Everyone's Talking about this Risk

Ask any economist about the likely dangers of 2026 and they will say inflation. Before I cite the 3 reasons to worry about inflation, here is the chart of annual stock indices' returns, mentioned in my last video.  Next year is a mid-term election year, typically a volatile year. What's the likelihood we'll get a 4th straight positive year?. Now onto those 3 reasons.

1) Economists (not markets) expect the Fed to cut between 75 bps and 100 bps next year, triggering a further loosening in financial and monetary conditions; 2) Trump's One Big Beautiful Bill Act will gift more than $20bn to cash to US consumers, boosting demand; 3) Don't forget runaway capex from AI in and outside of the US and heightened energy demand in data centers. 

According to JP Morgan, "half of the worst drawdowns for traditional stock-bond portfolios occurred during inflationary episodes that triggered central bank rate hikes in the 1970s and 1980s, and most recently in 2022." This means each time the Fed placed too much emphasis on stimulating growth at the expense of price stability, inflation broke away, causing the Fed to play catch up w/ rapid rate hikes. The result was negative for stocks and bonds, as was the case in 2022. Optimists are betting on the likelihood that slowing economic growth and rising unemployment will offset inflation, permitting the Fed to cut rates further. 

What's the likelihood that will happen? How will you position yourself? Some are saying go into bonds due to falling rates. But what if inflation rises? Will you stay in technology stocks? Will you hide in passive Index ETF? Can you buy gold at the top? What about my forecast for $150 silver? 

Out of the +25 stocks I shared with our Whatsapp Broadcast Group over the past 18 months, more than 10 were outside technology, ranging from health, pharma, infrastructure, energy, medical supplies, and financials, not to mention Reddit and RobinHood. There's so much to share, but I'll spare you for now. 

Until the next newsletter, have a Merry Christmas and a resftul holiday. I plan to send a few more messages before the end of the year, but if you don't read them, then my best wishes for a Happy & Healthy 2025.