Jim: Hello Adam, and thanks for joining us. It’s at this time of year that people look to oracles for predictions. What is yours?
Adam: My pleasure… The market and the economy (GDP) are strong and are poised to enjoy strong gains in 2014. The primary catalyst behind the entire bull market we have seen since the March 2009 low has been easy money from global central banks. Right now, even after the Fed’s fake taper last month, global central banks are still printing close to $8B a day to stimulate their markets and the global economy, that is not an insignificant sum. There is an old adage on Wall Street: Don’t Fight The Fed. That rings very true right now. So until that easy money stance changes, I’m not going to fight the Fed.
Jim: 2013 was obviously a very strong year for stocks. Is there any historical evidence to suggest what happens after such a year?
Adam: The S&P 500 soared nearly 30% in 2013! Great Year- but what does that mean for 2014? The data is mixed for the market but bodes very well for the economy (GDP). Since 1950, there have been 17 other instances when the S&P 500 was up over 20% in a year.
The S&P 500 finished positive the following year 14 times, or 82% of the time
What About The Economy?
People love to talk about a correlation between the US stock market and the economy. Most data shows that there simply is not a clear correlation between the S&P 500 and GDP. Well, we did some digging and thanks to our friends at CNBC analytics, we found one. Every time the S&P 500 vaulted more than 20% in one year (table left) GDP rose the following year.
The GDP annual compound rate was positive 100 percent of the time the following year, up on average 4.48 percent.
Jim: And so the main driver is, again, the government printing money. But, being devil’s advocate, how long can such a thing go on for without consequence?
Adam: Here is where most people miss the mark. There are consequences and major consequences to the Fed printing billions of dollars in new money everyday and the two primary consequence are: 1. Higher stock prices and 2. A stronger economy. That is exactly what is happening. Companies are sitting on record amounts of cash and don’t know what to do with it. MasterCard (MA) just announced a 10-1 stock split and a massive dividend increase because they had nothing else to do with all their cash…Several other large billion dollar corporations are left in a similar position. The cash belongs to the shareholders and if the company has nothing to do with the cash- they are obligated to return it to the shareholders in some capacity. The negative consequences will come…eventually but there will be many warning signs that show up before the storm hits… Inflation is one of the biggest worries of all the money printing. Right now inflation is not a concern, if anything deflation is more of a concern than inflation. So until that changes, the Fed and other central banks, have a lot of room to print all the money they want. The other side effect that almost no one talks about is what happens when the market and the economy does not react to the printing. (diminishing returns).
Jim: So bottom line take away is to keep riding the bull into 2014. Any particular sectors that you’re watching for your Midas Wave subscribers?
Adam: The banks and housing stocks are ripe as they are direct beneficiaries for all the easy money… Also, we are always looking for innovative companies. Stocks that are in demand and are creating new products that revolutionize the way people live their lives. In fact, the newest alert is a company that just came public and is experiencing explosive growth. It is in the hyper acceleration phase of a new IPO and is being aggressively accumulated by large institutional investors. The Midas Wave Portfolio beat the S&P 500 by a factor of 2 last year and currently nearly half the stocks in its portfolio are up double digits.
Jim: Great stuff. And congratulations on your successes with your new currency trading algorithm. I know it’s a proprietary secret but I hope you can share more with us on that in due course. Thanks for joining us.
Adam: Thank you. My pleasure.