The original "Lone Wolf of Wall Street" wasn't the pump-and-dump artist made popular by Leonardo DiCaprio in the painful-because-it's-true movie The Wolf of Wall Street. The Lone Wolf of Wall Street moniker was initially attributed to a trader named Bernard Baruch somewhere around 1903.
Baruch made a fortune speculating on sugar before he'd turned 30. As a superstar trader, he could have been a head honcho at any Wall Street firm, but he went his own way and opened his own brokerage firm — hence the nickname Lone Wolf.
In 1916, Baruch left Wall Street to advise President Woodrow Wilson. He headed the War Industries Board that directed U.S. economic mobilization for WWI. He continued to be an advisor to presidents Franklin D. Roosevelt and Harry S. Truman.
Baruch is probably best known for his quotes, some of which I'm sure you know but didn't know were from him, like:
- "If all you have is a hammer, everything looks like a nail."
- "Nobody ever lost money taking a profit."
- "Millions saw the apple fall, but Newton was the one who asked why."
Then there's my favorite: "The main purpose of the stock market is to make fools of as many men as possible."
Isn't that the truth?
You don't ever have to look very far to find examples of the foolish. Remember JPMorgan CEO Jamie Dimon saying Bitcoin was a fraud and anyone who bought it is stupid? Yeah, that. Bitcoin was just over $4,000 at the time.
How about those predictions that President Donald Trump would tank the stock market and the U.S. economy?
Then there are analysts who predict what stocks will do — like Twitter falling to $10. One analyst has a $30 target on GE right now.
Yeah, sometimes, it really is better to just keep your mouth shut lest you open it and remove all doubt.
But then that would leave me and the other editors at Wealth Daily in a bad spot. It's our job to tell you what will happen. With the stock market, with individual companies and technologies, with commodities, and with the economy...
Every single day, we risk becoming fools in front of hundreds of thousands of investors. If that doesn't hone your edge, I don't know what will. And on Monday, December 18th, I once again put my credibility on the line with my predictions for 2018. So, let's look back at my 2017 predictions and see whether I'm a fool or not...
2017 Predictions Review
1. The S&P 500 will hit 2,425 (but don't expect it to finish the year there).
Might as well get the toughest one over with first. I'm seeing S&P 500 earnings estimates between $124 a share and $130. Right now, 2016 earnings are expected to come in around $108 a share. So analysts are expecting a pretty big jump for earnings in 2017.
Why? Well, oil stocks will help. They've been a drag on earnings for two years. Now, with oil prices up, they can contribute on the positive side. And then there's Trump...
Analysts are already pricing in a corporate tax cut to 18–20%. And with Republican control of the government, this will likely happen.
At $130 a share, the 2,425 level commands a P/E just shy of 19. I think this is doable.
Expectations are already running high. That can certainly carry over to the early stages of policy actually being enacted. As in there will be enthusiasm if Trump goes after taxes first — stocks will rally more. But will overall policy be enough to sustain stock prices all year? This is where I have doubts.
Earnings estimates for the year ahead are always about 10% too high. Even if we get a boost to earnings from tax cuts, the S&P 500 will likely not hit $130 in per-share earnings in 2017. And if Trump really gets aggressive on the trade front, earnings could be impacted.
What if China retaliates against U.S. companies? GM is in the news today, as China has opened a probe. China can easily dent earnings for companies like Apple, Ford, and Starbucks.
So, I think we see a rally in the early going of 2017, with market highs coming in April/May. Then we get volatility in the second half and finish 2017 below the 52-week high.
Correct. Coming into 2017, my target was pretty much the most bullish out there. Many analysts simply couldn't see the bull market extending for the ninth consecutive year. So, I feel great that I kept my paid subscribers buying stocks for more upside this year — even though the S&P 500 beat my target.
Now, here's the thing about predictions: The more specific you are, the greater the chance is that you'll be wrong. That's why palm readers and fortune cookies keep it vague. Not me. So, the timing aspect of my forecast was off. The S&P 500 hit my target in early June, not April or May. I missed it by a few days. And if anything, the market got less volatile in the second half. But so what? This is a win for me.
2. Oil trades between $50 and $75.
I think this one can be answered with a simple observation: Saudi Arabia wants to sell part of its oil company, Aramco, in an IPO. Will it make more with oil at $50? Or at $70? Exactly.
Correct. Oil dipped below $50 in May and rallied back above $50 in September. It currently sits just below $60. Yep, got this one, too.
3. Gold rallies back to $1,300 in the second half.
I know, I know, gold is very oversold right now. But with enthusiasm for stocks in the early going, I don't see a strong rally coming for the barbarous relic. Sure, a dead-cat bounce is likely soon — use it to lighten up. Don't expect a sustained move higher until late summer/autumn.
Correct. Gold peaked over $1,300 in April and June but sold off. The solid run over $1,300 didn't start until July 10th, and it ran until mid-September. That's a win, baby.
4. Just two rate hikes, both in the first half.
I believe Yellen wants rates higher. And she finally has a window of opportunity. Look for two more quarter-point hikes in the first half of 2017. But then the economic data starts to weaken, and Yellen has to stand down and go back to the "data-dependent" stance the Fed has had for the last year.
Wrong. So, the Fed is expected to give us a third rate hike. It hasn't happened yet, so I could just ignore it, but that's not sporting — the consensus is virtually unanimous. After a strong start, I don't mind putting this one in the "loss" column.
5. Emerging markets plunge in the second half.
Are you getting the feeling that I'm not excited about the second half of 2017? Look for emerging markets to do OK in the first half of the year, as better oil price and general good vibes help. But higher interest rates and weak EU growth weigh in the second half. Emerging markets still hold trillions in dollar-denominated debt and loans. These get more expensive as U.S. rates rise. Some real fear about markets in the second half brings volatility and a rally for gold.
Wrong. Good lord. Emerging economies have been anything but weak. In fact, you could argue that strength in emerging economies is underpinning U.S. growth and has helped the U.S. markets to a fantastic second-half run. I got this one exactly backward.
6. Yuge tech rally.
Yeah, so, I'm going Trump again. Tech companies have a stupid amount of cash overseas. And investors will push the stocks of Apple, Microsoft, Cisco, and other large-cap techs up on the prospect that $1 trillion of cash stashed overseas will be brought home. Cisco might even pay out a special dividend to cover up its lack of growth. I also think we will see a slowdown in usage numbers for Facebook, which will hit the stock hard.
Correct. Tech stocks were the big winners this year, followed by financials. Despite my specific call on Facebook, this is another win.
7. Utilities and REITs lag (but with one major exception).
These two sectors were market leaders for the last couple of years. And I have been very vocal that distributed power is hurting the utilities. Rising rates will also hurt. The select REITs that I've recommended to my Wealth Advisory readers have been amazing. And we will hold most of them, because we have terrific gains, and the dividends are also terrific. But for the most part, I don't think they do so well in 2017. Except for one segment of the REIT sector, where I think higher stock prices are a lock. Care to guess what it is?
Correct. Okay, I gotta work this one a little. There are three aspects of this prediction: utilities lag, REITs lag, and one sector of REITs outperforms. So, yes, REITs lagged. The REIT ETF (NYSE: RWR) was basically flat on the year. But the one REIT sector that I said would outperform (it was data centers) did just that. The Wealth Advisory data center stock was up 45% this year, putting our total gains at 271%.
Then there's utilities. They did okay — the utilities ETF (NYSE: XLU) rallied 14%, but the S&P 500 is up 17%, and the Nasdaq ran a crazy 26%. So, yeah, that's technically lagging. To paraphrase Cal Naughton Jr. from Talladega Nights: "I might have won this race on a technicality, but if you try to take this trophy from me, I'll sock you square in the face."
8. Once again, GDP can't beat 3.5%.
As I told you on Monday, predicting U.S. GDP growth under 3.5% is a slam-dunk. So yeah, I'm padding my prediction stats with this one. And no, I don't feel at all guilty about it.
Wrong (maybe). You know, this is just what I deserve. I tried to throw a bunny in there to pad my stats, and it sure looks like GDP growth is beating 3.5% this quarter. Stupid emerging economies. But in light of the "technicality win" with utilities and REITs, I'll just take the loss on this one.
Well, there you have it. In baseball, three hits out of 10 at-bats gets you into Cooperstown. I don't how you get into the Prognosticators' Hall of Fame, I don't even know where it is, but five out of eight is damn good. I sure wish that I'd had something about Bitcoin in there. Maybe I'll put that in my 2018 forecasts. You'll find out in Part II...
Market Predictions 2018: Part II
My brother graduated from Tulane University in 1988. He made it in four years. And if you know anything at all about New Orleans, you know that this is a pretty remarkable feat.
At the time, I was planning a move to Colorado to go skiing for a few years. So, we decided to take a road trip in his 1973 Karmann Ghia to do a little recon and camping in the Rocky Mountain National Park. I can tell you that the roads in western Louisiana and East Texas are absolutely the worst. I swear, the highway turned into a dirt road at one point.
I didn't have any music with me, so I bought a Master of Puppets cassette at a New Orleans music store. I tormented my brother with it every time it was my turn to drive.
I'd forgotten my sleeping bag, but I figured it was late May in the Rockies — I'd be fine. Yeah, no. It was still cold. We hit an Army-Navy outlet in Colorado Springs, so I'd at least have a blanket.
Trail Ridge Road is the highest continuous highway in the U.S. It runs from Estes Park to Grand Lake. The snowbank must've been 10 feet high — skiers were jumping the highway.
At the ranger station in Grand Lake, you have to give the rangers an itinerary of where you're going to camp, so they have a place to start looking for your remains if you get eaten by bears. We had no plan, so we winged it. Pointing at the big map on the wall, we said, "We'll stop here the first night, and then we'll go here and eventually spend a few nights here."
It seemed cool until the ranger asked if we had ice axes and crampons. We looked down at our sneakers. Uh... no? Apparently, the snow line was only a few thousand feet higher than the ranger station. I figured it would be a good idea to keep the whole "forgot my sleeping bag" thing to myself. Still, as we headed out, I'm pretty sure that they preemptively stamped our permit with "eaten by bears." You know, to save time.
I don't really remember how far we hiked — half a day, maybe — before we hit snow that was too deep to pass. "This looks like a good spot." It really was a beautiful spot — beside a creek, tucked in between high cliff walls. To prove my camping prowess, I packed in a carton of raw eggs to cook (or give to the bears). We had a little one-burner Campingaz stove and two cans of gas from the surplus store.
The sound of doom can take many forms. This time, it was a hissing sound after I screwed the burner thingy into the can. We'd lost the gasket that sits between the can and the burner thingy, and so, we lost nearly a full can before getting it unscrewed. Nothing left to do but scour the campground. Amazingly, we found the tiny rubber gasket. Hard-boiled eggs never tasted so good.
Now, like I said, we camped in a little woodsy canyon. The cliff walls were so high that you couldn't see what was coming weather-wise. Weather can change fast in the Rockies. And after about four days, the sun dimmed as clouds started rolling over us. Within minutes, it started snowing. Light at first, then the temperature dropped, and it started snowing harder. Was it just a flurry? Was there a big storm coming? We couldn't see what was coming. Our weather forecast was accurate for about 45 minutes...
A quick conference and we agreed that getting eaten by bears was maybe a little heroic, and we didn't want to die in a spring blizzard in the Rockies. That's just dumb. So, we broke camp in the snow and started running.
The snow lasted maybe another hour. By then, we were below the snowline, and we laughed at our panicked flight down the mountain. But when you can only see the next hour's worth of weather, it's not easy to get it exactly right...
1. The S&P 500 will hit 3,000. Might as well start off with a bang. Yeah, I'm calling for another year of the bull market. And the S&P 500 to 3,000 is not as wacky as it sounds. I'm calling for an 11% gain. And I'm expecting that it will happen because of a nice combination of earnings and optimism.
The S&P currently trades with a trailing P/E of 25 and a forward P/E ratio of 18. Yes, both are above the 10-year average. But here's the thing: Last year at this time, the trailing P/E for the S&P 500 was 24.9 — basically right where it is now. So, I say if earnings come in basically as expected ($145 per share), then we can easily hit 3,000.
So, why will earnings post another year of 10% growth? There's the boost from a corporate tax cut. But we also have a really great global growth story going on right now. And the U.S. economy is accelerating. We likely won't post much over 3% growth in 2018 but even getting near that number is a vast improvement.
We've been living with the post-crisis stress syndrome for a decade. The future has looked bleak, so we worry. But I get the sense that this is finally starting to change. People who have dropped out of the workforce are coming back. Home sales are up. There are more IPOs. There are some great investment trends: automation, electric cars and batteries, AI, and cryptocurrencies... Optimism might be just getting started.
2. Oil won't break above $75. Better global growth will help demand a little. But efficiencies in shale production will keep a lid on the price. Saudi Arabia is not willing to make the dramatic cuts that will really lift prices. Russia will not cut anymore. So, production will stay basically where it is. And this means that oil prices will, too. The only reason that I see a possible move to $75 is the ever-present "tension in the Middle East."
3. Gold's range for 2018 will be $1,050–$1,350. Gold is right in the middle of its 10-year range. And with my expectation for an overall good year for the economy, I just can't get to the bullish scenario for gold. Plus, cryptocurrencies, like Bitcoin, are offering competition in the alternative asset space. I think that gold will rally early in 2018 — sell that rally.
4. There will be two rate hikes from the Fed. We have a new Fed chair coming in. It's highly unlikely that he'll immediately hike rates. But as the economy expands and the employment rate stays low, rates will have to rise. Let's say there will be one in June and one in September.
5. The 2016 U.S. GDP growth will hit 3%. Yep, I'm saying animal spirits have been unleashed — Americans will come out of their funk and start feeling better about the future for the first time in a long time.
6. Bitcoin will hit $25,000. Right now, Bitcoin and other cryptocurrencies have no utility. No one will spend it, because who wants to be the dumbass who bought a $100 million pizza? If you really think that Bitcoin has a future, then you'll want these wild swings to stop. You want it to be stable because then people might actually use it as a medium of exchange.
I think that we'll see the price spikes continuing for the first part of the year. But eventually, I see the price stabilizing... somewhere? Okay, the standard rule for a bear market is the 61.8% pullback. From a $25,000 top, that's projecting to $10,000. Oh, a nice round number... See how easy that was? Ultimately, I'm saying Bitcoin will come off a $10,000 floor and stabilize around $12,000.
7. Tech will lead again, followed by financials. Trends in tech are really gaining steam. Chip stocks are actually pretty cheap. Microsoft will likely break above $100. So, what's not to like? Bank stocks will love a few rate hikes coupled with a strong economy and housing market.
8. I won't get eaten by a bear. I need eight predictions, and I need a win...