What’s Next for the Booming Markets, Bitcoin & Commodities

Dow 40,000? Bitcoin to double?

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by Mark Soberman in Currency ETFs, Exchange Traded Funds
November 13, 2017 0 comments
Our analyst takes a big picture look at what might be in the works for the leading benchmark, cryptocurrency and commodities.  Do you agree?  Disagree?  Let us know in the comments below…

Global Economy – Gaining Momentum

Officially, the global economy has generated positive economic growth since 2010. However, economic activity has been incredibly slow and almost

non-existent. In fact, the growth rate declined every year from 2010 through 2016.

During the past 3 to 5 years, many investors and Wall Street economists have been predicting “doom & gloom” for the global economy. They were anticipating a worldwide recession which would cause stock prices, interest rates and commodities to plummet. These bearish forecasts have proven to be wrong. Without question, economic growth was certainly rather anemic from 2010 through 2016. However, it never came close to matching the forecasts of the “doom & gloom” crowd.

At least for now, it does appear that 2017 has marked the beginning of a new leg to the upside in economic activity. Several major economists and economic “think tanks” are forecasting increased growth rates for the remainder of this decade. Personally, I agree with this forecast. I believe global economic expansion will eclipse most economists’ expectations during the next 2 to 3 years.

Dow Jones Industrial Average (DJIA) – The Bull Market Continues

Without question, the stock market has dramatically exceeded investors’ expectations. Stocks have been in a continuous bull market since March 2009. By all historical measures, this market is way overdue for a substantial decline. Many investment professionals have been predicting a crash for the past few years. Yet the market continues to grind its way higher. Eventually, DJIA will suffer a massive long-term decline. However, it probably won’t happen any time soon.

Is the stock market in a bubble? My best guess would be, “Yes.” The funny thing about financial bubbles is that they always last longer than we expect. This bubble will be no different.

Most likely, DJIA will exceed even the most optimistic forecasts. Quite frankly, I would not be the least bit surprised if DJIA approached 35K to 40K within the next 12 to 18 months. However, I doubt the market will go up in a straight line. In fact, I predict the stock market will suffer a brutal short-term decline sometime in the first quarter of 2018. The decline (if it occurs) will only last for a few days and it will be in the neighborhood of 10%. The market will immediately recover from the decline and generate a new all-time high within a period of 3 to 4 months.

Once DJIA records its final all-time high (probably in 2019), I predict dramatically lower stock prices for the next decade. Most likely, DJIA will follow the same path as the Japanese stock market in the late 1980s. Japan’s Nikkei Index reached its final top in December 1989, near the 39K level. The index then preceded to lose approximately 82% of its value over the course of the next 20 years. DJIA could easily drop for 10 to 15 years once the final top is in place.

Commodities – A New Leg to the Upside

The commodity markets enjoyed an incredible bull run from 2001 through 2011. It was one of the greatest commodity bull markets of the past 100 years. The bull market came to a halt in 2011 & 2012. Generally speaking, prices have been drifting lower for the past 5 to 6 years. However, it does appear that several commodities formed an important bottom in 2016 & 2017.

Is the commodity universe on the verge of another substantial rally similar to the last bull market? It’s too early to know for sure. It all depends on the strength of the global economy during the next few years, particularly in China and India. My “best guess” is that the next commodity bull market (which probably began in 2016) will not exceed the magnitude of the previous bull run from 2001 through 2011. A few of commodities will generate a new all-time high within the next

3 to 4 years. However, most commodities will be unable to penetrate the highs from 2011 & 2012. The markets with the best chance of recording a new all-time high include copper, gold, silver and maybe the grains.

Bitcoin – Boom or Bust

Ten years ago, bitcoin didn’t even exist. Today, it’s the most speculative investment vehicle on the planet. A $10K investment in 2010 is now worth $1.4 billion.

What does the future hold for bitcoin? Quite frankly, it’s impossible to forecast. Personally, I could see bitcoin completely disrupting the entire financial services industry with its digital payment platform. I could also see bitcoin having a massive flameout and becoming practically worthless. It could go either way. We should know the answer by the end of this decade.

My “gut feeling” tells me bitcoin is here to stay. Recently, the CME announced its plans to introduce a bitcoin futures contract by the end of 2017. This is a huge step in the right direction for the digital currency universe.

Most likely, it’s only a matter of time before Amazon unveils its plans to accept bitcoin as a method of payment. This will force all major retailers to accept bitcoin as a payment method.

Although I believe the price of bitcoin could move dramatically higher during the next decade, I highly doubt it will ever be used by the general public as a “mainstream” payment method like Visa, Mastercard or American Express. Consumers simply will not use bitcoin in their daily lives because the price is way too volatile. However, that doesn’t mean people won’t invest in bitcoin. But it does mean that bitcoin will probably never replace credit cards as the preferred method of payment.

By any practical measure, bitcoin is in the midst of a huge bubble on a short-term basis. I could easily envision bitcoin losing 50% of its value sometime in 2018. However, it will probably come roaring back (just like it has for the past seven years).

Bitcoin appears to be a good long-term investment. However, it would be wise to wait for a substantial retracement before entering this market.

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