Rickards’ Five Forecasts For 2024

Authored by James Rickards via DailyReckoning.com,

I have five forecasts for 2024 to help keep you ahead of the curve in positioning your investment portfolio.

My overall forecast is that 2024 will be more tumultuous and shocking than 2023. That may seem hard to credit.

With two major wars going on, an indicted former president and a demented current president, how can 2024 be more challenging than 2023?

Rest assured; it will be. I explain why below.

An Election of Dire Consequences

It’s a cliche to write that the next presidential election will be the “most important in our lifetimes.” Yet in 2024 that cliche will actually be true.

The divide between the two parties is probably greater than at any time in U.S. political history since the Civil War. The choice could not be more stark and the stakes could not be higher.

That’s why this election is so important.

First off, I don’t think that Joe Biden will be the Democratic nominee for president.

Biden’s problem is not just his age, but the fact that he actually is mentally and physically impaired. He’s simply not fit to be president, and everyone knows it even if Democratic operatives and media sycophants don’t want to mention it. But who will replace Biden?

The most likely replacements are Gavin Newsom, J.B. Pritzker, Gretchen Whitmer and Jennifer Granholm. All four were or are state governors. They’re all about the same ideologically; take your pick. Forget Kamala Harris; she’s simply too much of a liability.

The Republican Side

On the Republican side, there’s not a lot to say. Trump will be the nominee; no one can recall a non-incumbent with such a large lead in the polls.

He’s leading the pack by 55 points or more and is now even running ahead of Joe Biden in recent polls.

Meanwhile, Trump’s facing over 90 felony charges in four separate indictments in two state courts and two federal courts. Criminal indictments only increase Trump’s popularity because they are clearly motivated by politics.

A criminal conviction (likely in my view) will further solidify Trump’s base because of the blatant jury shopping, targeted prosecutions and absence of due process that Trump has had to endure.

The biggest curveball is that Trump may actually be behind bars on Election Day. That’s OK, there is no legal or other prohibition on electing an incarcerated convicted felon as president. Third-world, yes. Illegal, no.

This brings us to the third-party situation. There are many third-party candidates who will likely divide the Democrats. These include RFK Jr., Cornel West and Jill Stein. I wouldn’t rule out Sen. Joe Manchin from West Virginia, who’s announced he won’t seek reelection. If he runs for president, he’s likely to go on the No Labels party line.

I believe these third-party candidates will divide the Democratic vote, which I also believe will favor Trump. So that’s my first forecast — Trump will win back the presidency in 2024.

U.S., China and a Global Recession

Chinese economic growth is now in the low single digits (about 4% per year). That’s down from the double-digit growth of the 1994–2008 period.

China has had two failed “reopenings” (one after COVID in 2022, and one as the result of “stimulus” in 2023) and seems headed for a third. China gets a small boost from loose fiscal and monetary policy that rapidly fades because there is no real stimulus possible when a country is as heavily indebted as China.

The U.S. faces its own economic headwinds. The Federal Reserve has raised interest rates to 5.50% from zero in 20 months and reduced its balance sheet by over $1 trillion in the same period, an even tighter monetary policy than the one engineered by Paul Volcker from 1979–1981.

Fiscal policy is also tightening since the COVID handouts and student loan grace periods are over. Fiscal policy will get even tighter now that Republican deficit hawks have the upper hand in the House of Representatives.

The data showing the U.S. is heading to a recession is abundant. In fact, the U.S. may already be in recession. The indicators include inverted yield curves, rising commercial real estate defaults, declining industrial production, declining job creation and falling bank loans.

That leads me to my next forecast: China, the U.S. and Japan will all fall into recession in the coming months. The EU is already in recession. A rare global recession will be the result in 2024.

Ukraine

Russia is winning the war decisively. The West and Ukraine have shown no willingness to negotiate and there’s no reason for the Russians to negotiate because they’re winning.

With that in mind, it seems likely that Joe Biden will double-down on his losing bet.

The Russians don’t expect the war to be over until 2025. That gives Biden time to deliver F-16 fighter jets and more money and to help Ukraine with its flying drones and sea-drones that can attack Russian vessels and the Kerch Bridge.

Russia will certainly match that kind of escalation by shooting down the F-16s, increasing its cruise missile attacks on Ukrainian cities and destroying Ukraine’s energy infrastructure so that the country will lack electricity and heat this winter.

My forecast is that Russia will not de-escalate because they’re winning. Biden will not de-escalate because he’s senile, is surrounded by warmongers and has no reverse gear.

I do not expect escalation to the point of nuclear weapons, but the probability of that outcome is uncomfortably high and should not be dismissed.

Next is part two of this forecast…

Israel and Gaza

The Israeli-Hamas War has its own risks of escalation. As of now, fighting is mostly limited to northern Gaza adjacent to the Israeli border. Yet Israel faces an enemy 10 times more powerful than Hamas in the form of Hezbollah, which is located in Lebanon on Israel’s northern border, and which is heavily subsidized by Iran in terms of money, weapons and intelligence.

Hezbollah has launched some missile attacks from Lebanon on Israel’s northern border, but those have not been extensive. In addition to Hezbollah, the Houthi rebels in Yemen are firing missiles into Israel.

The Houthis are a direct Iranian proxy intended to threaten Saudi Arabia, but are equally capable of threatening Israel. If Hezbollah and Houthi attacks on Israel escalate, Israel will not limit their response to those two groups. They are likely to launch attacks on Iran itself, going to the root of the problem. At that point, Iran may fire missiles at Israel and close the Straits of Hormuz.

For now, the tensions have been reduced slightly. But if the escalation scenarios play out even in part, expect oil prices to go to $150 per barrel or higher. That will put the U.S. and Western Europe in a recession worse than 2008 and the earlier oil shock of 1974.

Don’t rule it out.

Banking Crisis Stage 2

In less than two months from early March to early May 2023, we saw the failures of Silvergate Bank, Silicon Valley Bank, Signature Bank, Credit Suisse and First Republic.

In response, the FDIC stepped in with the mother of all bailouts. Going forward, the issue is: Once you’ve guaranteed every deposit and agreed to finance every bond at par value, what’s left in your bag of tricks? What can you do in the next crisis that you haven’t already done — except nationalize the banks?

Investors are relaxed because they believe the banking crisis is over. That’s a huge mistake. History shows that major financial crises unfold in stages and have a quiet period between the initial stage and the critical stage.

My next forecast is that a bigger and more acute Stage 2 of the banking crisis is coming after the quiet period that has prevailed since June. This new crisis will be focused on about 20 banks with $200–900 billion in assets — the so-called midsized regional banks that are not too big to fail.

Crises of this sort can feed on themselves and cause losses that go far beyond the particular banks that may be most vulnerable. A new global financial crisis could be the result.

Markets

All of the above predictions involve turmoil either in domestic U.S. politics, international macroeconomics, ongoing wars or a potential financial meltdown starting in the banking system. With that as background, my market predictions are fairly straightforward:

• 2024 will be a difficult year for stocks. The market could decline at least 30% on a recession alone, and as much as 50% if either the Ukraine or Israeli war escalates, or a global financial crisis emerges.
• The major sectors that will outperform even in a falling market are energy, defense, agriculture and mining.
• 2024 should be an excellent year for U.S. government securities. All maturities will produce decent yields and capital gains as interest rates decline going into a recession.
• Basic commodities such as copper, iron ore, coal, non-precious metals and agricultural produce will generally decline as the recession unfolds. Gold and silver should perform well based on declining interest rates and a flight to quality.
• Energy will be volatile. It will tend to go down based on economic weakness, but occasionally rally on geopolitical fears.
• The investment choices are clear. It will be a bad year for stocks, a good year for Treasury securities and a down year for commodities, except for energy and gold. The winners will be Treasuries, gold, oil and King Dollar.

Put on your crash helmets for a wild ride in the coming year.

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