The long bull market is over, a recession is en route, “monetary methadone” — Fed policy buttressing the economy and stock market — is ending and President Donald Trump, under pressures galore, could lead the U.S. into a new Middle East war, veteran trend detector Gerald Celente argues in an interview with ThinkAdvisor.
It’s “a time for caution,” warns the founder of the Trends Research Institute, taking, as ever, a global view.
Any upbeat news? Well, he predicts “relatively good earnings for 2019, considering.”
Other than that, the self-described “fearless teller of the truth,” prone to seeing the glass half-empty, spots nothing much to get optimistic about.
Celente predicted the financial crisis, the dot-com bust and the Black Monday market crash of 1987. But he also called the Trump market rally two weeks after the builder-reality TV show star was elected U.S. president.
But now that’s history. The main causes of all the current disruption are rising interest rates and, secondarily, declining oil prices — “not tariffs and trade wars,” Celente insists.
At its Dec. 18-19 meeting this week, the Central Bank is expected to hike interest rates for the fourth time this year.
A consultant to industry and government, Celente’s forecasts are rooted in his Globalnomic Methodology, which identifies trends in economics, business, technology, politics and more. These are published in the Trends Journal.
Skeptics call Celente’s predictions general and largely hunch-based.
In an interview with ThinkAdvisor in March of this year, the “political atheist,” as he calls himself, who owns the trademark “The Presidential Reality Show” — characterizing 2016 election candidates — heatedly referred to the Trump administration as “a freak show.”
ThinkAdvisor interviewed Celente, speaking from his office in Kingston, New York, on Dec. 11. He offered up his predictions for a “slumping economy” and a market correction that could well morph into a bear market.
The longtime real estate investor, who owns three pre-Revolutionary buildings listed in the National Register of Historic Places, maintains, however, that on a personal level, interest-rate hikes are failing to generate agita.
Here are excerpts from our conversation:
THINKADVISOR: What’s the top trend for 2019?
GERALD CELENTE: On the economic front, it’s the beginning of the end of the artificially propped-up equity and real estate markets globally. We’re already seeing a decline in real estate sales. It can’t take higher interest rates. They shot this thing up with negative and zero interest-rate policy and quantitative easing. We call that “monetary methadone.”
What will be the impact of “the beginning of the end”?
Slumping real estate sales, slumping retail, slumping auto sales and a market that has the potential to go into bear territory. It’s down almost 10% already, into correction territory. The slowdown has already started globally. Our economy got propped up better than [that of China and Japan, for example] because of Trump’s tax cuts that juiced more money into it. That’s the only reason.
Do you see a recession on the way?
We believe a Stage 1 recession is coming. The key indicator is the housing market, in which there’s already softness when you look at new mortgage applications and both new and existing home sales. Look at homebuilders’ stocks: They’re down about 30%.
What do you forecast for earnings in 2019?
They’re still going to be relatively strong, considering, but less than they were in 2018, when we saw 23% to 25% increases, on average. You won’t see that next year.
Many experts stress that the economy remains strong, but you’re saying there’s much to worry about.
Well, yes. Americans’ wages are barely keeping up with inflation. People can’t afford to buy homes. Everything is tilted toward the top. According to the Tax Policy Center, 82% of the Trump tax cuts went to the 1%. GDP figures aren’t accurate assessments of a nation’s economy. It’s bigger than that.
What positive effect on the economy did Trump’s corporate tax cuts bring?
We’re seeing almost $1 trillion worth of stock buybacks this year. That’s where the money went! That’s what [corporations] do.
Is the nearly 10-year-old bull market ending?
It ended in February, when the Fed was concerned about, of all things, rising wages, which meant higher inflation. The market has hit new highs since then, but the juice was taken out, and we’ve seen a lot of volatility.
What’s the biggest threat to the market now?
Interest rates. The higher interest rates go, the further economies and markets fall.
What does that mean to investors at the moment?
It’s a time for caution: Prepare and prevail. The positives that have been driving the market up — negative and zero interest-rate policy and tax cuts — have evaporated. The fear of interest rate hikes are pushing the markets down. They were artificially juiced.
Is that what’s causing the market turbulence?
It has nothing to do with tariffs and trade wars. It’s interest rates and oil prices — period, paragraph. As interest rates go up, the dollar gets stronger. There’s a $250 trillion global debt bubble. A lot of that debt is based in dollars.
What’s your biggest worry overall?
War. The leaders of the U.S., Saudi Arabia and Israel are under pressure and teaming up against Iran.
What’s the likelihood of war occurring soon?
What’s the likelihood of a crazy person doing something crazy? When all else fails, [countries’ leaders] take you to war.
What’s the chance of President Trump’s doing that?
Trump is under constant pressure with the so-called indictments and other [issues]. When you’re under pressure, you act in ways that are different than when you’re relaxed. So if you’re trying to cover something up, you get the people’s mind off it by starting a war. There’s going to be increased likelihood of more volatility in the Middle East, particularly involving Iran. And, despite Trump’s going back and forth about America’s involvement in Syria, we’re still there.
Corporate debt levels are high. What will be the impact?
[Former Fed chair Janet] Yellen was yelling about that yesterday. She warned of another potential financial crisis because of the current push to deregulate [and “gigantic holes in the system,” particularly “leveraged lending”].
Do you agree with her?
She’s correct. It’s all this cheap money and merger-and-acquisition activity that’s at near-record highs. They’re all leveraged loans. When interest rates go up, you’ve got to pay more interest!
Trump is said to be putting pressure on Fed chair Jerome Powell not to raise interest rates. What are your thoughts?
When you hear Trump being critical of the Fed for raising interest rates, he knows what higher rates can do. He’s very concerned about higher interest rates because it will deeply affect the real estate market, in which he and his family have major holdings. U.S. presidents can influence the direction of the Federal Reserve.
What’s been an example of that?
Paul Volcker [Fed chair during Carter and Reagan administrations] recently said in an interview that in a meeting with Reagan and James Baker [then chief of staff], Baker said to him: “The president orders you not to raise interest rates before Election Day.”
What’s the upshot to the U.S. economy from recently announced General Motors’ plant and job cutbacks?
You’re going to see a slowdown in auto sales. As interest rates go up, less and less people can afford to buy cars. And now they’re changing the deal. It had been: “You don’t have a job and aren’t going to get one? Don’t worry — you can buy a car.”
What did that tack cause?
Boosting the car market was similar to creating the subprime housing crisis. But now they’re tightening up on loan standards. That means you’ll see the industry decline. And it’s important to look globally: In China, there’s a double-digit decline in car sales.
America is now producing an abundance of oil. How is that affecting oil prices?
The U.S. is the largest producer of energy in the world. That’s keeping oil prices down and will continue to do so as economies slow. The slowdown in GDP in Europe, Japan and China will put more pressure on oil. Saudi Arabia needs oil at around $90-$100 a barrel for their economy [budget-wise] but now it’s at about $60.
How significant is Brexit to the U.S. economy and stock market?
Brexit does cause uncertainty, but on a global scale it’s not the major issue. It’s not the driver behind the economic uncertainty, which is much greater than that. With or without Brexit, it’s interest rates.
You invest in real estate. So, on a personal level, you must be concerned about interest-rate hikes, right?
No, I’m not. I own three of the most historic buildings in America, and they’re all occupied. I bought them at very low prices. But on the other end, I’m very heavy in gold and have been since 1978. So I have a balance: If one goes down, the other goes up.
What do you forecast for gold, then?
For the last several months, I’ve been saying that gold was going to bottom at $1,200 an ounce. It hit $1,185. So I nailed that one! Now it’s in the $1,250 range. It has to go above $1,450 to gain real strength. When it gets over $1,450, it will skyrocket to above $2,000.
— Related on ThinkAdvisor: