Are we on the verge of a massive market collapse and can investors anticipate such an event? In a recent interview with Financial Sense, Charles Nenner, founder and president of Charles Nenner Research Center, discussed his controversial call for the Dow Jones Industrial Average to hit 5000, as well as various other predictions, based on his work with cyclical long-term patterns in the stock market and various assets.
A trained doctor, Nenner decided to switch to financial analysis after finding he disagreed with prevailing explanations for stock market movements. He began to dig into decades’ worth of data to identify the underlying forces and patterns that he believes move markets beyond the usual traditional explanations.
“I started looking back at when something happened, what the explanation was, and if it happened in certain time periods,” he explained. “I was interested to see that human interpretation changes with cycles.”
This led Nenner to develop his cycle theory to account for market changes, which he likened to the workings of human emotion and neurobiology.
“The problem with investing is, it doesn’t work rationally,” Nenner said. “It works very emotionally, and all these emotional layers have an input in the decision making (process).”
“Interpretation is much more important than reality,” he added. “And interpretation is like the biorhythm of the market. If you can predict (if) people (are) going to take news in a positive way or a negative way … then actually you don’t have to know what the news is, you only have to know how they will react to it.”
The idea is to identify positive periods in world history and investing, as well as negative periods, he said. Nenner’s models predicted a steep decline in the Dow, which Sheridan pointed out amounts to more than a 70 percent drop from the market’s current level as of this show’s recording on July 9. But the fall won’t occur right away; Nenner anticipates the move to begin in 2017, he said.
“I saw in the cycles that there’s a major, major down move from late 2017 into 2020,” he said.
Nenner discussed fundamentals as well, and his observations indicate market weakness and stagnation will prevail, followed by a steep decline.
“If you look at how expensive the U.S. market is, you look at price-to-earnings … It really is very expensive again,” Nenner said. “And our model does show … that we don’t expect the earnings to go up from here. Most of the up move is done.”
Also, he pointed out that markets think interest rates will rise.
“I say ‘the market thinks’ because I have a little bit of a different opinion,” he said. “What I’ve been saying for the last 10 years is, we’re still going to have a deflationary crisis. China is really getting into trouble. And China had a GDP that was doing well … Europe has a very low GDP. It’s almost on the brink of disinflation. The United States has a GDP on the brink of disinflation. … Knowledgeable people know something is going to happen, because earnings are not growing.”
Regarding the Chinese market’s recent decline, Nenner anticipates further loses, and expects other regions to show signs of faltering.
“The down move (in China) is not over yet,” he stated. “Things are breaking down in Greece. … When the cycles have problems, you see problems all over the world.”
International conflict may play a role in the impending downturn, Nenner said, adding that he also examines cycles of war and peace.
“It’s not that the market goes down because of … the wars,” he said. “It’s a bad period, so the markets go down and wars start to develop. Usually it comes from somewhere you don’t expect.”
All of this will eventually bode ill for the markets, Nenner believes, and he anticipates weak returns for the foreseeable future. In the short term, he thinks the stock market will see a 5 percent bounce, and then remain stagnant until his 2017 timeframe begins.
“Then it’s over,” he said. “If you’re in the market (at that point) you’re going to regret it.”
His outlook for things like oil, commodities and precious metals is also negative, even with the large corrections we’ve already seen in these areas.
“Commodities are in a long-term bear market, and that’s not over yet,” he said. “It doesn’t look good for the metals. … Crude oil could go back to the lows, around $40.”
“(It’s hard to see) why there would be an up move in the gold market,” Nenner added. “We’re just waiting for the cycles to bottom. It could take another year, another two years. I think it’s going to do nothing.”
Bond gains are one bright spot in the short term.
“In bonds you’re going to have a small rally,” Nenner said. “I can tell you when it starts. It’s supposed to start at the end of August, maybe the third week of August, into middle November. And then … bonds are going down again.”
When it comes to identifying opportunities, Nenner doesn’t see many under current conditions.
“The only answer I have is, we had a bounce in home prices,” he said. “I say ‘bounce’ because I think it will turn down again. If you have some money, buy some small apartments and rent them out. … Prices can come down until 2020 … but at least you have your rent.”
Sheridan noted that Nenner has been calling for the Dow to hit the 5000 level for some time, and that investing in real estate requires money, so it may not be possible for all investors.
To learn more about Nenner’s methods and predictions, visit https://charlesnenner.com.
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