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A Forecast for the Fourth-Quarter

It is ever so much easier to just sit back and let the market come to you and trade accordingly, than to attempt to hazard a guess about the upcoming quarter, but what's the fun in that?Against

It is ever so much easier to just sit back and let the market come to you and trade accordingly, than to attempt to hazard a guess about the upcoming quarter, but what’s the fun in that?

Against all the advice of my advisors, here we go with my Q4-2011 forecast…

  • The time-cycle forecasts continue to point to a bottoming in November with the S&P in the 1100-1110 range, followed by a year-end rally near the 1200 level.
  • The time-cycle forecast for the DJIA, shows a generally lower trend into the end of the year, finishing at or near the 10,600 level. This is only a 3% drop from where we are today.
  • The time-cycle forecast for the Nasdaq is the least nebulous of the major index forecasts. It shows another drop of nearly 11% into mid-November, followed by a strong rally into the end of the year, climbing all the way back to where it started at the beginning of Q4.
  • The time-cycle forecast for the Russell 2000 is a very similar forecast to the Nasdaq. The forecast shows a drop of about 14% into mid-November, followed by a recovery of about 14% by the end of the year.
  • According to the time-cycle forecasts, gold looks weak, ending the year about the same place it started the quarter, although there could be a decent rally in November where it loses all the gains in the rally plus some in December.
  • The time-cycle forecast for silver looks even weaker than gold. Silver could move all the way down to $22.00 before a late year-end rally back up to near $25.00.
  • Nat-Gas, according to the time-cycle forecast, could move higher by more than 20% by the end of November, but could end the year by giving half of that gain back.
  • Europe will continue to be one of the three major market movers in the fourth quarter. They are masters at kicking-the-can-down-the-road. This is a classic example (of which the left in this country continue to blindly ignore) of giving free rides to people who will not work. They are learning that socialism only works as long as there are enough wealth-producers to supply a stream of spread-the-wealth-entitlements to those who are wealth-takers. Germany, which tends to be a wealth-producing country, is now faced with ‘spreading’ some of their wealth to the free-riding-wealth-takers. How much longer will hard working Germans put up with job-guaranteed-for-life Greeks? Will this come to a head in Q4? It might. I give the odds of a Greek default in Q4 at least 60%. If this occurs, it could start a domino effect on other countries that have tapped out the wealth-producers and those countries where wealth-producers still survive may say, “We will no longer throw our hard-earned wealth away to countries that have not earned their entitlements through hard work.” Politicians who lie to their constituents by promising them rewards that cannot be paid for will soon have to admit to the fallacy of over promising and under delivering. A day of reckoning is coming in Europe and it is my hope the ill-informed (the nicest term I can think of) left-leaning crowd in this country can go to their closest dictionary and look up the difference between socially responsible and socialism. By the way… a personal note to those wealthy liberals in our country… Put your money where your mouth is. If you want to pay higher taxes, then pay them! There is no law in this country to keep you from writing the government a big, fat check. Hey Warren… You have two choices about your poor secretary that pays a higher tax rate than you do… Raise her income to where she can invest enough in dividend paying stocks to live off of capital gains or you need to tell your accountant to record your capital gains as ordinary income. There is no law against either. In the meantime, the rest of us don’t need your condescending wealth redistribution drivel. The rest of us would like to see our current taxes spent far more wisely before asking us to provide more. If you liberals want to throw more good money after bad, then by all means, please do so, but stay out of our God-fearing-socially-responsible-constitutionally-centric-conservative pockets while you do it.

Whew!… give me a few seconds to catch my breath… that rant got a little intense… Ok… I’m back now and breathing normally again…

  • The second big market mover (potentially, of course) is the euphemistic ‘Super Committee’. This group is tasked with coming up with trillions of dollars of spending cuts or draconian cuts will be made in our Defense budget and welfare entitlements. Now… I just wonder how this is going to turn out… hmmm… I just wonder… As I see it, there are 3 possible outcomes:
    1. The committee could dead-lock and, if so, certain cuts go into effect, which I am sure the President can veto or delay through some Executive order as he ‘saves the day’. The result of this would be turmoil in the markets. Chaos (more of it), politically would be the order of the day along with several helpings of demagoguery amply spread around. The result would NOT be good for markets.
    2. The committee reaches consensus and cuts spending across the board along with moving the country to a more equitable (a term progressives hate) flat tax and basically agree with the conservative approach to getting our fiscal house in order. The result would be a boom in the markets. Obama would be hailed a miracle-worker and the dems and repubs would walk arm-in-arm down the path of conservative capitalism and fiscal responsibility. Yes… I am sure that is a possible outcome of this Super Committee. I give the odds on this happening of a about 15 trillion-to-1 (pardon the current debt pun).
    3. The committee reaches consensus and raises taxes on the wealth producers, punitively punishes all corporations (big and small) by increasing taxes on corporations, decimates the Defense budget, increases entitlement spending, plays smoke-and-mirrors with future fictitious revenue streams and GDP growth. The conservatives completely cave in. The Emperor-with-no-clothes dances in the streets. Sarandon, Buffett , Pelosi, Reed and the Libs throw wild raucous parties and declare the evil ‘tea-baggers’ (a very derogatory term used by our President, by the way) have been crushed. This will be good for a short-term rally and devastating for the long-term survival of our country.The bottom line is, I hope this committee can actually come up with some leadership and responsible decision-making. Count me very, very skeptical that will happen. This is one of those instances where I really am hoping for the best, but am preparing for the worst. I give the odds on this committee completely failing at about 90%. If this is true, the end of the year markets could be in crash mode.
  • The third… and the one that should be the one that counts the most… is our economy. The rate of GDP growth is almost at stall speed. If the Q3 numbers are tepid at best or negative at worst, look for the market to drop like a rock. On the other hand, if the GDP growth rate exceeds expectations, then the market could see a major rally.I suspect the economy is stalling and about to roll over into a recession. And even though conservative Presidential candidate Rick Perry says he will fire Big Ben if he (Perry) is elected in November 2012, I suspect that the non-regulated Fed could not care less about this threat and is more than willing to dump another two or three trillion of your and my dollars into the market. If this happens, we will need to jump onto that gold stallion and fasten our seatbelts as gold will likely skyrocket higher. I know of nothing more likely to dramatically move the markets in Q4 than the GDP rate of growth and the reaction the Fed will take or not take based on that number.
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