December 2015 - Runnymede Capital Management

Wall Street strategists forecast a weak bull market again for 2016

As we near a close to 2015, it is time to look forward to 2016. We have done this in 2014 and 2015, so it is becoming a tradition to see which strategists did well and which missed the mark. What do the experts think will happen in 2016 and should we even care.

Perhaps you are familiar with Philip Telock's landmark UC Berkeley study that looked at 82,000 predictions over 25 years by 300 leading economists. It turned out that their so called expert views were no better than random guesses, and worse, the more famous, the less accurate the prediction.

Last year the strategists predicted a weak bull market for 2015, but it turned out they were still too optimistic. Their average forecast was for a 6% gain in the S&P 500 to 2218. However as of today the S&P 500 stands at 2074 which is down slightly from its 2089 close at year end 2014. The two that were closest to the mark were Goldman's David Kostin and Barclays' Jonathan Glionna who both forecast a year end close of 2100.

Why do I prefer Service Sector investing? Because Santa says so.

‘Tis the season. Yesterday, I read this WSJ article Consumer Keeping Growth Afloat. It's not surprising at this time of year where the lion share of retailers' fortunes are made that we are reminded that 70% of spending in the USA is consumer-based. Yet, we also read about a manufacturing slump. This got me to thinking about Santa and the Elves.

We’re Not Too Sure About Janet Yellen’s Economic Forecast

The #Fed has NEVER correctly forecast a recession.

— Jim Rickards December 16, 2015

The Fed announced that it would increase its benchmark rate by one quarter of a percentage point. The major beneficiaries will be the banks and brokers, not people on Main Street. Runnymede believes the US and world economies will weaken in the quarters ahead. Our view is supported by Jim Rogers, a top investor, and Sam Zell, a real estate tycoon.

The Fed has a very different opinion. Who will be right?

Qualified Charitable Distribution from IRAs Permanently Extended

Officially approved by Congress on December 18th, 2015, there will be no more waiting until the final weeks of December (or beyond) to see if Congress will extend the Qualified Charitable Distribution from IRAs. The Protecting Americans from Tax Hikes (PATH) Act of 2015 includes a provision to permanently extend the ability of individuals at least 70½ years of age to exclude from gross income qualified charitable distributions from Individual Retirement Accounts (IRAs) of up to $100,000 per taxpayer in any tax year.

Junk bond sell off reminiscent of subprime in 2007

As the Fed prepares to raise rates for the first time since 2007, the corporate high yield debt market, aka the junk bond market, is in serious crisis mode. The talking heads on TV say that everything is fine if you exclude energy but this is eerily similar to them saying that the S&P is fine excluding financials in 2007.

Is the Fed rate hike a big mistake?

The FOMC is set to meet on December 15-16 and the market is finally buying the rhetoric that a rate lift off will begin this month. While Fed chair Janet Yellen has been hinting at a potential rate increase for much of the year, the financial markets are now pricing in the reality. Economists can argue whether it is the right or wrong decision, but the fact remains that the Fed is now highly likely to raise rates for the first time since June 2006. As you can see the 90 day T-bill rate is moving up sharply in anticipation.

Month: December 2015

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