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Tags: McAlvany | gold | oil | stocks

David McAlvany: Stocks Could Fall 25% from Peak Next Year

By    |   Sunday, 02 December 2012 04:06 PM EST

Stocks could fall 25 percent from peak to trough next year, while gold and oil could post strong gains, said David McAlvany, CEO of the McAlvany Financial Group.

Even if Congress steers the country away from the year-end fiscal cliff, a combination of tax hikes and spending cuts due to take effect early next year, stocks won’t have the fuel to extend 2012 gains.

Earnings have been cooling and won’t see upward support amid a time of building headwinds confronting the global economy in the form of the European debt crisis, a cooling China and fiscal issue in the United States.

Watch our exclusive video. Article resumes below.

“Frankly if you are looking at the S&P and if you are looking at the earnings, we think the best is already in and there’s going to be a very difficult time seeing better numbers put in for 2013,” McAlvany told Newsmax TV in an exclusive interview.

“What you have to look at here is not in the rear view mirror here, but through the front windshield. What do we do to have better numbers on Wall Street than we had last year? That’s virtually impossible, in our opinion, to achieve,” McAlvany added.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

“So we see some disappointment and potential for downside in equities after a beginning-of-the-year rally to the tune of 20 to 25 percent.”

Stock prices have risen in part due to the Federal Reserve’s loose monetary policies in the recent past.

Since the economic downturn, the Fed has slashed benchmark interest rates to near zero and rolled out unorthodox stimulus measures to jolt the economy, including three rounds of quantitative easing (QE), under which the Fed buys bonds such as mortgage debt held by banks, pumping the economy full of liquidity with the aim of keeping interest rates low across the economy.

Side effects to such policies include a weaker dollar and climbing stock and commodity prices.

Stocks have room to rise in the short term.

Market talk says the Fed at its December monetary policy meeting may decide to beef up its current round of QE, which sees the U.S. central bank snapping up $40 billion in mortgage debt held by banks a month.

But don’t expect gains to last.

Longer-term fiscal imbalances will continue to dampen economic recovery next year and beyond once a short-term deal on the fiscal cliff calms nerves for just a while.

“We are just headed into our two or three-year stretch very much like Europe, where they’ll put together what is politically palatable, but not a real working solution over the long run,” McAlvany said.

“It will buy time, it will certainly goose the equities markets, that’s where you could have a series of rallies over the next several years,” he said, adding that rallies will be short-lived with stopgap measures that fail to seriously pay down debts and narrow deficits.

Gold, meanwhile, will shine during times of fiscal uncertainty and loose monetary policies.

Central banks have been buying bold to diversify their once heavily dollar-denominated reserves on concerns the greenback will remain weak.

Consumer and investor demand will continue to be strong as well on sentiment that hard assets will go up in value.

Friday, New York gold futures ended a few dollars shy of $1,720 an ounce.

Expect hefty gains in 2013.

“We would see the peaks at $2,300 to $2,500 per ounce, settling into the year-end at maybe $2,000 an ounce,” McAlvany said.

“That would put us at a year-end numbers for 2013 at about a 15 percent gain from where we think we are going to finish this year, which is,  frankly, not much different from where we are now. Between $1,700 and  $1,800 is where we should finish the year.”

Gains are in store for crude oil as well, especially if geopolitical uncertainties continue to plague the Middle East.

Tensions have escalated between Israel and Iran over the latter’s nuclear ambitions.

The West and Israel accuse Iran of developing a nuclear weapons program, a charge Iran denies.

Iran has repeatedly threatened to close the Strait of Hormuz to protest economic sanctions slapped on the country from the West or in response to a military strike.

The Strait of Hormuz is a narrow waterway connecting oil-rich Persian Gulf countries with the rest of the world.

Tensions in the Gaza Strip and Syria will keep markets on edge, as will the new political landscape in the region.

New leaders are ruling countries once run by entrenched strongmen, including Libya, Egypt and elsewhere, meaning U.S. foreign policy strategies and even responses to crises will go back and
forth to the drawing board.

“There is a big question mark hanging over the Middle East and in terms of our foreign policy or events that occur in the Middle East and what our foreign policy responses would be,” McAlvany said.

“You have unpredictability, and that’s the perfect environment for any event taking oil to much higher levels. That volatility, the unpredictable nature of the environment, the backdrop that we are in, could we see Brent into the $120 to $125 range again? That’s probably a 2013 event.”

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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Stocks could fall 25 percent from peak to trough next year, while gold and oil could post strong gains, said David McAlvany, CEO of the McAlvany Financial Group.
Sunday, 02 December 2012 04:06 PM
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