Preface
I have to say I have a nagging feeling in the pit of my stomach telling me the market is headed for a cliff.
Manufacturing has ticked up a bit. So have home values. And even the consumer confidence needle is moving in the right direction…
Corporate profits are breaking records and the Dow is marching headlong to pre-Great Recession levels.
I think we all vividly remember what happened last time the Dow breached 14,000.
We very well may be witnessing a jobless recovery. Unemployment is still at 8%, underemployment’s up around 16.5%. (This is why Bernanke has pledged to print to infinity and beyond.)
So a dichotomy is being slowly teased on — and I think we’ll see it play out in 2013…
On one side, a stock market and banking system held together by a government quilt sewn with yarn of endless fiat money.
On the other side, eroding middle and lower classes whose debts are rising (health care, education, food) while income remains flat or falls, but on whom America’s consumerist economy continues to depend.
The current course is unsustainable if it were in a vacuum…
But it isn’t.
In the real world, rules change and are bent, the House of Card’s foundation strengthened: A perceived pure market system can be revealed as a selective bailout system; Justice for all can morph into justice for those who don’t play the game.
The invisible hand was never meant to be seen… but excessive greed and thirst for power has led elected officials to forcefully grab that hand and put it to use in their favor, for either personal or political gain.
With money being printed, interest rates held low, LIBOR proven to be manipulated, and a Congress that puts personal profit ahead of the people, it’s hard to say when the day of reckoning will come…
Until it does, invest wisely and use your money to do what makes you happy.
A bull market is a bull market, even if its underpinnings are politically manufactured.
If you do what’s right for you, the perils of “the system” become less dire.
With that out of the way, let’s get to the outlook for 2013…
Stabbed by the Fork in the Road
I hinted at it in my preface, but the economy just passed a fork in the road — and it went both ways: We’re printing money so the Fed can buy assets that no one else will buy to keep the stock market going up and interest rates low.
And it’s working — for now.
The Dow’s moving up. The NASDAQ’s moving up. Home values are moving up. Even gold and silver are going up.
With everything moving up, worries about what’s driving it all (inflation) are being moved to the back burner.
It’s not traditional. I can’t say if it’s right (both in economic and moral terms). But it’s happening. And you’ll need to make strategic investments to take advantage.
Right now paper is cheap — and without any sense of irony, Americans are once again taking loans to buy all sorts of things…
Recent months have been the best for auto sales since 2008. Home prices are growing faster than they have in six years.
One of the reasons so many people can buy cars and new houses is that interest rates are being held artificially low. This is the goal of the Fed: manipulate interest rates as low as possible to trick those who still really can’t afford it into borrowing money and spending it, stimulating growth in the process.
Again, it’s working for now.
Expect this trend to continue in 2013 with strong showings from the automotive and housing sectors. But at the same time, investors know all that printing will debase the currency and make precious metals more attractive…
And that’s why silver and gold have been ticking higher, with the latter knocking at the $1,800 mark. That, too, will continue next year. I fully expect gold and silver to move markedly higher.
It will be great if you’ve played it right.
But there’s an ugly side to cheaper money…
A less valuable dollar means everyday goods will cost more — especially oil and foodstuffs. Unlike base metals (copper, iron, zinc) that will remain cheap because of low demand resulting from a lingering global recession, demand for oil and food will not be eroded.
I think we’ll see precious metals, oil, and agricultural commodities move higher while base metals and those that mine them remain flat or move lower.
The rising cost of agricultural goods — driven by inflation, drought, and population — will put pressure on major index components like General Mills, Campbell Soup, Coca-Cola, Kraft Food, McDonald’s, and so on.
(We’ll have more problems when the middle class can no longer keep up with these price raises, so 2014 should be fun.)
You’ll have to stay nimble and go where the money is…
The good’s going to be really good; the bad’s going to be really bad.
Macro Trends and Forecasts
In my opinion, the really bad will consist of the financial, discretionary retail, social media, and technology sectors.
Banks will eventually have to clean what’s been swept under the rug; social media will always be a terrible retail investment (but it’s great if you can sell IPO shares to suckers); and with the middle class getting pinched ever tighter, they’ll be spending less on everything from Apple to Viacom, from Abercrombie to Wynn Resorts.
We’ve already seen Apple start to sputter, and if millions can no longer afford to buy a new iPhone, iPad (now in mini!), or iPod every six months, it will fall further. It’s a $650 stock now, but was $80 only four years ago.
As it’s been lately, as Apple goes, so goes the NASDAQ…
With a tepid recovery at hand, seeds of “the new normal” will finally take root…
With their belts cinched permanently tighter, families will spend less on material goods. Saving and owning hard assets will become more popular, causing further rises in real estate and precious metals.
Obamacare creeping closer to 2014 implementation — coupled with aging baby boomers — will keep the health care sector strong.
Continued unrest in Africa and the Middle East, unprecedented drone use, and America’s refusal to cut military spending will further gains in defense and aerospace.
The widening gap in the aforementioned fork in the road will make it harder for the broader market to continue the trajectory of the past few years…
The Dow has more than doubled since its March 2009 bottom.
As the economy continues to pull in several directions, I see the broader market remaining flat to slightly positive: Dow between 14,000 and 15,000; S&P within 200 points of where it is now.
The key will be avoiding any falling knives and investing wisely in the sectors that will benefit.
I see gold over $2,000, silver over $50, and oil continuing its bouncing game between $85 and $100.
We’ll keep you informed of how to do that every day as this all plays out.
Call it like you see it,
Nick Hodge
@nickchodge on TwitterNick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street’s Underground Profits. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor’s page.
