Montreal, Canada

Forecasting global markets is probably one of the hardest professions. Some think it’s a total waste of time. Predicting what lies ahead is almost impossible yet many analysts and pundits are paid hefty sums to forecast the future.

Only one economist, Nouriel Roubini, accurately called the credit crisis three years ago; everyone else had no idea it was coming – myself included.

It’s no wonder we all look for some sort of salvation. We all have a view. You might agree or disagree with my macroeconomic analysis and that’s alright with me; at the very least, I’m hoping it’ll serve to stimulate your investment strategy and hopefully, yield profitable results.

Still, I continue to make short-term wagers on the direction of the primary trend as I sift through all the indicators I’ve amassed over the past 19 years, including borrowing many market tools from veterans I’ve long followed. Guys like Richard Russell, Robin Griffiths, David Rosenberg, Nouriel Roubini and James Grant are the most influential analysts forming my investment strategy. And believe me, the last two years have been extremely challenging for experienced investors — myself included; I remain a bear on the economy, politics and global markets.

I’m still bearish because I don’t see how the economy is going to build a sustainable growth path with so much uncertainty. Obama’s agenda is bad for the United States. I think he’s completely lost and so are the yo-yo economists and advisors giving him policy advice.

Worse, the debt super-cycle, which began in the 1960s and gained extraordinary momentum during the 1982 to 2000 bull market and the subsequent credit boom from 2003 to 2007 is still deflating, threatening the financial system. Who can possibly make big wagers in this environment without hedging their downside? I think it’s financial suicide to do otherwise.

I can’t find anything especially cheap among the asset classes – nothing. Bond yields are super low, stock prices are fair value at best; dividends are okay but not great; most commodities have already blasted higher since 2002 and foreign currencies are drunk with debt. I think it’s only a matter of time until several sovereign nations default as government revenues eventually fall short of servicing monster-sized deficits.

About the only thing that’s cheap is borrowing or the cost of money. But where do you invest that cheap money? Maybe, just maybe residential real estate in the American south and southwest is a bargain. Perhaps Costa del Sol in Spain is a bargain.

I think the markets have started a correction process that will result in a 10-15% decline from current levels. That downtrend has already begun. By November, give or take a week or two, we’ll hit another intermediate low in the S&P 500 Index and then rally sharply higher through next April or May. After that, it’s lights out. I’m expecting a severe market decline, possibly a crash, triggered by a double-dip economic recession. That move might violate the March 2009 lows at which point I will be a heavy buyer of smashed-out large-cap global stocks paying big dividends in excess of 5%. This is a trader’s market. For most investors, it’s not worth playing unless you really know what you’re doing.

That’s my forecast. Take it or leave it.