forcast for 2016.pdf

8/15/2019 forcast for 2016.pdf

1/12

January 2016

Dear Reader,

Unprecedented quantitative easing (QE) and stimulus since late 2008 have created amonster: a stock market so distorted it’s now endured a bubble bull run for two years longerthan any one before it (the average is five years)!

Now, finally, it’s beginning to collapse under its own weight… weakened by ongoinggeopolitical turmoil and global economic concerns.

All my research is pointing to 2016 as the year the wheels come off this bus. Tis will be

the final bubble!

In fact, as I’m going to show you today, all of my indicators, key cycles and charts are telling me that 2016could be the worst year for stocks, from beginning to end, since 1931! So today I’m going to share all of thedetails with you. Ten I'll give you an update on my forecasts for bonds, the dollar, gold and oil. Finally, CharlesSizemore, our Boom & Bust model Portfolio Manager, in conjunction with Adam O’Dell, our Chief Investment Analyst, will make sure your investments are well-positioned tosurvive and prosper through 2016.

I’ll start with an important update I emailed you on November20. In it, I described a top pattern that no one else seems to betalking about. (I hope you keep an eye on your email for those

updates… it’s important you read them.) I shared a chart withyou so you could see what I was looking at. I’ve since updated it.

As you can see on top of page 2, our stimulus-addicted markethas been trying to do the same old thing it’s done for the lastseven years and rally to new highs under the assumption thatcentral banks won’t let the economy or the markets fail past acertain point. But its efforts have been fruitless of late. Stockshave gone nowhere since late 2014!

Inside This Issue:

The Totally Ignored No-Brainer ........... 2

The Largest Financial Detox Ever .......4

The Final Trigger ..................................6

Making Money in 2016 ......................10

Editors

Harry Dent, Rodney Johnson,Adam O'Dell and Charles Sizemore

This Is Going to Be Worse Than 1931!

Stocks, Bonds, The Dollar, Gold and Oil in 2016. . .And How We’re Going to Play It

— Harry Dent, Editor

www.dentresearch.com


2/12

2 Boom & Bust www.dentresearch.com

SOURCE: Yahoo! Finance

A Major Forecast UpdateThe S&P 500 Rounded Top Pattern

2,200

2,100

2,000

1,900

1,800

1,700

1,600

1,500

4/2014 10/2014 4/2015 10/2015

S

H S

Neck Line

1,595

2,117

1,880

2/2016


The Bubble Will Burst in 2016The Dow Megaphone Pattern

20,000

16,000

12,000

8,000

4,000

1995 2000 2005 2010 2015 2020

A

E

C

BD

5,500 - 6,000

The Totally Ignored No BrainerTe overarching pattern I’ve been monitoring

for years now is the Dow Megaphone. It is possiblythe most obvious pattern I’ve ever seen, but hardlyanyone is talking about.

You’ll see, in the Dow pattern today, it looks like we’ve finally peaked. Te index made a slight “throw-over” above the top trend line (which you can see inthe next chart) in October 2015. Tis is typical forthe last “E” wave in the Elliott Wave Cycle.

Tere was a similar pattern for the S&P 500 whenthe Bob Hope generation was enjoying its peakspending phase (the tops were in 1965, 1968 and1972). Each rally took the markets to new highs andeach crash saw lower lows until the pattern ended with the nasty 1973/74 crash — the worst since 1929

to 1932.

Tis means the next crash should go to lower lows, which by my calculations takes us to between 5,500and 6,000 around late 2016/early 2017. See foryourself…

Tat’s why I say 2016 could be the worst year thestock market has seen since 1931, when investorsendured the strongest crash of the great depression!Te three years it took the market collapse to play outback then saw an overall decline of 89%. 55% of thatloss was endured during 1931.

While I expect the crash of 2015/16 to happenfaster and harder thanks to central bank interference, we’ll see 50% to 60% in losses in just this year. Tat’s

In this pattern, the actual top was on May 18,2015 at 2,134. Since then, each attempt to rally hasfallen short by more each time. Te last attempt cameclose, reaching 2,117, but it could go no higher (I’vemagnified this portion of the chart for you).

I don’t think we’ll see markets breach that 2,117 levelagain, although we could get close (you’ll understand why I say this in a minute). Tis rounding top leads meto expect two scenarios ahead, neither pretty.

Scenario #1: I think this one is most likely. Tenumbers show we could see the markets rally back tothat declining trend line, just below 2,100. Tere, it will fail. A break below 1,980 (before or after that) would suggest a serious decline. A break below the“neckline” (marked in the chart above at 1,880) would suggest a drop all the way down to 1,595. Ifthat happens, it’s curtains for this bull market andbubble. Such a move would make it clear that thisbubble is over.

Scenario #2: We could see stocks break above the2,117 resistance level and then make a slight new highinto mid- to-late-January. But after that, it’s sharplydownhill, as you can see by my forecast line in thatrounded top chart above.

Either way, there’s a major crash coming in 2016.It’s going to be harder and faster than the crash weexperienced in 2008… and it could surpass 1931 interms of losses.

Of course, if you know me, you know that I don’trely on just one pattern (or cycle) to make my forecasts.I look for convergences between key cycles. Here’sanother that tells me we’re in for a painful 2016.


3/12

Boom & Bust 3www.dentresearch.com

why Adam, Charles and I, with input from the restof the Dent Research team, are collaborating to findareas of profitability for you. After all, it’s in years likethis that we find the biggest and best opportunities.Charles will share the latest opportunity with youlater in the issue. But first, let me tell you about some

other things going on right now.

Finally, Divergences AboundBesides the two converging patterns I’ve just shown

you, there are several contributing factors to theinevitable crash we’ll see this year.

Demographics Make the Final Turn: Te babyboomer’s spending cycle has been more buoyantthanks to the extreme income inequality that hasgiven the top 10% a little more than 50% of thespending power. Te great majority of the generation

saw their spending peak when they turned 46 inpeak numbers in 2007. Te wealthier baby boomers,however, enjoyed a much longer period of spending,and have finally peaked now at age 54. Tat meansthe end of the affluent boom.

Q3 2015 saw S&P 500 sales and profits both declinetogether for the first time since mid-2009. Te fourthquarter is likely to extend that down trend. In the nextfew weeks, we’re going to take a deeper look at this in aspecial presentation entitled “Earnings Exposed” with John Del Vecchio, Editor of Forensic Investor . Retailsales in general have been declining steadily, but now, with the affluent turning that spending corner, thehigh-end sectors are increasingly suffering. Just look at what happened to iffany’s and Nordstrom’s stocks lastyear. Both lost more than 30% from their peak, largelythanks to disappointing sales and earnings. And earlyreadings on Black Friday and early Christmas buyingpoint to lower-than-forecast numbers.

Tis trend will only get worse going forward as theentire baby boomer generation spends less and savesmore (especially the affluent).

Smart Money’s Running for the Exits: Next isthe classic indicator that warns of trouble ahead.Tat’s the divergence between large-cap and smaller-cap stocks. In the final rally, smart money exits whiledumb money piles in. I’ve been waiting to see thisdivergence for more than a year now. Finally, it’shappening.

Look at the next chart. It shows you how unlikely

SOURCES: Bloomberg

A Major Divergence

—— NYSE Advance-Decline, left —— S&P 500, right

90,000

86,000

82,000

78,000

74,000

2,150

2,100

2,050

2,000

1,950

1,900

1,8509/2014 12/2014 3/2015 6/2015 9/2015 12/2015

it is that the advance/decline line, which is the ratioof buys to sells, will make a new high if the S&P 500does. ypically, these two lines track each other…

Indices Flash Confirmations: Back in May 2015,the Dow ransports and Utilities Indices didn’tconfirm the top in the Industrial Average. Back then,the percentage of stocks down more than 20% wasonly around 20%. Tis has finally changed and mostindices are now flashing confirmations. Now thepercentage of stocks down more than 20% is higherthan 50%! More than 80% of stocks are below their200-day moving average! Te volatility index (VIX)didn’t make a new low at the top in May, failing toconfirm the new high.

In fact, we now have larger and clearer divergencesthan we did for the October 2007 bubble top!

And finally, I look at the major markets around the world…

Rolling Tops Around the Globe: Tere have been aseries of tops in one international market after another. After the Dow ransports peaked in November 2014,and the Dow Utilities in January 2015, the GermanDAX and the UK FSE peaked in April. Te Dowand S&P 500 hit their peaks in May, followed swiftlyby the Shanghai Composite in June, and finally theNasdaq and Russell 2000 in July.

Terrorism Continues to Darken the World: Tenthere’s my 35-year Geopolitical Cycle to remember. Itremains in the downward trend, which means wars,terrorism and other highly disruptive events willcontinue to plague the world for years to come (thiscycle is only due to turn around in early 2020). Each


4/12


and every one of these events will weigh increasinglyheavily on stock and financial markets across theglobe. Some may even trigger the inevitable, globalfinancial detox that’s been long in the making…

The Largest Financial

Detox EverI’ve been warning that out of the nearly $250

trillion in global financial assets — stocks, loans andbonds — at least $100 trillion will disappear in thegreat global financial detox ahead. Yet, as outrageousas that sounds, I’m probably underestimating on thatfigure.

Look at the next chart. It shows how much stock wealth alone could evaporate in the next crash or two.

SOURCE: World Federation of Exchanges

This One's Going to HurtTrillions of Wealth Will be Wiped Out

$80

$70

$60

$50

$40

$30

$20

$10

$0

1991 1997 2003 2009 2015

Trillions

2017

$32.3

$58.5

$70.8

$18.4

-$13.9

$27-$31.5

$27-$43.8

$18-$52.8

Recession — Global Stock Market Capitalization


T-Bond Channel Suggests a Spikein Rates Before They Crash

12

10

8

6

4

2

0

1989 1999 2009 2019

3.2-3.3%

10-Year U.S. Treasury Bond Yields

Stocks topped out at around $71 trillion just beforethe China crash last June. I don’t see them exceedingthat level. In fact, as you can see by my forecast lineon the chart, I expect stocks to fall back to the early2009 lows, destroying $43.8 trillion in wealth in theprocess. It won’t end there though. I expect to see atotal of $52.8 trillion wiped out before this detox isover between 2020 and 2022.

Central Banks will be slow to respond to this crisis. And when they do, they won't have the strength (orcredibility) to come up with the amount of stimulusneeded to right the ship this time around. And this detox is why: they can’t create the $100 trillion to$125 trillion we’ll need to offset this evaporation in wealth (I only discussed the loss we’ll see in stock

wealth here, but there are also loans and junk bondsthat face a routing). Tere’s just no way.

So that’s my forecast for 2016 (and I haven’t evendiscussed China and how it’s going to be the centerof it all). Not a pretty picture, by any means. But,like I said, we’ve got a plan to protect you through

the worst of it all, and to help you profit from thoseopportunities that arise in such an environment.Before I hand it over to Charles to give you thedetails, let’s look at my forecasts for bonds, the U.S.dollar, gold and oil…

Bonds Up and Down All bonds have been in a bubble thanks to QE,

which pushed the risk-free, 10-year reasury ratedown to zero adjusted for inflation. Tat’s abouttwo percentage points lower than the market would

have set them. Said another way: 10-year reasurysare slightly more than 2% when they should be a bitmore than 4%. Well, that free lunch is about to end.ake a look at this 10-Year reasury Bond Channel…

As you can see, yields have been declining steadilysince 1989, largely because of the falling inflationtrends (which I’ve been warning about for years now). When such yields get near the bottom of this channel,they tend to rise. And when they get to the top, theytend to fall. It’s been a pretty consistent pattern.

Rates hit the bottom of this channel, at 2%, atthe end of 2008. Back then, we issued an urgent sellsignal because rising yields mean falling bond prices.Good thing we did!


5/12


Ten we saw another decline into late 2012, whichfinally bottomed at 1.38%. Since then, they’ve beenrising off and on.

Te -Bond Channel Chart suggests that thecurrent rise will match what we saw after the 2013aper antrum, when rates moved off of 1.38% to

reach 2.98%. So I think it’s likely that we’ll see rateshit the top of this channel in the next several months,touching around 3.2% to 3.3%. Tis move will createthe fixed-income rade of the Decade I told youabout in November.

Watch out for this in the early stages of the nextcrisis, around April. If rates don’t start heading up bythen, it’s not going to happen. As soon as the timecomes, we’ll issue an alert with precise details of whatto buy, at what price. Tat’s why it’s so important thatyou read the emails we send you!

Te only major investment sector that did wellconsistently throughout the worst decade in U.S.history — the 1930s — were long-term reasurysand AAA corporate bonds. reasurys almostdoubled, including interest, and AAA corporates alittle more than doubled. All other bonds implodedbecause of the sharply rising yields thanks toskyrocketing default risks. Te same will happen thistime around.

Any bonds riskier than reasury or AAA will seeincreasing declines in values relative to their risk level.

Tat will create a great buying opportunity as earlyas 2017, but for now this is a market you want tosteer clear of. I don’t recommend buying most foreignsovereign or high-quality corporate bonds eitherbecause the currency risk is bound to work againstyou. And that brings me to my 2016 forecast for theU.S. dollar…

A Stronger U.S. DollarI see the dollar rising strongly at least into early

2017. Although we might see a period of some weakness when that rade of the Decade becomesa buy. Tat, however, will be short-lived. Tatopportunity has a very limited window (again, watchyour email for an alert on this).

Te next chart shows my forecasts for the dollarindex compared to a basket of our six major tradingpartners.

I’ve marked the current trading range we’ve been

SOURCE: Bloomberg

The U.S. Dollar — Best House ina Bad Neighborhood

120

110

100

90

80

70

2008 2010 2012 2014 2016

U.S. Dollar Index

stuck in for a while. As you can see, I expect we’ll

break through this channel and move strongly upwardthroughout 2016.

As I have written about exhaustively, when debtsand financial assets around the world deleverage, thedollar strengthens because the greenback is simply thedominant currency. After all, it is the reserve currency,a reality that won’t change anytime soon, despite what

the dollar haters and gold bugs believe. With moredollars destroyed, and so fewer doing the rounds,their value goes up. Rodney talked about this at great

length in your December Boom & Bust , so I won’t gointo too much detail here. Suffice it to say, the dollarhas not even tested the lows set in early 2008, whilegold has melted down consistently.

Currently, the greenback is up 41% from the 2008low. I see nothing to indicate this will change in any

way. In fact, the great financial detox heading our way will only see the dollar strengthen, a fact we continueto play in our Boom & Bust model portfolio (Charleshas details for you below).

$700 GoldI’ve been forecasting since 2011 that gold would

continue to melt down. It’s been one of my forecasts

that has possibly gotten the most attention andbacklash, particularly from the gold bugs. One analyston Seeking Alpha is constantly berating me and arguingagainst my call that gold will melt down to $700 anounce… and maybe even go lower, reaching as low


6/12


as $250 before the end of this commodity cycle. Hiscomments are pretty insulting, but that’s okay, becauseso far gold has done exactly what I’ve said it would.

And, as it stands, I’m on my way to winning mybets with Porter Stansberry (for $1) and Jeff Clark (foran ounce of gold). I’m not going to go into too much

detail here because at the end of 2015 I released mylatest book, How to Survive (and Trive) the Great GoldBust Ahead . As a Boom & Bust subscriber, I’ve given thisbook to you for free. If you didn’t download your copy when I emailed it to you, go to your account on www.dentresearch.com. You’ll find it in the Reports sectionunder your Boom & Bust subscription.

What I will say is look at this chart...

SOURCE: Bloomberg

Gold Will Likely See. . .

$2,200

$1,700

$1,200

$700

$200

2001 2006 2011 2016

In our newsletter we gave a major sell signalfor gold and silver on April 25, 2011

$700

$250-$400

8x Gain

2020

SOURCE: Bloomberg

Weak Demand and OversupplyCrude Oil Will Be Down for Years

$160

$120

$80

$40

$0

1998 2002 2006 2010 2014 2018 2022

$32-34

$10-20

Gold plunged out of a long trading channel inearly 2013, falling to $1,180 an ounce from a high of$1,934. (As a side note, we issued a major sell signalin April 2011, right on the day of the top in silverat $48. We’ve received many notes of thanks fromsubscribers for that call!) Since September 2011, goldhas seen a long decline that hit $1,050 right at theend of last year.

But like I always say: “Tings never go down in a

straight line,” so I expect we’ll see gold bounce a littlefrom here. It really is extremely oversold. Expect goldto possibly reach $1,300 an ounce by April or so, andlikely at least $1,150. After that, look out below!

I believe we’ll see another sharp fall in gold — I’mtalking down to around $700 — by early 2017 or so.Tat’s a crash of almost 40% from this point (for atotal loss of 64% since the all-time high in September2011).

As we witness the global financial detox I describedearlier, deflation will rear its ugly head again and gold will fall further still. Tat’s why I don’t expect to seegold bottom until it hits between $250 and $400 anounce.

Oil: The Final TriggerI’ve been saying for years that oil would see amajor collapse. It’s interesting that most ignoredthis warning while haranguing me about my goldprediction. Perhaps “oil ducks” aren’t as common orvociferous as gold bugs.

While I haven’t heard much backlash on my oilforecast, I have heard many analysts and reporterssay that lower oil prices would be a good thing forthe U.S. economy. Tat may be true if the low prices were temporary… and still high enough to keep oil

companies in business. What has made low oil prices bad for us is the

fracking industry and their junk bonds. Te formerhas used the latter to finance their operations for yearsnow at artificially low rates. But frackers aren’t lowcost oil producers like Saudi Arabia, Iraq or even Iran.

Now, with oil prices so low, frackers are dying.Tey’ll default on their debts and when this $1 trillionindustry goes belly up, it will rock this country toits very core. As the junk bond market continues to

collapse (it was already down 17% at time of writing),the situation will only become more ominous for thestock markets and the U.S. economy!

I now believe that oil is one of the major triggers

http://www.dentresearch.com/http://www.dentresearch.com/http://www.dentresearch.com/http://www.dentresearch.com/http://www.dentresearch.com/http://www.dentresearch.com/


7/12


for the next global financial crisis, just like subprimemortgages were in 2008.

As you can see in the Oil Chart, I expect it tobounce significantly sometime this year, but it willeventually slump back down… and its downhillmomentum could carry it to as low as $10 a barrel.

I don’t think we’ll see that low this year though, but$20 is a possibility by early 2017. My deadline foroil’s bottom is between early 2020 and early 2023.

In short, expect to see oil lose another 71% from its$34 level (at time of writing) by the end of this decade.

And there you have it. Oil down more. Gold downmore. Junk bonds down more. Stocks way down.Really, the only bright point for the year will be thedollar.

Read on to see how we’re positioning our modelportfolio for the year, and for details on the first

opportunity we’ve found for you to profit while themarkets, economy and world fall out of bed in 2016.

Good luck!

— Harry

Portfolio Update And the First Play of 2016By Charles Sizemore, Portfolio Manager and Editor of Dent 401k Advisor

W E’RE starting 2016 with practically no netexposure to the stock market. After what Harry’s just told you,I think you understand andappreciate why. While we expectsome great trading opportunitiesthis year, we’ll face a ton of near-

term headwinds.Te Fed’s rate hike on December 16, while

modest, is still being implemented, and this ishappening at a time when the junk bond market(and really the entire credit market outside ofreasurys) is getting roiled. We’re actually benefittingfrom that trend, by the way, and I’ll touch on thatshortly.

Add to this the unrelenting pressure on crudeoil prices (which is feeding back into the wobbly junk bond market, as Harry predicted it would inthe September 2015 issue and as he talked aboutearlier), and you have a recipe for a choppy market.

As Harry wrote above, 2016 may be the worstyear in the stock market since the 1930s. Tat’spretty bad news. But the good news is: we’re in agood position to profit from it.

Adam made the call back in September to sellvirtually all of our long positions with any directtie to the stock market. We kept our pair trades,our short positions, and our non-stock plays incurrencies and bonds, but we went into the last

quarter of 2015 with no exposure to stocks. Withstock prices starting to roll over again, it remainssensible to stay market neutral.

Don’t worry. We will buy stocks again. We won’tstay out of the market forever.

But for now, we’re playing it safe and going for thelow-hanging fruit outside of the market, and we’refinding those big opportunities that only this kind ofmarket offers. Before I give you the details on yourfirst play of 2016, let’s take a look at our portfolio and

review why we’re invested the way we are.

The Quirky Corner of Wall StreetI’ll start with our newest addition from last month,

the Nuveen Floating Rate Income Fund (NYSE:

JFR). It’s a fund that invests in a diversified mix ofbonds and bank loans.

When Adam and I recommended JFR, it wastrading at $9.95. Even after collecting a month’s worth of dividends we’re down by a couplepercentages. Tat’s ok! All of the reasons for buyingthis fund are still very much in place, and we see this

being a solid performer for us this year. JFR is a closed-end bond fund, which is a quirky

corner of Wall Street. With regular, open-endedmutual funds, you invest by sending the managermoney (or your broker does). Te manager takes thatmoney and uses it to buy more stocks and bonds. When you want your money back, the manager


8/12


sells off a small piece of the portfolio and sends theproceeds your way.

Well, that’s not how closed-end funds work, andthat’s what makes them interesting.

Closed-end funds actually have initial publicofferings (IPOs) like a stock and then trade like a

stock on the New York Stock Exchange. So, withthe ebb and flow of markets, it’s possible for closed-end funds to trade at prices that are either above orbelow the value of their underlying portfolio.

Tat’s where we are today. JFR trades at a deepdiscount — at about 10% — to its Net Asset Value(NAV).

Now, the value of its portfolio itself has beensagging since about April. Tat’s because the entirecredit market (outside of reasurys) is looking wobbly. But that’s where it becomes extremely

beneficial to be set up as a closed-end fund. Aclosed-end fund can ride out any market volatilitybecause it can’t be forced to sell holdings to meetredemptions in a short-term panic.

With JFR. We can sit back, collect the 7.4%dividend, and wait for any storm to blow over. Oh,and it’s also worth mentioning that JFR has no realexposure to energy. So if the wave of defaults in theenergy sector that Harry expects happen this year, JFR won’t see portfolio losses.

It is also largely free of “Fed risk” because its

portfolio is made up of mostly floating-rate debt.None of us at Dent Research expect Fed Chair Janet Yellen to raise rates much higher than the 0.25%she raised in December. But if she does, we’re stillprotected in our JFR play because the payout ofmost of its portfolio will move up too.

Action to Take: Buy the Nuveen Floating RateIncome Fund (NYSE: JFR).

Te Guggenheim Build America Bonds Fund(NYSE: GBAB), like the Nuveen Floating RateIncome Fund (JFR), is a closed-end bond fund. Butits portfolio is even safer than that of JFR. GBABholds a portfolio of taxable municipal bonds and is well diversified across states, cities and even schooldistricts.

While its stock price has barely budged, we’ve stillmanaged to eke out a respectable return of 5% dueto the monthly dividend.

Unlike JFR, GBAB is a hold for now because the

discount to its Net Asset Value (NAV) has shrunk to just 4%, which is exactly what we want to see. When Adam and I first recommended it, it was close to10%. So, the value pricing just isn’t there at today’sprices to buy any more of this fund, but that doesn’tmean we need to sell today either.

Te Guggenheim Build America Bond Fundstill pays a very attractive 7.6% in dividends everymonth. So for now, we’re going to sit back, collectthe dividends, and bide our time. I expect that we’llsell this for a healthy profit within the next fewmonths.

Action to Take: Hold the Guggenheim Build America Bond Fund (NYSE: GBAB).

Since we’re talking about bonds, let’s jumpinto our short of the junk bond market via theSPDR Barclays Capital High Yield Bond ETF

(NYSEARCA: JNK).

Perfectly Positioned for theJunk Bond Meltdown

We first recommended shorting junk bonds in2011, when we saw cracks in the financial system.But years of aggressive monetary stimulus fromthe Fed helped to keep the high-yield market fromcompletely unraveling.

Well, by late August 2015, with the energy

sector looking brittle (as Harry said earlier,disproportionately large shares of junk bonds areissued by “fracker” oil and gas exploration andproduction companies, most of whom are effectivelybankrupt with crude oil at current prices) and theFed getting closer to finally taking the punch bowlaway, we decided the time was right to double downon this position.

We recommended shorting JNK again in theSeptember 2015 issue, and this time our timing wasperfect. We’re up 7% on that second entry in justfour months. Like Harry, we expect more pain tocome in this sector, so we’re in for some great returnson this play.

At current prices, our JNK short is now a hold. We had recommended shorting down to $35 pershare, and we’re now well below those levels. So, ifyou don’t already have a short position in JNK, holdoff for now. But if you are currently short, don’t


9/12


cover just yet. We think prices still have a good bitfurther to slide.

Action to Take: Stay Short the SPDR BarclaysCapital High Yield Bond ETF (NYSEArca: JNK).

Still Long the Dollar…

and Short the Yen We may be mostly out of the stock market, but

that doesn’t mean we’re not actively speculating. We’ve had fantastic success in both the PowerSharesDB USD Dollar Index Bullish ETF (NYSEArca:UUP) and the ProShares UltraShort Yen ETF(NYSEArca: YCS), which were up 19% and 113%,respectively, at time of writing.

Te entire Dent Research team has been majordollar bulls for a long time now, and as Harry

explained earlier, we remain so. Te greenback isthe world’s ultimate crisis hedge. Yes, you read thatright. Te dollar is the world’s ultimate crisis hedge. Gold gets more credit in popular lore as the crisishedge, but the reality is: when the you-know-whatreally hits the fan, it’s the dollar that has consistentlybeen the safe haven for investors running for cover.Tat was the case in 2008, and we expect that it willprove to be the case in the next crisis as well.

With interest rates across the yield curve nowhigher in the U.S. than in the rest of the developed

world, the institutional “carry trade” of shortinglow yielding currencies, like the euro and yen, andbuying higher yielding currencies, like the dollar,should also have a lot longer to run.

But like Harry said, no trend ever moves in astraight line, and our bullish views on the dollar haveslowly become mainstream. Te dollar rallied hardinto December in anticipation of the Fed’s rate hike.But now that the hike is out of the way, we think it’slikely that the dollar will trade sideways for a whileor maybe even have a mild correction. Harry doveinto this possibility in the November 2015 issue, andit’s even more likely now, post Fed meeting.

So, let’s avoid chasing UUP and YCS higher. YCSis currently a “hold,” and UUP is flirting with our“buy-up-to” price of $26. Stay disciplined here anddon’t pay a penny more than that.

Action to Take: Hold ProShares UltraShort YenETF (NYSEArca: YCS).

Action to Take: Buy PowerShares DB USDDollar Index Bullish ETF (NYSEArca: UUP) upto $26 (and not a penny more!).

Stay Short Big BlueLast month, Adam and I recommended covering

half of the short position in tech dinosaur IBM(NYSE: IBM). While we were still bearish on thestock, we figured it might get a reprieve after thebeating it had taken in the market. It turns out we were too conservative. IBM has continued to sageven lower!

Te IBM short was actually a recommendationfrom John (whom I mentioned earlier). At a time when Wall Street was still championing IBM as abullet-proof blue chip, John recognized IBM for what it was: a decrepit relic of the pre-cloud past

with deteriorating revenue quality and a share pricethat has been supported by nothing more than sharebuybacks.

After the beating IBM stock has taken, shares areactually starting to look mildly cheap. Te stocktrades for just nine times earnings and yields nearly4%. But cheap or not, neither Adam, John or I seeIBM doing well… especially not when the broadermarket rolls over as Harry expects it will. So for now,hold on to the remaining half of your IBM short. We expect to increase our profits on this over thenext few months.

Tat said, there’s no need to be greedy. Let’s lowerour stop loss on this play a little further. Last month, we lowered it from $200 to $153. Tis month, I’mgoing to lower it further, to $142.

Tis way, if the shares continue to drift lower, we’re along for the ride. But if IBM finally showssome improvement, we’re not going to put our hard- won gains at risk.

Action to Take: Lower your stop-loss level on

your short-IBM (NYSE: IBM) play to $142.

Winning the Bet on the Lesserof Two Evils

We have two “all about America” pair trades inplace in which we’re shorting Chinese stocks via theiShares China Large Cap ETF (NYSEArca: FXI) and shorting emerging market stocks via the iShares


10/12


recent gains and essentially guarantees us a decentprofit in this trade.

Action to Take: Short Southern Copper (NYSE:SCCO) and lower your stop-loss price to $28.

I’m also going to recommend something similarfor our Canada short…

Canadian stocks stubbornly refused to fall foryears. We first recommended shorting them in early2012 and then added a second entry a little overthree years later… at nearly the same price.

Well, starting in April last year, this trade finallybegan to really go our way. Since then, EWC has lostabout a third of its value.

Here’s the interesting part. Te country’s housingbubble has yet to burst. In fact, prices in most citiesare still rising, despite the fact that Canada has themost expensive houses in the world when compared

to local rents.o us, this means that the greater declines are

probably still to come. Foreign buyers can’t prop upCanadian home prices forever. At some point — andprobably soon — they will correct, and when theydo, our neighbor to the North is going to have mostof the same issues we did in 2008. Its citizens willsee a massive evaporation of paper wealth, and thebanks will find themselves with a boatload of under- water mortgages.

Still, a lot can happen between now and then, and

Canada’s market has stubbornly refused to acceptreality for years now. So to protect our recent gains,I’m going to lower our stop loss on EWC to $26.Tat gives this position plenty of room to run whilealso guaranteeing we earn at least a modest profit.

Action to Take: Lower your stop loss on youriShares MSCI Canada Index Fund (NYSEArca:EWC) short to $26.

And now, our first play for 2016…

Making Money When theSuper Rich Suddenly Disappear

in 2016…Everyone here at Dent Research is pretty bearish

on China right now. While the construction andcredit bubble would be scary enough on theirown, you also have to take China’s horrendousdemographic picture into account. Despite being

Emerging Markets ETF (NYSEArca: EEM) againstthe SPDR S&P 500 ETF (NYSEArca: SPY).

Given that we sold all of our long stock positionsback in September last year, it might seem a littlestrange that we’re going long the S&P 500 here. Just remember, this is a pair trade. We’re not betting

that U.S. stocks will rise. We’re simply betting thatChinese and emerging market stocks will fare a lot worse.

Tis trade really started going our way over thesummer, and at the end of December handed ussome additional gains. We’re currently up 20% onthe emerging market pair trade and 19% on theChinese pair trade.

Action to Take: Hold on our “All About America” pair trades going short China andEmerging Markets via our iShares China Large

Cap ETF (NYSEArca: FXI) and iShares EmergingMarkets ETF (NYSEArca: EEM) and going longagainst the SPDR S&P 500 ETF (NYSEArca:SPY).

Commodity Shorts And finally, there are our commodity shorts via

Southern Copper (NYSE: SCCO) and the iSharesMSCI Canada Index Fund (NYSEArca: EWC).

We first shorted Southern Copper in May 2013,and added a second entry to the short in the January2015 issue (the official entry date is December 2014, when we sent the issue to the printer).

It turns out we were a little early on the trade.Southern Copper spent the first half of last yeardrifting higher before finally rolling over in June, when the Chinese market really cracked. Since then,it’s been straight down. Southern Copper is nowdown about 20% from its summer highs.

China dominates the copper market. It makesup for roughly 40% of all copper consumption. Soas goes China, so goes the price of copper. And asChina looks to be skidding closer to a bona fide hardlanding, we don’t see anything on the horizon that will stop Southern Copper’s slide either.

We’re still above our “short down to” price in thisstock, so if you haven’t shorted it, you’re not too late.But given the tumble this stock has taken, it’s onlyprudent to lock in some of our gains. So, lower yourstop-loss price to $28. Tis locks in some of our


11/12


an emerging market economy, the average Chinesecitizen is actually every bit as old as the average American… and getting older.

When you have strong demographic tailwinds —as China has enjoyed for most of the past 30 years— your economy can take a financial crisis in stride.

Te migration of hundreds of millions of Chinese workers from the countryside to the cities was thegreatest urbanization story in history, and it createdthe greatest construction boom in history. After all,those new migrants needed a place to live.

Unfortunately, that is just not the case in Chinatoday. Te country is now mostly urbanized, andthere’s no great wave of new migrants from thecountryside to the cities. Tey’re already there. Tismeans that the entire domestic Chinese economy— which centered around building housing and

infrastructure for these new migrants — is nowextremely fragile.

Harry, Rodney and Adam have all written aboutthis in the pages of Boom & Bust over the years, butone of the best write-ups to date was Harry’s articlein the November 2013 issue. He made the case that,rather than accelerate as everyone seems to think it will, Chinese migration to the cities will actually gointo reverse.

As the economy slows and jobs get harder to comeby, the 221 million “unregistered” urban Chinese

(essentially illegal migrants in their own country)may opt to simply go back home to their farms andvillages. Roughly one in five Chinese urban homesis already vacant due to overbuilding. Just imagine what would happen to vacancy rates — and toalready weak property prices — were that to happen!

Te top 10% of wealthy Chinese nationals control85% of the country’s real estate and dominate 50%of consumer spending. A true real estate crash would hit these guys particularly hard. And it wouldabsolutely crush any business that depends on theChinese superrich for patronage.

wo years ago, Adam found a good way toposition the portfolio for this eventuality. Herecommended buying long-dated put options onSotheby’s (NYSE: BID), the high-end auctionhouse.

Chinese millionaires and billionaire havedominated the fine art market for years — just

as wealthy Japanese collectors dominated the artmarket in the 1980s. ake China’s rich off theauction floor and suddenly you don’t have much of amarket. And given that the art auction houses makemoney based on the volume and price auctioned,Sotheby’s faces a horrible 2016!

Let’s look at the history here.

Devastation, Time andTime Again…

When Japan’s bubble economy burst in the early1990s (something that Harry’s demographic modelsforesaw years in advance, by the way), the art marketcratered, taking down Sotheby’s with it. Sotheby’slost 76% of its value.

Tings got even worse during the tech bust of the

2000s. When dot-com went dot-bomb, Sotheby’slost 86% of its value.

And then when the 2008 banking sector meltdownhit, Sotheby’s lost a good 88% of its value.

See a pattern here? Whenever a spectacular financial bubble burst

— and the paper wealth supporting the art marketevaporates — Sotheby’s gets devastated.

Based on Harry’s forecast for the greatest globalfinancial detox ever… the worst year for the stockmarkets since 1931… the continued meltdown

of gold and oil… and the collapse of Chinese realestate (and the country in general), we’ve got theopportunity of a lifetime here for an extremelyprofitable, short-Sotheby’s play.

Adam and I are eyeing January 2017 $30 puts onSotheby’s. If this goes the way we think it will, then we could make several hundred percent in returnsin very short order. But, at time of writing thepricing just isn’t quite right. So rather than make therecommendation right now, we’re going to keep aneye on the Sotheby’s puts to see if we can get a betterentry price.

For now, sit tight. Tere are no new trades tomake. But watch your inbox in the coming weeks foran alert from us that pulls the trigger on this play.

Action to Take: Watch your inbox for the buysignal on Sotheby’s (NYSE: BID) puts.

Tis is going to be an interesting — and no doubtvery lucrative — year for us. Stay tuned.


12/12


Entry Buy Current Stop Total Total Investment Ticker Added Price Price Loss Dividends Returns Call

BOOM PORTFOLIO

Nuveen Floating Rate Income Fund JFR/NYSE 11/26/15 $9.95 9.78 $9.00 $0.06 -2.35% Buy at Market

Long SPY/ Short EEM SPY/NYSEArca 9/15/14 $198.80 $200.02

20.66% Hold EEM/NYSEArca 9/15/14 $43.57 $32.65

Long SPY/ Short FXI SPY/NYSEArca 9/15/14 $198.80 $200.02

19.05% Hold FXI/NYSEArca 9/15/14 $40.37 $36.18

PowerShares DB USD Index Bullish ETF UUP/NYSEArca 10/25/11 $21.51 $25.63 $24 — 19.15% Buy up to $26

Guggenheim Build America Bonds GBAB/NYSE 7/29/15 $21.37 $21.74 $0.69 4.97% Hold

International Business Machines Corp. (Short) IBM/NYSE 5/26/15 $170.13 $134.90 $142 $2.60 19.18% Hold

Southern Copper Corp (Short) SCCO/NYSE 5/1/13 $33.01 $24.45 $28 $1.24 22.18% Sell Short down to $22

Southern Copper Corp (Short, 2nd Entry) SCCO/NYSE 12/23/14 $27.74 $24.45 $28 $0.34 10.63% Sell Short down to $22

ProShares UltraShort Yen YCS/NYSEArca 7/27/12 $41.96 $89.40 $82 _ 113.06% Hold

iShares MSCI Canada Index Fund (Short) EWC/NYSEArca 2/28/12 $29.10 $21.63 $26 $2.41 17.40% Hold

iShares MSCI Canada Index Fund EWC/NYSEArca 3/31/15 $27.18 $21.63 $26 $0.50 18.57% Hold(Short, 2nd Entry)

SPDR Barclays Capital High Yield Bond ETF JNK/NYSEArca 7/28/11 $40.25 $33.59 $48 $11.27 -11.45% Hold(Short)

SPDR Barclays Capital High Yield Bond ETF JNK/NYSEArca 8/28/15 $37.01 $33.59 $48 $0.74 7.24% Hold(Short, 2nd Entry)

Senior Editor ...........................................................Harry S. DentSenior Editor ...........................................................Rodney JohnsonPortfolio Manager ................................................Adam O’Dell

Publisher ..................................................................Shannon SandsManaging Editor ...................................................Teresa van den Barselaar

NOTES: The Boom & Bust Portfolio is an equally-weighted strategy and does not include dealing charges to purchase or sell securities, if any. Taxes are not in cluded in total returncalculations. “Total return” includes gains from price appreciation, dividend payments, interest payments, and stock splits. Securities listed on non-U.S. exchanges; total returnalso includes any change in the value of the underlying currency versus the U.S. dollar. For transparency sake, we want you to know that we have an advertising relationshipwith EverBank. As such, we may receive fees if you choose to invest in their products. Stop-losses: The Boom & Bust Portfolio maintains stop-losses on every stock, ETF and bondrecommendation; stop-losses are not exercised for mutual funds unless otherwise noted. Sources for price data: Yahoo! Finance (finance.yahoo.com), Financial Times PortfolioService (www.ft.com), TradeNet (www.trade-net.ch/EN), and websites maintained by securities iss uers.

Boom & Bust is published 12 times per year for US$99/year by Delray Publishing, 55 NE 5th Ave., Suite 200, Delray Beach, FL 33483 USA. For information about your membership,contact Member Services at 888-211-2215 or fax 561-272-5427. Contact us at www.dentresearch.com/contact-us. All Rights Reserved. Protected by copyright laws of the UnitedStates and international treaties. This Newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic orotherwise, including on the worldwide web), in whole or in part, is strictly prohibited without the express written permission of Delray Publishing.

LEGAL NOTICE: This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and youshouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legalor investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional shouldbe sought. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours afteron-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation.

Boom & Bust Portfolio

BUST PORTFOLIO

forcast for 2016.pdf

Documents