; along with that trend emerging market stocks continue to underperform. Since late 2012, you have bonds gyrating sideways and now high-yield corporate and emerging markets are starting to tank faster after my sell signal of May 2013.

Well… it looks like it’s getting ready to snow.

The winter season is about to come back with a vengeance… But it may take a few more months for the “market on crack” to get back to reality and start to crash into detox.

I’m forecasting that this next stock peak will be the end of the greatest and most extended bubble scenario in modernrn history — and it will end very badly with an avalanche of predictable consequences — even as most economists continue to promise “something for nothing” from endless free money.

This will make a great fairy tale for the future!

The key now, as I’ve covered in many past articles, is the continued crash in oil prices which in turnrn triggers rises in junk bond yields which in turnrn triggers higher yields in broader bond sectors, then crashes in stocks and finally a deeper crash in real estate again.

My most likely initial scenario for a few sectors in 2015 and beyond is:

1. Oil bounces from near $49 or so near term back to $64 plus by mid-March at the latest, then crash again toward $32 by September of 2015, if not earlier.

2. High yield bonds see rates bounce from 5% in 2014 to as high as 10% plus in 2015 and as high as 25% plus into 2016 led by increasing defaults in the fracking and energy sectors and others to follow.

3. Emerging market debt from the U.S. is the next and larger default wave to hit along with falling commodity prices.

4. Stocks go as high as 19,000 plus on the Dow by mid-March and then start to crash between late March and late September; then again well into 2016 and possibly early 2017.

5. U.S., and increasingly global real estate, starts to crash again from mid-2015 forward and could take several years to bottom (into 2021 or so). Much like the last 6-year crash in the U.S., this one will be more severe and much more global and pervasive.

6. The global real estate crash will trigger the worst debt defaults and financial crises to follow well into at least early 2020. It could extend possibly into as late as 2022 before the next more sustainable global rebound begins.

I know this doesn’t sound very appetizing but you can make it more so if you protect your wealth from this increasingly unprecedented bubble. Your strategy should be to get more liquid and be aware of what’s on the horizon.

The world will be on sale in the next five plus years, especially the emerging world that will have the best demographics coming out of this great reset.

Best of success to you in 2015 which could be the most pivotal year since 2008.

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Harry Dent

Bestselling author and founder of Dent Research, an affiliate of Charles Street Research. Dent developed a radical new approach to forecasting the economy; one that revolved around demographics and innovation cycles.