7-Year Forecast Update: A Maturing Bull (Elk)?

Another Hebrew economic year is behind us and we have now started the 3rd year year in the 7-year forecast. The type of deer in the dreams has revealed the stock market levels from year to year, but I would not say that it is accurate to any specific day. I have been measuring the forecast with the S&P 500, but the levels obviously vary somewhat depending upon which index is used. As I pondered this further, I realized that one should only expect a certain amount of specificity when you are using deer to predict stock market moves.

The following chart of the S&P 500 goes back to the beginning of the first dream in October 2010. The first two years were nice bucks in the 8 to 10 point range and we see that this played out from October 2010 to September/October 2012 when the S&P 500 moved approximately 20% higher over this 2-year period (red line on chart). Next we had the two monster bucks and we see that this played out from September/October 2012 to September/October 2014 with the S&P 500 moving approximately 45% higher (brown line on chart).

Source: S&P Dow Jones Indices; St. Louis Fed (annotations mine)                         (click to enlarge) 

Then we had the last doe from the first dream and the first doe from the second dream (the first doe being the first year in my current 7-year forecast). This played out from September/October 2014 to September/October 2016 with the S&P 500 moving sideways (green line on chart). I have thus concluded that a regular sized doe (no antlers) equates to a sideways market movement. The expectation of a sideways move from September/October 2015 to September/October 2016 is what enabled me to predict the recent correction, although I thought it would be a bit sharper. 

Over the next 12 months I am expecting another sideways move because for the third year of the 7-year forecast we have yet another regular sized doe. That being said, I expect the stock market to continue rallying in the near term for another reason. 

On January 1, 2016, as I laid down to go to bed I thought to myself, "God has yet to give me specific direction for the coming year like He has in years past." That very night I dreamt the following:

I was in some type of bunker, a few feet below ground, that you could see out of. I turned to me left and was surprised to see a bull elk coming from behind me with a much smaller deer behind it (the second deer was faint and I really do not know for sure what it was). I did not have my bow with me so I scrambled to find some type of weapon.

Interpreting this dream ended up being pretty easy. I had portfolios positioned defensively at the beginning of 2016 and I had a bunker-like mentality regarding the markets at that time. Recall that in January and early February the stock market was falling hard, oil was crashing, there were concerns about China, etc. Nevertheless, because of this dream, I knew things were going to turn around so I started buying heavily during that correction. 

I am not quite sure what the significance of the elk was. My initial assumption was that it represented either exceptionally strong economic growth or the performance of large capitalization stocks. More recently though, I am starting to surmise that the bull elk may represent the maturing of the current, longer term bull market in stocks (that began in early 2009).

The S&P 500 begin 2016 at 2,013. A bull elk typically has 12 to 16 points (6 to 8 on each side) so my price target for the peak of this bull market now stands in the 2,255 to 2,335 range. I am leaning more towards the 2,255 price target because of a notable experience I had this past summer. 

I took my two oldest children to a wildlife park outside of Harrisburg, Pennsylvania (U.S.A.). We were riding on the top of this remodeled school bus for a "safari" where they had, among other things, some bull elk. At one point, the bus stopped in a field and there was this lone bull elk in the field about 30 yards from me and staring right at me. At that moment I sensed the Holy Spirit grip me as I focused on that bull elk. He had 12 points. I took this as God's way of confirming what He had showed me. 

Here we are now in mid-November with the stock markets surging higher and, based on this forecast, I think there is more upside to go. However, the trend for the first 3 quarters of 2017 will likely be lower as the 7-year forecast is again signaling another sideways year with the S&P 500 pinned around the 2,000 to 2,100 level in the September/October 2017 timeframe. 

The beginning stages of an acceleration in inflation is still about two years away. Interestingly, many are concluding that President Trump's economic plans will be inflationary, but it would theoretically take a little while for a new administration to implement them. The accelerating inflation predicted in the 7-year forecast will begin about 22 months into the first term of President Trump. Perhaps this is indeed the catalyst.

Because the 7-year forecast is essentially pointing to zero to negative stock market returns and negative bond market returns (likely much worse in "real" or inflation adjusted terms) for at least the next 5 years, I have drawn two important conclusions:

1) Public pensions are doomed. (Keep an eye on California.)

2) We are closing in on peak passive investing as these set-it and forget-it, cookie cutter strategies are going to get crushed for years to come, especially on an inflation adjusted basis. They may prove to be a good outlet though for U.S. government bonds that no one else wants to buy. Investors have been flocking to them, but, of course, the investing herd is always moving in the wrong direction.

To conclude, it looks like the current bull market is in its final phase. I expect a continued move higher over the remainder of 2016, before we finally transition to the early stages of a bear market in 2017.

 

Joshua S. Hall

 

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The True Vine Letter is a publication of True Vine Investments, the investment advisory business of Joshua S. Hall, ChFC, a Registered Investment Adviser in the U.S.A. The information presented in The True Vine Letter is provided for educational purposes only and not to be used or considered as an offer or a solicitation to sell or an offer or solicitation to buy or subscribe for securities, investment products or other financial instruments, nor to constitute any advice or recommendation with respect to such securities, investment products or other financial instruments. The True Vine Letter is prepared for general circulation. It does not have regard to the specific investment objectives, financial situation, and the particular needs of any specific person who may read this letter. You should independently evaluate specific investments and consult a professional before making any investment decisions.

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