For major indexes like the Dow Jones and S&P 500, for the remainder of 2016, your upside is likely not more than 5%, but your downside could be north of 25%.
Income investors, who are already starved for yield, will face an even tougher climate in the coming years. The current yield for companies in the S&P 500 is 2.1%, which is already less than half the index’s historic average, but still higher than the 10-year Treasury, at 1.8%. With the world moving to negative interest rates, liquidity will continue to dry up, which, by definition, is deflationary.
On a brief call yesterday with Marin Katusa, of Katusa Research, he pointed out that many investors are buying gold due to negative interest rates. And even a small move into gold from family offices ($50 mil+) could send gold soaring.
So it is true that negative interest rates are deflationary, but they are also extremely bullish for gold. Last year, 395 companies cut their dividends, the most since the financial crisis. This year, we have already seen 220 make cuts.
This is a clear sign that the unsustainable borrowing to pay dividends and purchase company stock has reached its end. Lastly, some of the best traders in the world, like Carl Icahn, Stanley Druckenmiller, and Ray Dalio have all recently given very dark warnings about world markets.
Public filings show all 3 men are putting their money where their mouths are. Stanley Druckenmiller has gone from no gold to 30% of his portfolio. Carl Icahn has taken a massive net short position, a position that is now 149% greater in value than his long positions.
Ray Dalio went as far as saying, “if you don’t own gold now, you know neither history nor economics.” We don’t know if a crash for the broader market is imminent, but we do believe the upside is very limited at these levels, so why take the risk.