2017: a Volatile Year from All Angles

Where to now… after what 2016 dished out?

By Harry Dent, Senior Editor, Economy & Markets:

First, there was the surprise upset of the presidential election of dear old Donald. Then came the surprise shift in sentiment about the election. Before, he was a wrecking ball. After, he’s suddenly Jesus walking on water. Never mind that he’s already pissed off China… twice! Or that many are worried about his overly cozy relationship with “Darth” Putin, as with his new Secretary of State, Rex Tillerson, who is also cozy with Putin.

And let’s not forget the markets that were already overvalued suddenly breaking up irrationally on promises that Trump can deliver sustainable growth rates of 3% to 4% again.

So, we’ll just grow our way out of this big fat bubble, shall we? Ha! That has never happened – not once in history – and there’s NO CHANCE this will be the first time… not given our aging populations, low productivity and unprecedented debt burdens!

But the markets will continue up after a near term slump until they start to realize that there is no easy way out of the bubble that Trump himself has declared.

Tax cuts won’t get companies to expand substantially any more than did free money that largely only led to stock buybacks and mergers and acquisitions – financial engineering – not real growth. Besides, infrastructure investments take forever to get drawn up, approved and shovel ready.

While the Trump rally seems to have legs, it’s not based on anything substantial or real, except perhaps some cuts in regulations. I think it’s not likely to make it into the summer of 2017. In fact, it’s just another sign of how much the stock market is in an irrational bubble!

The debt ceiling is on the cards to be raised this March. Do you think the Republicans will back just any tax cut or infrastructure bill without considering how fast that will get us from $20 to $22 trillion in debt – or by past trends and our estimates of $40 trillion by 2024? Yes, the federal debt has been doubling every 8 years.

That’s what I thought.

So, here’s my forecast for this very tricky, new year:

  1. The big divergence: I think stocks will continue to rise after a pullback near term, while bond yields and the dollar also rise to counter that trend… until it breaks. But I think Trump could have as much as a 6-month grace period before reality sets in about his ability to get things passed and to achieve 4% growth rates.
  2. Stocks rise: I see stocks going as high as 22,000 on the Dow and 2,500 on the S&P 500 by mid-July or so… maybe even a bit later. After that, I expect the Russell 2000 (small caps) will lead us into the trenches. A growing divergence between large and small caps will be an important sign of such a top. Small caps have grown the most irrationally since the Trump win after lagging and could disappoint increasingly in the continued rally from here.
  3. 10-Year Treasurys: 10-Year Treasurys could rise to near 3.0% before reversing down on falling inflation and slowing economic trends again. Once they’ve started to fall, they could go as low as 1.0%, or lower, and then stay near there for years, creating the fixed income opportunity of the decade for buying 30-year Treasurys and 20-year AAA corporate bonds. (I detailed this in the January issue of Boom & Bust, so be sure to read it!)
  4. The dollar strengthens: Look for the greenback to rise to 120, likely by late 2017, while the euro falls to 0.85-0.88. In fact, the euro’s very existence could be threatened by default scares in Italy and the failure of Deutsche Bank.
  5. Gold falls: This is the year we’ll see gold sink to $650-$750 per ounce, likely by late 2017 or shortly there after. I still see it dropping to as low as $400 (if not lower) before this down 30-year commodity cycle is over between early 2020 and early 2023.
  6. Oil rises a bit more and then crashes again: Oil will likely rise to as high as $60 at first, and then fall back to $26 or lower by late 2017. Ultimately, I expect we’ll see oil prices between $8 and $18 a barrel by early 2020.
  7. Trump trumped:  Lastly, I reckon Trump will quickly discover that it’s not so easy to get most of his agenda passed. Even his Republican party is split on some issues. In fact, I’d go so far as to say he may not last the year… for many reasons.

All of which makes for a volatile, highly charged year. The most likely scenario: another 10%+ rally into the summer, then a dramatic first crash of up to 40% into the fall. I’ve warned many times that the first bubble crash can be as much as 40–45% in the first 2.5–3 months in the most bubbly sectors.

We’re deep into this economic winter season. My hierarchy of cycles remain in negative territory for the next three years with aftershocks for another three to follow. The threat of civil war looms over the Divided States of America, especially in late 2017 forward. Another challenge for the economy and “the Donald.” Here’s our Investigative Report, “Shocking Predictions for 2017.” Download here for free.

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  57 comments for “2017: a Volatile Year from All Angles

  1. nick kelly says:

    Good read- I like a high diver.

    Re: Trump and China- this Navarro guy with his (apparently awful) movie ‘Death by China’ sounds like a nut.
    It’s amazing how many people think there are a bunch of US companies dying to break into Walmart’s cheap clothing, shoes, electronics, toys, kitchen crap etc.
    China does have competitors- they aren’t from the First World.
    They are South Korea in consumer electronics, and every poor country in apparel.
    Does the US have a trade deficit with China?
    Ya- and a rich professional has a trade deficit with his gardener, maid, driver, etc.
    It doesn’t make economic sense for him to ‘save’ money by doing this stuff himself and neglect his more lucrative activity.
    Americans are no more likely to assemble consumer electronics than they are to assemble clothing panels, aka sewing, or pick their own strawberries.
    I’m all for making Apple etc, pay its share of taxes, but a trade war with China will put this golden goose on a real diet- it might lose 50% of its stock price, and declare a loss that will absolve it from taxes for years.

  2. RepubAnon says:

    I very much doubt that the Republicans will stop Trump’s infrastructure agenda – as he’s talking about subsidizing the purchase of publicly-owned properties and utilities by private industry. Rather than funding infrastructure improvements with (gasp) taxes, Trump’s plan is to fund it Kansas-style with tax breaks.

    What we’ll get is toll roads (where the operators skim off profits for a few years, then declare bankruptcy and leave the taxpayers holding the bag. (example: http://www.reuters.com/article/texas-highway-bankruptcy-idUSL2N16A2IJ). We’ll also get private companies running (or owning) public water companies. As public utilities are “natural monopolies”, private companies running these utilities face no competition. Without regulation, which Republicans will gut, the private companies will charge as much as they possibly can, using the profits to make small campaign donations while paying top dollar to their executives.

    The interesting thing will be when Trump’s popularity starts to fade – that’s when we’ll see tensions rise in the South China Sea. Both the Chinese and US Governments face rising internal dissent – and there’s nothing like armed conflict to get one’s country unified against the foreign devils.

    • walter map says:

      “Rather than funding infrastructure improvements with (gasp) taxes, Trump’s plan is to fund it Kansas-style with tax breaks.”

      That’s why the smart money is betting on catastrophe:


      Brownback’s economic policies have hurt the state so much, it’s not even releasing economic figures any more.

      • Jas says:

        Very interesting article! Thanks for the link. It would seem that the Kansas state government is full of all sorts of shady individuals and hucksters. Trump tapped Kris Kobach Kansas Secretary of State as a transition team member and most likely homeland security secretary or a similar position. Kobach is the well known for writing the Arizona law known as “driving while brown”. He wrote the ultra-conservative 2016 GOP platform and is also a key player in Trumps “win” of the Presidential election. He created the Interstate Crosscheck which vote caged and perhaps tossed millions of eligible black, brown, asian-american and young voters right off the rolls.

      • mjspartz says:

        Do you think the economic problems in Kansas have anything to do with generational lows in wheat prices, something never even mentioned in the article? They have been sliding continously since late 2012 from around $11 a bushel, to a little over $4 today. A pretty important factor to leave out of a story about the Kansas economy considering it’s the breadbasket of America. And these so called reporters wonder why their credibility comes into question. Hiltzik is either disingenuous, or another partisan ideologue, but the result is the same…another nail in the coffin of objective reporting.

  3. $400.00 gold ?

    That position/prediction stands in high-contrast to extreme levels of worldwide debt : personal, corporate and government. Add pensions to that, I am just not sure what category best fits pension “debt” ( i.e., “underfunding” ).

    I am not disputing his prediction, I am merely pointing out that Gold — which when physically possessed — has no counterparty risk . . . .

    . . . . stands in high contrast to debt, collateralized or not — and debt is a massive risk regardless of who is the counterparty — or what is the collateral.

    I’ll keep my coupla-three ounces of gold when TSHTF, thank you very much.


    • Bookdoc says:

      I feel the same. I am not a big holder but my gold and silver are not an investment. They are in case TSHTF and I need something that is worth something if fiat currency fails. The only other precious metal I hold is lead…

      • DJ says:

        My gold and silver are insurance. $400 or $600 gold and I am buying more and then some more.

        • Bookdoc says:

          Agreed-I feel the same and if it hits those prices I will definitely get more.

        • Jerry Bear says:

          I am thinking of investing in 20 tons of rock salt if things look like they are really going to get bad.

  4. James says:

    My parents have some cash to invest in amazon stock, should they buy now or wait. This would be a long term buy.

    • Frederick says:

      Well if they can afford to lose it than advise them to buy stock or if they want to come out ahead I would advise them to buy physical silver but that’s me

    • william says:

      Both. Invest 20% of their total every year for five years.

    • Patrick says:

      Amazon (like most tech stocks) has historically sold off steeply when markets fall. At the top of the Dotcom bubble in 1999 it was $86 and proceeded to fall to $5.60 share within just a few years. It’s already well off it’s high of $844 but not remotely looking like a bargain by any stretch. Me personally…I’ll buy some when/if it hits $60 a share. If that sound’s unrealistic then consider that that’s better a better ratio than $86/$5.60.

      The one thing to bear in mind about stocks is that you want to buy low and sell high. Buying the most expensive, overpriced, popular stock around is definitely Not, buying ‘low’. It’s the stocks that aren’t well known and are down at their lows that are bargains. Me personally, I’m in high end commodities & miners like gold, silver, platinum and uranium (and oil if it gets back to $45 bbl).

      Investing is more treacherous than ever in history. We’re in the mother of all bubbles, while hit-and-run profit taking by day traders and HFTs means steep, unpredictable & rapid sell-offs. IMO buy & hold investing is DEAD unless you aggressively defend your positions with stop losses. If the DOW falls below 17000 then large dividend paying electric utilities and communication stocks like DUK, D, ED, PCG, VZ and T are the closest thing to park cash in with any stability. That said if NVDA experiences a sell-off of at least 30% then I’ll get a little.

  5. PanamaBob says:

    Dent has been in this business for a long time and has a handle on the big picture, however, his view of gold below $400 and oil near single digits seems absurd to say the least.
    How Harry can see the US debt doubling every 8 years due to money and credit expansion and see no end in sight of this madness, while predicting commodity prices crashing to 30 year lows is beyond my math models.
    He may also see a good 5 cent cigar on the horizon,..fat chance.

    • NY Geezer says:

      Harry Dent has no “handle” on the “big” picture or on any picture.

      On 12/10/16, he predicted that the would DJI drop of 17,000 points because Trump was elected. Two weeks later he reversed his opinion and predicts short term growth. In 2012, he predicted a DJI crash to 3300, which never happened.

      • PanamaBob says:

        Dent sees the dilemmas the US faces and also the causes, and the impossible sustainability of the future. His predictions are always presented without logic or fact.
        His track record is on par with a blind golfer.

      • Greatful again says:

        Check his predictions over the years…..might as well flip a coin.

    • william says:

      Actually, there’s a gold/oil price ratio approach which is surprising accurate and also points to a crash in gold prices if oil remains low and goes lower.

  6. Robi says:

    400$ Gold?
    If Gold falls to 400$ in the physical market, Stocks, Bonds, real estate, will crash ~90% and there will be a lot of Bank bankruptcies(plus massive QE) and even than 400$ would be highly profitable if you own Gold.
    400$ in the physical market is such a nonsense from Harry Dent.

    • SoCal says:

      If oil drops so will gold, as it’s the primary cost for its extraction.

      If interest rates continue up, gold will continue to drop as gold rises in the presence of cheap money and unchecked inflation.

      So the call on cheaper gold is valid, as is the fact that commodity cycles are about 20 years (see Martin H Barnes) and we’re just starting the down turn. Not sure where he got that 30 yr figure.

      On the bullish side, if China keeps putting out cheap money, then that will moderate the decline. No need to panic gold bulls, but the last run- up in gold was funded by the very cheap fiat money you despise.

      Gold didn’t magically rise in price by fairy dust!

      • GOLD PRICE ?

        Stock versus Flow.

        With Gold, unlike the consumable and perishable commodities, the stock vs. flow ratio is very very high.

        With the perishable/consumable commodities, the stock is generally not over one year of production . You cannot store several years worth of pork bellies ( bacon), or grain, or OJ . The stock/flow ratio is a low number.

        Most gold ever mined is still above ground, and much of it is available at some reserve price. The accepted figure is 180,000 tons of “stock” as compared to 2500 to maybe as many as 3000 tons of annual production ( i.e., the “flow” )

        Thus — annual production quantities, and in particular, the “cost of production” (a large input is diesel fuel ) has very little to do with gold pricing.

        Oil as an input is almost irrelevant to the gold price once you consider the huge amount of “above ground stock” that is “available” ( at some price ) and compare that stock to annual production ( the “flow” ) .


      • Tagtrengfan87 says:


        Your argument is that gold will drop if oil drops? The price of gold much like everything else on this planet is dictated by the forces of SUPPLY AND DEMAND not the price of oil. Gold could never make it that low because the sovereign nations of this planet would eat ALL of it up. When they supply got to low, which it arguably already has, then the price would continue to rise.

        Second, China isnt the only nation printing up the cheap money…..every nation is. Your claim is that the last gold run up was funded by cheap fiat money so using that logic the next run up would be to right? Seeing as how the entire world is printing up that cheap fiat money then gold should also see another run up.

        Problem is first you said gold price was dictated by the price of oil and then you said it was funded by cheap fiat money. Which one is it????????

  7. Jim C says:

    Maga! Maga! Maga?

  8. Paulo says:

    Well, we’re collectively burning oil at the rate of 10X new discoveries. Regardless of the ‘so called oil glut’, expecting oil to be trading in the range of $8-$18 through 2020 would suggest there is no economy left to power. People also need to keep in mind that despite the hoopla of shale, not one LTO company has made any money selling product. The only gains have been in stock valuations. These days, increasing stock prices applies to almost anything provided it is promoted the right way to gullible investors.

    Investments in oil companies right now are considered to be stranded assets. If these same companies are selling a product at 1/3 of what it sells today, what will we call them then?

    From Bloomberg:

    “That’s a concern for the industry at a time when the U.S. Energy Information Administration estimates that global oil demand will grow from 94.8 million barrels a day this year to 105.3 million barrels in 2026. While the U.S. shale boom could potentially make up the difference, prices locked in below $50 a barrel have undercut any substantial growth there.

    New discoveries from conventional drilling, meanwhile, are “at rock bottom,” said Nils-Henrik Bjurstroem, a senior project manager at Oslo-based consultants Rystad Energy AS. “There will definitely be a strong impact on oil and gas supply, and especially oil.”


    • interesting says:

      I watched a great documentary on the history of petroleum and in that doc the first date when the USA was going to run out of oil was the 1920’s……..so….

      I was just reading about a new technique that is safer than fracking and results in even more oil extraction….I’ll see if i can find the link when able.

      this peak energy nonsense is getting old……when have we ever ran out of energy? I usually get the “we’ll run out of cheap energy” dodge when i ask that.

    • Realist says:

      There will be oil around for a long time yet, but there are going to be shortage of oil that is economical to pump out of the ground. All new discoveries are expensive to exploit because all sources that are cheap to exploit are already exploited and are slowly being depleted. At some point there will be a point when the return of energy invested in exploiting an oilfind will be so tiny that it isn’t worth the expenses involved.

  9. Frederick says:

    I sure hope he’s wrong or my precious metals investment will not be looking very good in dollar terms anyway I find 120 on the Dollar index a little rich but in this upside down world why not?

    • Frederic says:

      I live in Europe, a collapse of the GBP and EUR and a collapse in gold….well, priced in GBP Gold still sounds good. This is the case for everyone outside the US, Chinese including. Brexit and end of the Euro, I go full gold and commodities now, individual investors don’t have the information to time the market.

  10. Keith says:

    Short term predictions are too tough for anyone to call. Dent is all over the place short term and often wrong. I do agree with his long term predictions though and he has stood by those. We really won’t know until we know. His long term predictions are that of deflation, hence the $400 gold price. Best wishes to all in the New Year

  11. JB says:

    trump is getting russia in his corner before “taking on”

    china .

  12. Curious Cat says:

    Hmmmm….. has anyone reconciled Harry Dent’s predictions for 2016 with what actually happened?

    And I guess I shouldn’t pick only on Harry. Is there anyone out there who had any successful predictions about 2016? Or pick any year – 2015, 2014…

    Only, what, four guys predicted the subprime event?

    Can anyone tell me why reading this stuff is anything but a waste of time?

  13. Chhelo says:

    if HD predictions come true then guns and butter will be the only thing of value left.

    Luckily, HD has not had the most stellar record of prosnogtications.

  14. Petunia says:

    The day after Xmas I was at Macys exchanging a bottle of perfume and saw something I have never seen before, empty display cases in the perfume department. According to the sales girl they were pretty much out of everything. At over $100 a pop for everything, I would say Xmas was good and people are confident. As I said before, I have never seen an empty perfume display case in any store before, ever, confidence is definitely up.

    • Edward E says:

      Macy’s says they will close 100 of their stores starting first of this year and focus more on online shopping. So were you possibly in one of those stores waving the white flower?

      • Petunia says:

        I thought of that, but in my area there is only one store, so people don’t have too many choices. I noticed when shopping during the season that stores had a little of everything and not a lot of anything. So maybe they were properly stocked for the season. No place was really busy but the customers were real buyers.

    • Frederick says:

      Who actually buys perfume at Macy’s anyway You just sample what you like there and go online and save 20percent NO? That’s what my wife does anyway

  15. michael engel says:

    -Gold @ $400- is possible but, you will not be able to buy it,
    because the Gold exchange and other exchanges will shut
    their doors. No more trading. CB will encourage it.
    -When the Russians were hit by a “Dutch Disease’ they had to dump assets fast and sold gold bullions accumulated and held since before the revolution, in the tsarist era.
    -When troubles are overwhelming the easiest assets to liquidate
    will be sold first. Those that are considered the best.
    -After a very long period of fake, the best, the best “real assets”
    will be victimized first.
    -Gold will disappear. You will be able to put your hands on it.

  16. michael engel says:

    Petunia, Macy’s perfume department is a concession. The goods
    are memo goods. The sales ladies are employed by the perfume
    designer. The inventory isn’t sold out but, called back to check inventory.How much of memo goods was sold and finally an invoice will be sent, hopefully followed by a check, asap.
    Much of those expensive good have a nature to disappear from
    the show cases in January, after the season is over.
    Vendors that had good turnover will smile. Others will have the
    headache of how to evaporate excess goods and how to pay
    bills, or survive. Predicting in September what will happen in
    December is the most important skill !!

  17. Meme Imfurst says:

    Harry Dent …. Reading ANYTHING from him is propaganda and pure tripe, or an acid daydream or opium den nightmare .

    I am so…so disappointed to see anything he prints on this site. If wrong turns were the right way to go, then Harry would be in charge of the GPS and everyone would be in lakes, streams, canals, and oceans.

    Think about it.

  18. Bruce Adlam says:

    Has any gov predicted a recession before it happens like the GFC crisis no and they won’t. So how can you trust them.and this QE is legal theft of next generation money and people go to jail for a lot less.

  19. NotSoSure says:

    This article will cause a Dent in the market for sure. Given his track record, I am doing the opposite and will be shorting the market soon.

    • Frederick says:

      He should hang out with Dennis Gartman and Jim Willie at a Costa Rican Starbucks and cry over a latte when he sees how deflationary forces have worked out for him there

  20. Patrick says:

    Many miners cost per oz of gold runs $1100 and even your most efficient junior miner manage $775 oz at best, so how’s it going to magically fall to half that and not create any serious supply constraints? Gold is a commodity in calm times and a safe-haven in crisis. One guess as to which economic climate is likely to be more prevalent in 2017 & 2018?

    The Deflation scare isn’t happening. Chapwoodindex.com clearly shows double-digit inflation over the last 5 years across most cities and Shadowstats has real CPI at 7.5%, as calculated by the Fed’s OWN (pre-1990) math. The low CPI number Janet’s feeding us is absolute BS. Low money velocity is proving ineffective against foreign investment, the wealthy and upper middle class.

    • nhz says:

      For many miners most of the cost is energy and steel; if oil and steel prices go much lower, gold prices could follow. But I doubt that production cost is very important for actual gold prices, and supply from mines is not important either in the short-medium term because gold isn’t consumed. The yearly mine production is irrelevant compared to the gold that is readkly available above ground.

      I agree that deflation doesn’t seem in the cards; even in Europe inflation is shooting up lately (and that’s with the vastly understated official Eurostat numbers). In much of the Western world real inflation (for the costs you cannot avoid) has been in the 5-10% range over the last decade.

    • Wolf Richter says:

      In terms of the cost of production as a floor to the price of gold, note that the wildcard in a gold bear market is “consumption.”

      There is near zero gold “consumption,” the way there is oil consumption or corn consumption. People don’t burn it or eat it, and it doesn’t rot or evaporate or rust. People hoard it. So the gold that is above ground sticks around for thousands of years. That’s why people invest in it in the first place!

      Even jewelry is not “consumption.” It lasts forever, and it can be melted down again and turned into something else. Only a tiny fraction is used as an industrial metal, and even that is as far as possible recycled.

      Hence, once global interest in gold as an investment wanes, there is no theoretical floor – such as the cost of production – for the price. If all miners in the world shut down due to low price, it still might not change the equation if people/investors think they have enough gold and don’t want to add to it.

      They can still trade among each other, but if they in aggregate don’t want to add to their positions, or worse, if they in aggregate want to lower their positions, the price of gold can fall way below the cost of production and stay there for years until the desire to own gold in aggregate picks up again.

      This is unlikely to happen. But it COULD happen. It’s the wild card in gold. That’s why a price below the cost of production is theoretically possible for a fairly long time – and has occurred in the past. That’s why gold bear markets can be so vicious and can last so long, though it always has proven to be an awesome buying opportunity if you have patience.

      Silver is also exposed to that dynamic, but it has relatively more industrial use. Still, investors hoard it, and due to this available hoard, it too can fall and stay below the cost of production for a fairly long time, but not as long as gold.

      • JB says:

        i think this gold/silver dynamism also applies to BITCOIN.
        however bitcoin may be a “bit” more liquid ?

      • JerryBear says:

        The cost of a metal is far from just a matter of its rarity. Tellurium is just about as rare as gold or platinum but sells for around $20 a pound. This is because it is produced quite cheaply ad a by product of copper refining and there isn’t a lot of demand for it. Bismuth, mercury and selenium are about as rare as silver but much less expensive because there is much less demand for them relative to production than is the case with silver.
        On the other hand, there is high demand for scandium as an alloy element for aluminum. Scandium is about as common as cobalt or tin but sells for about 1/3 the price of gold. This is because it almost never found in high concentration but always much mixed with similar elements. This makes it quite difficult to extract and coupled with high demand makes it expensive as hell. Some of the rare earths are far more expensive than their relatively modest rarity would indicate and for similar reasons.

        • Excellent post. Thanks !

          I did not know about Scandium being an alloy element of Aluminum. And I might want to get a small block of Tellurium just because. I recently got a small block of Titanium as a cast-off from a project at a local machine shop. Quite an interesting metal !

          It’s a good day when I learn really neat new things !


  21. Jack says:

    Harry Dent, John Mauldin, Porter Stansberry et al …. They are like Sunday morning preachers on TV who ask for money just to stay on TV to ask for more money. Whoever follows these gentlemen and invests the way they prescribe deserve their fate– they certainly don’t read Wolf Richter.

    • Frederick says:

      Very true Jack but you left out Dennis Gartman and Bo Polny :)Lots of these grifter snake oil salesmen around for sure

      • Jack says:

        You are right. You point out a true “don’t listen to,” but not a charlatan.

      • walter map says:

        Genuine market-beating insights are NOT given away. They’re exploited as quietly as possible. Many are engineered.

        All you really get from the financial press is a picture of the landscape: Impressionists and Hyperrealists are currently in vogue. The better you understand that picture, or specialized pieces of it, the more likely you are to get lucky. But research and luck don’t make for successful rentiers. Crony capitalism is popular simply because it’s more reliably profitable than research and luck, and that’s mostly what the FIC has always run on.

Comments are closed.