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Gerald Celente: Rising Interest Rates Could Sink Markets

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If you’re looking for a forecast of sunshine and rainbows, Gerald Celente isn’t your guy. The veteran trends predictor typically sees the outlook for the economy or markets as a glass half empty. So what. That doesn’t make him a bad person — or a bad forecaster. As founder of the 37-year-old Trends Research Institute, Celente has, in fact, accurately predicted more than a few huge events — even, for example, Trump’s presidential victory. So he’s worth a listen.

That includes what he had to say in a recent interview with ThinkAdvisor in which his downbeat forecasts ran true to form: Beware a market correction this fall; look for a persistent 2%-growth economy; there could be riots in America’s streets, chaos in global markets, a housing meltdown — and, if interest rates don’t rise, no halt to what he dubs Wall Street’s “Ponzi scheme.”

Realize that Celente, publisher of The Trends Journal, forecasted the 2008-2009 financial crisis, the dot-com bust and the 1987 market crash, among other disasters. He bases predictions on what he calls his Globalnomic Methodology, which he developed to identify trends in economics, business, politics, technology and more.

Bank of America calls him “fantastic … able to deliver a no-nonsense look into what to expect …” and USA Today says he “has a knack for getting the zeitgeist right,” according to undated endorsements on his website. Some observers call his predictions too broad, vague and based only on intuition and hunches.

Right now, lamenting America’s wealth gap, Celente, 70, argues that the lengthy moderate-growth economy and low interest rates are — for better or worse — what’s driving the key trends on both Wall Street and Main Street. He describes the Street as being “in a world of its own, disconnected” from “the reality” of the middle class and contends that stock investing is “a rigged game” tilted toward the elite.

He started out running political campaigns in New York’s Westchester County but now says he’s a “political atheist.” A consultant to industry and government, Celente has been a keynote speaker for American Express, Bank of America and Coca-Cola, among numerous other organizations.

ThinkAdvisor recently interviewed the gloomy guru, on the phone from his Kingston, New York, headquarters. There, as a real estate investor, he owns three stone buildings in a pre-Revolutionary Dutch settlement in the National Register of Historic Places. “I buy real estate for passion. I write about all the ugly stuff,” he says, “so I surround myself with beauty and art.” Here are excerpts from our interview:

THINKADVISOR:  What are you most worried about?

GERALD CELENTE: My greatest concern is if the Federal Reserve, and other central banks, raise interest rates to stop the Ponzi scheme. The Fed, the European Central Bank, Bank of England, Bank of Japan, People’s Bank of China — they’re all playing the same game.

What do you mean?

The rise in the market is based on only two things: stock buybacks and merger and acquisition activity — period, paragraph. That’s what’s kept the markets alive. So if they raise interest rates, the Ponzi scheme slows down.

Along those lines, you’ve written that “Wall Street is in a world of its own, disconnected from the reality of Main Street.”

They’re getting all the dough. They have the economic punch bowl. We, the people, do not. With the zero-interest rate policy, savers are getting nothing. It’s enriched only [the elite]. This is a neo-feudal society. There are different rules for the economic elite and the political nobility. Look what’s going on. Have you seen one head roll on Wall Street for all the crimes they committed [in the financial crisis]? Not one head has gone to jail for convicted felonies.

What else do you expect to happen if interest rates escalate?

You’ll start seeing the emerging markets, where a lot of money has gone, start to unravel. They’re trillions of dollars in debt. You’ll see the same thing starting to happen in housing.

What do you predict for the stock market for the rest of this year?

We’re seeing a bubble. Look at valuations and what’s driving the market. I’m absolutely forecasting a 10% market correction, probably around October, because of devaluation. The P/E ratio is way out of balance. Amazon, for example, is at a 184 P/E ratio, and they’re barely making any money. This is going to come home to roost.

Do you predict a crash?

Not without a wild card.

What would a wild card be?

The war card. The wildest of the wild cards is war. And war rhetoric keeps heating up. Trump bombed Syria. They’re bombing places into oblivion. They call it terrorism. Where I grew up — the Bronx — we call it getting even.

What’s your general forecast for the economy?

We’re quite negative on the economy. We’re looking at basically the same economy as under Obama: a 2% growth economy and nothing more because Trump hasn’t [delivered on his promises]. The GDP and corporate earnings compared to valuations just don’t match. If we start seeing real strong earnings and economic growth, we’d reverse our forecasts. But everything is just moderate.

You forecasted Trump’s election victory. At what point did you do that?

May 2016, in our Trends Journal. And we re-upped it just before the election.

When most everyone was sure Hillary Clinton would win, why did you believe that Trump would be elected?

“It’s the economy, stupid!” — that old Bill Clinton campaign slogan. Obama would say, “I created 10 million jobs.” He did, but 94% of them were temporary jobs. Wages have remained stagnant, as has productivity. The people are angry at the 1%. So it’s not the messenger — it’s the message. If you had a different messenger, they would have creamed Hillary Clinton [too].

So, now you write that “lunacy [is] unfolding in the White House.” What do you see as an example?

It’s a conflict between what Trump says and what he does.

You write that his “wild-card behavior could trigger significant downward spirals in global markets.”

Absolutely. We’ve never seen anything like this. He goes: “What will I tweet today?” Since [at least] 2010, we’ve seen the decline of America at every level. In many ways, Trump is a mirror image. He eats junk and speaks junk.

What do you make of the talk about impeaching him?

It won’t go anywhere. We don’t see it happening without something major. Right now, there’s nothing of substance that would cause an impeachment.

How will charges that Trump’s election campaign colluded with Russia impact the markets?

Wall Street isn’t reacting at all because it doesn’t make any difference to the fundamentals of the economy. We saw a good increase in corporate earnings in the last quarter, and they’re expecting more increases. Again, “It’s the economy, stupid!”

Why are you predicting civil disorder in what you call “the deeply divided United States”?

Because it’s the Divided States of America. There’s such a gap between the rich and the poor, and the movements regarding Trump are so strong and divisive. All we need is a big protest of people rising up, and there’ll be a real blowout.

What have been your most significant accurate predictions?

I forecast the 1987 stock market cash. I saw the dot-com bubble. In October of 1999 we said [tech stocks] would crash by the second quarter of 2000, and that’s what happened. All the people that were in the dot-com world became real estate agents in the early 2000s! In 2007, I coined the term, “The Panic of ’08.”

You saw the housing bubble?

Of course. And now you have a subprime auto crisis, which is minor compared to the housing crisis in terms of dollar volume. But it’s the same thing: “You can’t afford a house? Don’t worry. Use your house as a piggy bank and take out a second mortgage.” Now it’s, “Come to Fred’s! You don’t have a job? You don’t have any money? Don’t worry. You can live in your car, but you can’t drive a house.”

What are your thoughts about online retailing’s usurping brick-and-mortar retailing?

Retail is losing for reasons other than the internet. The malls overexpanded, and they lost their cache. They put the downtowns out of business. But we see a resurgence there. People will still go shopping [in stores].

Do you predict any other major ways — beyond buying goods and meeting dates and mates — for which the internet will be used?

The biggest thing we see is Virtual Reality Education, or VR-E. Our education system was built on an Industrial Age model for people in centralized locations to read, write, learn arithmetic and follow orders. By a longshot, it’s the end of the Industrial Age! Our education system stinks. With VR-E, people won’t go to school. They’ll be at home in a virtual classroom. Their education will be guided according to who they are rather than what they “should” learn. Look at the stupid crap they teach in high school that doesn’t fit you, like chemistry!

But why will VR-E be better than traditional education?

Because with algorithms and artificial intelligence, we can design courseware that’s suited to the individual, not for one-size-fits-all.

When will Virtual Reality Education become a reality?

As soon as Silicon Valley, or some other place in the world, identifies the trend that we see and seizes the opportunity.

You invest mainly in real estate and also in gold. Why don’t you invest in stocks?

It’s not one of my skills. And investing in stocks is a rigged game, rigged by the amount of money that goes into the market to keep boosting it up. I don’t mean rigged in the sense of insider trading. I mean, rigged toward the elite being able to win.

What are your thoughts about gold investing at present?

I’m not buying gold at all. Our forecast for the last three years has been that gold has to go over $1,400 an ounce to get any strength. We still have another $100 downside risk to go. The higher interest rates go, the lower gold prices go. But we still see gold as a safe-haven asset in times of war and economic instability.

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