2016 Outlook – Open Your Eyes

The U.S. economy and its financial markets are being summoned to open its eyes in 2016. After years of being frozen in a dream state thanks to extraordinary monetary policy measures, the U.S. Federal Reserve has made its move to try and normalize interest rates. As a result, markets are finally being allowed to enter into a long overdue cleansing process that will ultimately bring the U.S. economy and the financial system to a stronger and more sustainable place in the end over the next few years. Stocks have already been showing signs of increased reflex over the past 18 months, and 2016 promises to bring with it even greater risks and rising volatility as this cleansing process continues forward. Whether policy makers will resist the urge to intervene and maintain the courage in the coming year to allow this adjustment process to play itself out remains to be seen.

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A Bear Market Does Not A Crisis Make

It has been an understandable side effect resulting from the financial crisis. Bear markets have taken place on a regular basis throughout history. But given the near death experience of capital markets back in 2008, a sense of fear has gripped many investors in the years since. Now, the mere mention of a bear market has for many become synonymous with the idea of a full blown crisis and calls for the end of the world as far as financial markets are concerned. But a bear market does not a crisis make. And the sooner that investors can get back to embracing the bear, the better it will be for capital markets in the long run. For while bear markets just like recessions are not pleasant to endure, they bring not only a healthy balance, but also attractive growth opportunities.

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The Madness Of Mr. Market

Capital markets have been full of flummery over the last several years. This has included an enthusiastic chorus of analysts and experts that repeatedly shower investors with flattering tales of sustained economic growth and promises of a new era of prolonged prosperity in the wake of the financial crisis that erupted so many years ago now. But like Mr. Fox and many others investors that are more skeptical about the current state of the global economy and its capital markets, I am much more inclined toward a good balance sheet at the sovereign, corporate and household level. I am also inclined toward things that make rational sense. And after searching throughout history, I have yet to discover an example of a major society that defeated a financial crisis caused from too much debt by undertaking even more debt and debauching their currency. But such is the environment in which we are operating today. And it has resulted in some nonsensical disconnects that have the potential to resolve in a very painful way for some investors once reality finally returns.

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2015 Outlook: Pain

The U.S. stock market has provided a blissful time for investors over the last several years. It has been almost six years now since the turmoil of the financial crisis dissipated. And with each passing year, U.S. stock market volatility has become less and less as the financial crisis starts to become an increasingly distant memory. But that may all be about to change as we enter into 2015. In fact, the change may already be underway. After so many comfortable years, a new challenge has finally arrived for the U.S. stock market. Thus, my market prediction for 2015: Pain.

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Stocks: Clear Sailing Into 2015

The bull remains unstoppable. After enduring what was the first measurable decline in nearly two years in September and early October, stocks have recovered impressively to the upside. In the weeks since the mid-October bottom, stocks have successfully navigated some potentially choppy waters en route to setting fresh new all-time highs. And despite the already extraordinary rally to date, stocks may now be entering into a new phase of clear sailing through the rest of 2014 and into the start of the New Year.

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