A Prediction Made in 2016

[Zhong Lu + 845]

Here's a prediction I made elsewhere in 2016, so I may as well put it up here.  It was after Trump won the election. Has three parts:

1.  Stock markets will initially go up and up and up.  (Easy money policies from Trump- this prediction was based on Trump's past financial performance, and this prediction has been spot on so far).

2.  Further increase in political polarization and breakdown in trust (so far that's panning out, too.  Note how much all of you hate one another and how the hate is increasing).

3.  S&P will collapse to 1500 within 10 years.  This is based on the fact that there will be some financial crisis incoming, but unlike the previous ones this time around the government, whoever is in power, will be so dysfunctional that they won't or can't fix it because everyone will  be too busy blaming one another for it. We'll see if that comes to pass.  Could be wrong, but I've still got 6 years.

Edited February 1, 2020 by Zhong Lu

[John Foote + 1,135]

1 & 2 are true and obscenely obvious.

3 is more of a challenge. In 2008 the mess presented the opportunity for real reform. Instead of reforming things we are probably worse off, and we have a perverted Keynesian recovery, just keep dumping more and more money into the system. And in such a recovery, but as we should expect, massive inflation, but the only major inflation we've had is in assets, and the S&P certainly reflects that. So does real estate in many markets.

And with all the players at the table highly leveraged, the bubble keeps expanding. If too big to fail was in play last time with the Great Recession, now it's even more extreme. The current solution seems to be just be inject more money into the system and Trump is relentless at it. A variation of this solution, hell, why are we subsidizing banks and business, just give money to low end consumers. Neither make sense to me, but in theory the leveraged folks can be foreclosed on, causing massive pain, but at least resetting everything. As long as you are operating above margin costs maybe the mother of all haircuts is what the system needs.  It is easy to see why the Under 35s think the Boomers have ruined their future, and that's without getting into the climate arguments.

[Zhong Lu + 845]

I prefer to predict the obvious.  You're more likely to be right.

For #3, I gave myself a 10 year time frame on the logic that even if I'm wrong most people would have forgotten it.  The issue here isn't the debt.  As long as people believe the debt can be serviced, and that the government servicing the debt can behave responsibly, then it's not an issue. Just look at Japan, which has been managing a debt burden larger then the US percentage wise without any trouble.

The issue is the BELIEF.  As it's patently obvious to everyone, political tribalism is increasing in American society, accelerating under Trump.  When that happens, trust and belief break down.  As long as nothing too awful happens, whatever.  Doesn't matter for the majority of people.  But if there IS a financial crisis, I don't think the current administration can work together with Congress to fix it.  In the previous crisis, the government at least managed to work together (Dems and Repubs) to patch up a solution- albeit not a great one, and restore confidence in the system  Now if a crisis happens, what we'll have is government paralysis, setting the stage for Great Depression part 2.

Over the next several years I believe this paralysis will only get worse, while the financial bubble grows bigger and bigger....

Edited February 6, 2020 by Zhong Lu

[Boat + 1,315]

Six years ago I predicted peak oil in 2030 +/- 2 years. So far I see no need to change or admit failure.