Financial Sense has been following Barry’s work quite closely over the years and credits him as one of the earliest strategists to have forecasted the commodity supercycle that started in the early 2000s and lasted over ten years.
Largely due to the work of Barry Bannister and others, our own money management firm, PFS Group, became very bullish on natural resources during that time, writing in 2002 that this area would be “The Next Big Thing” for long-term strategic investors.
The first London Value Investor Conference was held in April 2012 and it has since grown to become the largest gathering of Value Investors in Europe, bringing together some of the best investors every year. At this year’s conference, held on May 19th, Simon Brewer, the former CIO of Morgan Stanley and Senior Adviser to Read More
Given his great calls and outside-the-box thinking over the years, we were pleased to speak with Mr. Bannister on Financial Sense Newshour again to get his thoughts on where markets are headed the next few years and beyond.
Here’s a brief summary of our recent 30-minute interview with him discussing Stifel’s 58-page Macro & Portfolio Strategy Outlook, which was on released March 20, 2017 (see here).
Barry Bannister – Near-term Top Coming in 2018, Bear Market in 2019
The main theme of Bannister’s outlook puts a target for the S&P 500 at 2,500 in 2017, followed by a top in 2018 and a bear market the year after. Given the current trajectory of many leading economic indicators, which bottomed around the middle of last year, this forecast aligns with various other economists and strategists we’ve had on the show (see Alan Beaulieu: Still on Track for 2019 Recession).
Bannister’s forecast of a market peak and economic slowdown starting in 2018 is largely based on the idea that we are three years into a Fed tightening cycle when looking at the “Shadow Fed Funds rate.” Here’s the associated slide:
“We’re way into a rate hike cycle,” he said. “It won’t take much — we think 1.75 on Fed funds by 2018 — to have been moved too high, too far, and too fast. Then, within a year of hitting that, we will have a recession.”
The basic issue is that there is a lot of debt right now. It’s important to ask why the Fed funds average rate trended down for 35 years, Bannister stated.
“Debt is deflationary, and cumulative indebtedness leads us to a lower threshold or ceiling for when the Fed has tightened too much,” he said.
In addition to stocks and bonds, Bannister also weighed in on commodities:
“We’re in a secular bear market for commodities,” Bannister said. “It was really good from 2001 to 2015. That’s the typical length of time. Of course, it’s going to be poor for 15 to 18 years after that peak in 2008.”
When looking at long-term market and economic cycles, Bannister explained that the next major bull run in commodities and hard assets will come with a dramatic decline in the dollar as structural headwinds put severe pressure on the US government heading into the 2030 timeframe.
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