2015: A Raging Bull Market or a Financial Apocalypse?

All over the internet and on the financial media, pundits, gurus and experts are making their prognostications for the market direction in the coming year. There are basically two extreme voices out there. First, the Pro-Keynesians who believe the Fed and other central banks are creating a Goldilocks scenario of growth in a low inflation environment. And second, those with a more Austrian Business Cycle approach who see QE-infinity as just a doomed attempt at re-inflating the bubble that will lead to a collapse of all fiat currencies..

Personally, I am of the Austrian view, although I’m not in the Doom and Gloom camp in the short to medium time-frames. I accept that all the money creation is ultimately a form of currency debasement done out more of dogmatic ignorance than of outright malice. And this debasement, that can be traced back to the 1913 creation of the Federal Reserve, could in the long run make the world economy go into shock and seizure.

I also realize I am in the minority. The majority tend to be more sanguine and thus will likely drive stock prices higher and make this market cycle not that much different than any others. The “This Time is Different” Fallacy applies to both Bears and Bulls.

Given this, I am 85% sure that the U.S. stock market will continue to rise and multiple expansion will continue as part of the more or less normal market cycle script in 2015. Before a true stock market bubble happens, the bond market bubble must burst first and push that money flow into the stock market and Trailing PE multiples should be in the low to mid 20s (For more on the end game, I recommend this podcast with Jim Puplava of Financial Sense.). 

If we take the current 2015 earnings estimate for the S&P 500 of $134.89 and we shave off 10%, just to be conservative, we end 2015 with $121.40 earnings. Now we apply a 20x PE multiple we get an S&P 500 index over 2400.

So what about that 15% doubt?  Well, I’ll tell you how I’m preparing for that in my next post.