Sell! Sell! Why The S&P 500 Will Halve In 2016

If you thought a low oil price was set to inspire a period of revived consumer spending and galvanized global growth, there is an alternative view you should know about. A report out today calls the impending end of the US business cycle, followed by a 50% drop in the S&P500 to 1,100 by March 2016 and another US recession.
The miserable soul who has predicted this grim event is Charles Robertson of Renaissance Capital, a regular fixture on this blog. He has a number of reasons for his bleak point of view.
 



One is history: that about eight years after the start of each mega crash (he cites 1929, 1973 and 2007), “the normal business cycle, and the consequences of measures taken to respond to that crash, combine to trigger another deep plunge in US markets.”
History in itself is not enough: one needs many other illustrations of trouble ahead. But Robertson thinks he has several. One is the fact that QE has had some daunting knock-on effects, starting with the rise of cheap lending and high commodity prices, then leading to a shale gas boom, and then in turn to the collapse of the oil price. We already know about the troubles Russia and Brazil are facing as a consequence, and Robertson thinks the next to feel the pain will be US banks, and commodity-exporting emerging markets (and more specifically the Eurobonds they have issued). Asset prices are too high and due a correction, and then there are a range of other worries, from renewed concerns about Greece to lack of growth in the broader Eurozone, from questions about the sustainability of China to geopolitical tensions.
Nobody else is really saying this, so why is Robertson? Partly, there’s a suspicion about motive – “we believe this is inevitable, despite all the contrarian sell-side banks who expect good global growth” – and partly it’s because he thinks consensus is sometimes dangerously wrong. He wrote to clients today:
“Consensus assumes Greece has no contagion risk for the Eurozone – and ECB QE will alleviate or cure many ills.
Consensus assumes the US will benefit from lower oil prices and grow at 3% in 2015-16