Monday, December 30, 2013

Keystone's Summary of 2013 Predictions

Keystone's 2013 Predictions Summary

It’s time for another year of predictions that will provide comic relief in December 2014, but first a look back at 2013 is in order. The analysts are out in force now forecasting the SPX to move above 2000 in 2014. Perhaps they will all be correct. Last year, there was a consensus from 1390 to 1615 and the SPX blew up through even the highest estimate. The power of the central bankers, especially the Fed and BOJ, can never be underestimated. Like the old Wall Street adage says, “don’t fight the Fed.” In addition, the low rates fuel share buy backs that pump asset bubbles higher. The weakness in copper and commodities from February 2013 forward had no negative effect on markets. This is remarkable and verifies the power of the Fed. The ‘shock and awe’ move by the BOJ in April 2013 was the single greatest market upside driver in 2013.

Keystone was looking for lower equities in 2013 and had the direction and magnitude wrong. Fortunately, Keybot the Quant, Keystone’s trading algorithm, is smarter and navigates successfully through the year. Keystone continues to hold short positions against the markets that are currently all under water as equities continue higher. Market bears should get a turn at bat in 2014.

Keystone looked for dollar buoyancy in 2013 and euro weakness. Both were on the flat to bullish side. Also, a continued disinflation with a move towards deflation scenario was expected, which remains in place, but bond yields were expected to be flat. Instead the 10-year yield went from 1.9% to 3.0%. In fairness, the 10-year dropped to 1.6% before the rise. Keystone thought the effects of QE would diminish since there is no velocity of money and the whole globe is now debasing anyways, however, global traders continue to believe in the central bankers and as long as this trust remains, all is fine for market bulls. Keystone expected lower equities which obviously did not occur, in fact, equities logged one of the best years in a long time.

(12/30/13 end of year assessment shown in color)

Keystone’s Predictions for 2013

1.    SPX High for 2013: 1520 (over 1800)
2.    SPX Close for 2013 (SPX Begins at 1426): 1205 ($93x13) (over 1800)
3.    SPX Low for 2013: 1105 (1426)
4.    Dollar Range ($USD): 77-93 (79-85)
5.    Dollar Closing Price ($USD): 88 (80-81)
6.    Euro Range ($XEU): 100-137 (128-138)
7.    Euro Closing Price ($XEU): 113 (138)
8.    10-Year Note Yield Range ($TNX): 1.10% - 2.00% (1.60%-3.00%)
9.    10-Year Note Closing Yield ($TNX):  1.55% (3%)
10.  30-Year Note Yield Range ($TYX): 2.00% - 3.20% (2.80%-4.00%)
11.  30-Year Note Closing Yield ($TYX):  2.65% (4%)
12.  Unemployment Rate % Range:  7.3 – 9.5% (7.0%-7.9%)
13.  Unemployment Rate % December 2013: 8.2% (7.0%)
14.  GDP Average During 2013:  1.1% (about 1.5%-ish)
15.  WTIC Oil Range ($WTIC): 50 – 110 (85-113)
16.  WTIC Oil Closing Price ($WTIC): 73 (99)
17.  Brent Oil Range (BNO): 80 – 130 (96-112)
18.  Brent Oil Closing Price (BNO): 93 (111)
19.  Natty Gas Closing Price ($NATGAS): 5.25 (4.43)
20.  Gold Range ($GOLD):  1000 – 1800 (1180-1700)
21.  Gold Closing Price ($GOLD):  1375 (1200)
22.  Copper Range ($COPPER): 2.0 – 3.8 (3.0-3.8)
23.  Copper Closing Price ($COPPER):  2.60 (3.38)
24. Commodities Range ($CRB):  220-310 (270-306)
25. Commodities Closing Price ($CRB):  265 (282)
26. China Growth Rate % Average for 2013: 6.5% (but data not reliable) (it stays above 7% even 7.5% if you trust the data)
27. The QE3 and QE4 quantitative easing measures are not creating the strength that QE1 and QE2 had. There is a race to the bottom now by all countries, a race to debase, a competitive devaluation. As the year moves along traders will realize that QE simply does not have the super oomph like prior years and this will further weaken markets. (Nope, central bankers continue to rule)
28.  Disinflation will continue with a move into deflation during 2013 as measured by Keystone’s Inflation-Deflation Indicator. Wage deflation will continue to be a major concern. People do not spend money if they do not see their salaries increasing. The massive deleveraging for people, business and government continues. (correct, stocks move higher but we remain in a disinflationary environment; wages are not increasing)
29.  The U.S. will fall into recession this year. Higher taxes and regulations, and Obamacare costs and taxes, will hurt business and hiring. The weak consumer sentiment and confidence numbers, as well as retail sales, in late 2012, pave the way to a sick economy in 2013. (nope, Obamacare is problematic but the weakness has not appeared)
30.  The four-year Presidential cycle points to lackluster first and second years, 2013 and 2014, and this is expected for 2013.  The 18-year cycle, currently in a secular bear from 2000-2018, has a few more years to go before flipping back to an 18-year bull market in 2019-2037. In fact, two more recessions may occur before the 18-year cycle bottoms, perhaps a recession in 2013 and another in 2017, and, if each recession is a couple years in duration, potentially four out of the next six years may be weak for markets. (this statement holds true but 2013 was up)
31.  Structural unemployment will continue in the U.S., and the social fabric will show signs of stress, with increased crime, especially burglaries. Families grouping together to live, such as young adults living at home with parents, or elderly parents living with children, will continue since folks will be hurt by the deflationary funk and low employment. So this boost of family formation will be missing in action. (correct)
32. The housing sector will continue to struggle and the recovery will prove premature.  The poll of people building new homes are shrinking, a shadow inventory remains, the cash buyers are running out, and many of these investors are flippers waiting for a big push in housing that will not yet occur. Many of these flippers will seek to unload the properties which will weaken the housing sector. Other foreclosures, now freed by the banking paperwork, will increase the housing inventory. The banks and financial companies have been buying real estate they will be caught in the housing lull as well, which will create a housing funk for a couple or few more years, a flat lifeless market. (housing peaked in April and down ever since however the jury is out)
33. House prices will move flat and start to fall as the year moves along, surprising everyone believing in the housing recovery. (they continue sideways some elevation; hedge funds chasing real estate)
34. Housing Starts will not exceed one million surprising all that are expecting a strong housing recovery. A strong recovery will be shown by 1,000K starts and higher, not seen since June 2008. (Starts squeezed out 1 million)
35. January should be weak considering that consumer sentiment and confidence is dropping, retail sales are weak and the quantitative easing measures are having less of an effect. The highs for the year may occur early in the year. (nope)
36. Keystone’s Cash Society™ will grow during 2013.  People will realize that taxes can be avoided if you pay cash for goods and services. This behavior will grow the underground cash society. This is the path Greece went down, and other countries that do not properly address debt. Raising taxes does not increase the amount of money that comes into the coffers; it may reduce the amount as the cash society flourishes. (cash society is growing)
37.  A Flash Crash will occur this year on par with the 5/6/10 Flash Crash. (not one quite on par but many notable flash crashes that Keystone catalogs on an ongoing basis)
38. The ECB will start to cut rates (there is not much room from 0.75%) in early 2013 to spur growth in Europe and help the struggling nations. Perhaps at the 2/7/13 meeting. The euro will trend lower all year long. (euro flat to higher although Draghi did cut rates)
39.  Greece will remain part of the euro up thru Merkel’s re-election. (yes)
40.  Merkel will be re-elected in September 2013. (yes, easy one)
41.  At the end of 2013, after Merkel’s re-election, talk will heat up greatly over Greece leaving the euro and also the possibility of Germany leaving the euro. (interestingly, gunmen today shoot at the German ambassador’s residence as Greece and Germany are at odds over austerity; no talk on Greece leaving euro, however)
42.  The German DAX, the big success story of 2013, will roll over and lag in 2013, but some money-pumping will help it recover into the Merkel election. (a lull then Merkel pumped it up through the election to the current new all time highs)
43. The European markets, after phenomenal gains in 2013, will roll over as the European recession deepens and experience a weak 2013. (nope, euro markets remain at multi-year highs fueled by weaker yen)
44.  China hard landing occurs. China’s shady banking and insurance scams (wealth-type products) will unravel and throw the country into turmoil as many citizens are wiped out of their savings. This will slow the move to an urban, domestic-led economy. A mistrust of the city life will continue especially on news of company failures and scams. The move from rural to uban will take longer than many think. The one-child policy will have serious ramifications from a demographics standpoint fueling potential unrest. The growth will probably stay at a 6.5% number, but this will be in concert with a hard landing. (no hard landing yet, one-child policy was changed)
45.  Japan will accelerate their quantitative easing from spring on once the member positions are in place at the BOJ. The dollar/yen and Nikkei may languish as the year begins and not run higher on the yen weakness until the late spring and summer forward. (the BOJ yells Banzai! Destroying the yen and pumping dollar/yen and stock markets higher)
46. Japan will face a massive debt crisis in 2013 which may be a catalyst for a global monetary crisis across the globe. (nope, the party continues)
47.  Japan and the U.S. will forge strong ties with natty gas and LNG which will lead to building a liquefier or two in the States and a terminal or two in Japan which will be a bright spot for the overall economy. America’s natty gas is Japan’s future. (yes)
48. In general, the natty gas industry renaissance will continue in the States despite the government placing road blocks. The negativity concerning fracking should have little effect on the industry. The natty gas auto industry will grow and talk and action will increase on natty infrastructure. Folks will begin to realize that natty gas is one of the tickets out of the country’s monetary mess. (yes, although natty gas infrastructure lags)
49. More and more U.S. manufacturing will move to Mexico and gains will be made with the drug war on the border. The violence will lessen now that States have legalized pot since much of the pot that came across the border is no longer desired. (things are calming a bit)
50.  Protectionism around the globe will increase, with country against country, nation against nation, in little spats, with countries performing tit for tat measures against each other to provide advantages for their own economies. The race to the bottom. The global economic environment will be poisoned by this behavior causing global markets to languish. (there are protectionism measures increasing like China solar panels and French wine)
51.  The Fed will not raise rates in 2013. (easy one, now there is ZIRP Forever)
52.  Unemployment will remain elevated and wage deflation and average hours worked will remain flat showing a continual situation where businesses simply have no plans to hire or expand. (one of the better predictions)
53.  The Dividend Stock Bubble will continue to burst. ETF’s such as SDY and DVY will top in early 2013 and these highs may not be seen for a long time. (they continued to run although this prediction will be used moving forward)
54.  Financials will underperform in 2013. (nope)
55.  The Great American Consumer will finally peter out after decades of reckless spending. The retail sector will be weak in 2013.  A couple or few notable retailers will seek bankruptcy protection in the spring and summer sending shock waves thru the retail sector. (Remember, predicting the demise of the Great American Consumer is a fool’s errand since they have spent non-stop since the 1970’s.  Perhaps Keystone should mark this prediction ‘Incorrect’ right now?) (yes, incorrect; the consumer lives on)
56.  Bankruptcy will return as an oft-used word in 2013 as many businesses across many different sectors will seek protection due to sluggish sales and a weak, low and slow-growth economy. (nope)
57.  The muni-bond top will continue and roll over with MUB trending lower. MUB to likely make its high in early 2013 and then move sideways with a sideways down bias for years to come. (yes)
58.  California will face a monetary crisis and look to the Fed for support. The country will be up in arms over having to bail out States. A couple other States will jump on the band wagon right away, perhaps Illinois. The local and state government difficulties will continue with both looking to raise taxes as a means to raise revenue. (governments are all raising taxes but Cali did not face a monetary crisis)
59.  The automobile industry will be far weaker than anyone expects. The late 2012 surge in Ford pick-ups should abate and sales will be weak across the board moving forward. Weak auto sales will add to copper weakness and continue platinum and palladium weakness. (auto’s surprisingly held in there, the rich made richer by the Fed all bot new cars)
60.  Despite the government wanting to exit GM in 2013, at a loss, the stock will languish all year long due to a weak global economy and auto sector. This will cause the government to delay their exit and open up new concerns over saving GM since they will be headed into trouble again. (nope, it is painted as a happy ending and the stock moves higher)
61.  Internet will start to fracture into those respecting their own privacy and those that do not care. Sites that respect privacy and have and explain strong guidelines will win over many subscribers. Computer privacy issues will be very important to some folks but others will not care. FB and other social sites will continue to make mistakes exposing personal information. The privacy issue will be key in 2013. (great prediction considering the NSA scandal and Snowden occurred and is ongoing)
62.  Twitter IPO will be wildly successful. (yes)
63.  There will be some consolidation of companies in the tech sector in 2013, which will lead to stronger companies, but layoffs. Mobile chip companies such as ARMH and QCOM will continue with favorite son status. (yes)
64.  Sadly, the rich vesus poor class warfare talk will continue and this is simply another negative background force that will hurt the economy in 2013. The business bashing environment will continue thru 2013 and business will continue to struggle in a very difficult environment. (yes)
65.  The U.S. standard of living will continue to slowly decrease over time. (yes)
66. Young people will become disillusioned with college debt that results in the same job that would be obtained without the degree, only now the young person is an indentured servant with 50K government debt. Young folks will gravitate towards skills and seek high-paying jobs in shale gas, welding, natty gas technicians, and other similar industries. The stigma of trade jobs will vanish as the young folks seek these technician-type and other physical-type jobs rather than office jobs. (yes but structural unemployment is a problem)
67. On-line education sites will start to catch up with the needs of young people and will expand in a multitude of ways to educate all people of all ages.  The use of GOOG and AAPL tablets in classrooms will increase. People will be retrained with different skills so they can seek available positions and the Internet and on-line education will play a more important role to fill these needs. (give it a yes)
68.  The country will accept the new marijuana laws and become less concerned as time moves along, especially since many States and localities will want to fund government by taxing the lucrative pot industry. (yes)
69.  Banks, financial institutions, airlines, and many other companies will incorporate more and more add-on fees to boost the bottom line in a weak low-growth economy. The nit-picking fees will further hurt the consumer. (yes, hurt the consumer but create big profits for companies)
70.  The cyber threat will increase and one or two major banks will experience a significant hack attack and problem in 2013. Cyber security companies will do well in 2013. (yes, look at the TGT breach, things are a mess in cyber security land)
71. For tech in general, there will always be great new products but much of the tech revolution from the 1970’s thru the 2000’s is waning. Nowadays, sites perform upgrades that add very little new items and instead create difficulty of use and a poorer experience. This is a sign of an industry trying to extract more with less, providing programmers work to do but the benefit is becoming less attractive. Look at apps, 500K apps and the typical person likely only uses a couple dozen. Plain and simple, the number of new ideas in technology will continue, but at a slower pace. (yes)
72. Data is the most important thing in technology, companies can sell and lease data to multiple outlets and create revenue streams. The data becomes more important than the actual money a site brings in. Privacy limits are pushed again. (yes, ‘data mining’ is a new buzz word, and ‘metadata’)
73.  AAPL will struggle in 2013, the luster is off the rose. The gun-ho Apple enthusiasts have filled their needs. New customers are more open to other manufacturers and more focused on the price point.  The realization will occur that Apple is simply another commodity producer of Smartphone’s, tablets and notebooks like any other manufacturer. AAPL television will either not appear in 2013, or, if it does, only receive a lukewarm reception. (yes, although AAPL may finally make some inroads to China; Samsung rules, folks like the larger screens)
74.  AMZN will sell a mobile phone and it will be successful. (not quite there)
75.  Computers and technology in general will continue to create deflationary affects on the global economy.  Computers are huge deflationary machines. Robots will continue to replace human’s in more and more jobs, especially dangerous jobs. The gains in technology only serve to increase the structural unemployment. (yes)
76. The PC market demise is greatly exaggerated. Content creators will continue to need desktop and laptop machines moving forward.  The desktop manufacturers should experience one more business cycle push where offices upgrade computers, but the slow slide south for PC’s should continue after that, and then develop into a steady base line business. (HPQ runs higher)
77.  Mobile monetization will continue to be a tough nut to crack.  People want things to be free or low cost on the Internet, and do not want to have a small screen littered with ads. There are profits to be made but the realization will hit that mobile ad revenue may not be as great as thought. (jury’s out)
78. The Wallet Wars will be in full display this year and a pivotal year to identify winners and losers in the mobile payment battle. Square is trying to gain the early edge.  The best tech ideas are those out of left field with one company leading. The wallet wars are already a jam-packed battle zone with companies fighting each other to be one of the main darlings.  This behavior will result in a low margin difficult business moving forward. (jury’s out)
79. The trend in localized healthcare clinics treating straight forward healthcare issues will increase, also in-store health models such as WAG. (yes)
80.  The self-publishing of books will increase in popularity with folks attempting to write the great American novel.  The self-publishing machines will increase in popularity and maintain interest in the printed word. Magazines and newspapers will continue to go the way of the buggy whip. (eBooks continue gaining huge popularity)
81. 3-D printing will continue to gain in popularity and use, little boxes that can print nearly anything you need. This has a huge future and is revolutionary. (yes, big year for those stocks)
82.  The automobile industry is placing black boxes in all cars moving forward similar to the flight recording boxes in airplanes. There will be arguments against this new practice but people will forego more of their rights and all future automobiles will be manufactured with the black box recorders with Americans wanting to gladly give up their liberty for a little bit of perceived safety. Folks are already using Progressive’s gizmo that tracks vehicle behavior. (yes, that is where technology leads)
83.  Large X or M class solar flares will hit the Earth at some point in 2013 and folks will be shocked at the amount of electronic damage that occurs due to the electromagnetic pulse. Folks will take solar flare events much more serious moving forward. (nope, for the solar maximum cycle, it was oddly quiet, 2013 should have been a banner year for flares and plasma events)
84. As the difficult economic times continue in 2013, folks will seek out music and other outlets to reduce stress and seek more simple, perhaps frugal lives. More and more products will move towards less use of labeling; understated goods will be in more demand. (yes about the move to avoiding the gawdy labels, but folks are still partying like its 1999, well, at least the wealthy that the Fed makes wealthier)
85. Defensive sectors such as consumer staples like PG will hang in there better than other stocks during 2013. People always need toothpaste, toilet paper, and soap no matter what the economy is doing. (markets did not correct properly all year long but PG ran higher like all the rest)

Correct 48
Incorrect 37
Total 85
Percentage Correct 56%

(Many of the above predictions will be used for 2014)

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