2015 Forecast - stock market crash 2015
This being January, stock market and economic forecasts abound. Here’s mine….
Global economic growth in 2015 will be the slowest in decades and global stock markets will have one of their worst years in history. The only reason this forecast does not materialize is new policy actions are taken by the world’s 2nd, 3rd, and 4th largest central banks to stop the downward spiral. Central bank actions have stopped every meltdown that initiated since 2000 –all at different stages of maturity. There have been 9 according to the Greedometers. That said, central banks may no longer be able to stop a collapse but merely slow it.
What remains to be seen is whether central banks have enough remaining credibility to keep applying sugar-rush monetary policy that treat symptoms not the illness. They’ve used up all their tools and are left with debt monetization via the currency printing press.
It’s a tie in terms of most likely epicenters for this meltdown: Europe and Japan — though China gets an honorable mention.
Europe’s banking system remains laden with sovereign debt that cannot be repaid. Greece is the poster child for Europe. Haircuts have been given to bond holders but the country’s debt to GDP remains in the 175% neighborhood . I doubt Greece is still in the eurozone by year end. It’s possible that several years of euro currency printing will be able to keep the money supply from contracting. But we’re talking about 1T euro/year for 2-3-4 years. It
Japan has been able to avoid imploding under the weight of monumentally ugly demographics and debt. Their 230% debt to GDP makes Europe actually look good. The BoJ keeps bolting on larger turbo-chargers to their yen printing press so that now the BoJ is the Japanese bond market. Amazing. FYI: this morning the yield on the 5yr JGB dropped to zero. You read that right.
I don’t see this with a happy ending. If central banker actions fail to materialize or fail to stop the collapse, we’ll be positioned to profit from the inevitable crash. However, if central banker actions do manage to buy more time, we’ll go with the party — but we’ll never be far from the door and will keep the car running.
The Greedometers provide a mechanism to understand where we are in a stock market collapse and the impact recently announced central bank actions (and threats) are having / will have on the collapse. The ability of the Greedometers to track the response from central bank actions is a very valuable feedback loop. Ignoring the impact of monetary and fiscal policy actions is foolish.