Friday, 9 December 2016

2016 - The score card.

As it's December and before I think about next year, let's score last year's test sheet. I did publish some thoughts on 2016 back in Dec 2015 which can be found here, or we can just go to the marked up, in bold, version below.


2016 - I've been looking at trade recommendations from some houses and the complexity of some of them e.g. GS’s ‘Stay long a basket of 48 non-commodity exporters and short a basket of 50 EM banks stocks’ has me thinking that no one really has any confidence in anything at the moment. AS PROVEN. The idea that a year that has left many confounded ends with an outlook that is also bathed in confoundedness is not really to be unexpected. As a general rule, forecasts are normally an extrapolation of current mood. As they are this year

If I was to be completely true to my faith, now would be the time to go for some big calls that sit outside confused tweaks of yield curves or spreads of things that are pretty much reliant on good fortune than real cleverness. I don't want to be fooled by complexity. It may look clever, it may sound clever, it may even be funny, but it can still lose you money as fast as betting that Trump would be out of the running by now. Or even president-elect by now. 

But I don’t have any brave calls other than thinking that 2016 may see the following

-People will think that the Fed will hike faster than currently discounted, discount that, and then the Fed end up trailing market expectation again. I think we can score that as a HIT.

-The UK and GBP will take a hit as the rest of the world wake up to the fact that the ‘leave EU’ vote is going to be a very close run thing. BIG FAT HIT. I would love the UK to join NAFTA instead. Well, many laughed when I wrote that but it’s become a ‘thing’ 
If Turkey can be considered part of Europe then why not UK part of the North American continent. And a valid ref to the absurdities of Turkey/Europe relationship which has been killed by the EU’s handling of the coup.

-Europe will continue to politically melt like a lump of fat on a hot plate - From the bottom. HIT. Populism is rising ( Italy, France, Austria etc) at the base of societies whilst the top try to wish it away. The only hope is that economies grow fast enough to defuse nationalistic unrest. HIT And so far it has, a recovering economy funded by ECB morphine has so far mellowed the nationalistic risings so that they remain below violent unrest. Greece will become an issue again in June. MISS but I do think there was a large incentive to keep Greece on track through the Brexit referendum.

-China will be just fine but relations with the west will continue to cool politically. HIT, The Chinese economy still hasn't succumbed to the woes perpetually peddled since the Aug 2015 devaluation. Relations with the US have just taken a battering with Trump, on top of the South China Sea developments.

-Something will happen in the oil markets to see prices rise,  HIT a $20 target was pretty widespread this time a year ago, the breath holding contest between marginal producers is going to see drownings. HMM.. Some but really not that many. Or someone forcibly goes in to turn the taps off in Saudi. Was never really likely at this point

-ECB will continue to trade Oil. ( i.e. energy and commodity price inputs will be the main sway to EU inflation and ECB will follow the swinging watch chain, hypnotised) YOU CAN MARK THIS ONE. Inflation has picked up towards target AS oil has risen ( Bloomberg style headline implication there) but  am too honest to say 'because'  though it has been an input . I am beginning to wonder what the ECB is actually following these days and am worried that they are still too busy protecting balance sheets to notice that they really ought to be reining in QE on a purely economic basis. 

-Iran becomes more of a friend to the west MEH, it depends upon who you talk to. The EU are still keen but Trump's threats to tear up the nuke deals could put as back into the dark ages here, though I don't think it is likely. putting further pressure on Saudi Arabia. Well, Boris Johnson started that yesterday, in a Don Quixote manner, but it's hardly policy. 

-Saudi Arabia will come under someone’s cosh in general. Too many points of interest coincide at Saudi Arabia. I want to roll this one over to next year 

- The West reduce sanctions against Moscow. I don’t know what will be the catalyst, but something will thaw relations. MISS (so far)  I'll let this call roll over to next year to see if TrumPutin is a bromance or a cage fight. 

- Equities will have a shake down at the beginning of the year HIT and there will be the usual 'EM is going to collapse' call (seems a regular feature of Januaries) HIT but then you scoop them up with both hands. Probably on the 19th Jan. HIT, BULLSEYE, BINGO, though I was 6 hours too early on the call, but I challenge any investment bank to have called a dump and the day it would turn in a yearly forecast. 

- Banks will continue to morph into old fashioned post offices as they are squeezed between regulation and Fintech. HIT - RBS has become, as predicted a while back, the British Leyland of banking, only allowed to provide post office banking services.  The intelligent output of Universities is now going to where it always should have gone, science, engineering and creativity. HIT

- Inflation will be back. HIT, and back with a fury in future expectations. It's sometimes hard to remember just how ingrained the markets were with deflation only a year ago. Great for deflating debt but only as long as real rates stay negative while inflation rises otherwise the cost of servicing debt could wipe out borrowers before their debt levels denude through inflation. But judging by the ECB, BoJ and suggested Trump fiscal policy, the cash portals are still wide open. 

So all in all, on top of mid-year calls for a Brexit win, a Trump win and market bounces thereafter, it has been a pretty good year all round at Polemic Capital LLC.

I did also include some sillier things that   would have LIKED to see happen in 2016, so let's have a look at those too.

- Amazon is found to be run by creatures that otherwise occupy the 'Tripods' in 'War of the Worlds' as I gather the way they treat humans is similar. NOPE, in fact I like Amazon now. Christmas won't be possible without them. 

- SKY TV go bust. NOPE not yet, though many I know have spent 2016 trying to leave them. 

- The road works on the M3 will be finished, or at least finished before the world is engulfed by the sun as part of its natural evolution towards a red giant. FAT CHANCE, tumbleweed still blows down the cordoned off sections. 

- People will fix your computer rather than telling you how to do it. Yes oh Yes, I found a shop that takes in your laptop and fixes it without charging an Apple based price nor referring you to a 3hr long Youtube clip of a Canadian telling you how to do it yourself.

- Trump and Putin meet in a cagefight - on the basis that two men enter and hopefully neither leave. Still could happen see bromance/cage fight outcomes mentioned above

- Politicians are fined for every proven untruth they tell. Check your stats folks... DREAM ON, Trump would have a bigger debt than the Fed balance sheet

- Banks will work with retail so that all transactions automatically attach an invoice to your online bank statement which is automatically downloaded into accounting systems. Not yet, though apps are improving.

- A large blank swathe of Syria is secured by international forces and new cities rebuilt to rehouse all the fleeing refugees. Better to rehouse on their own land than in foreign countries. Far too sensible, never happened. 

- A new ‘thing’ is invited that becomes the must have essential item for the whole world, kick starting economies (large TVs, phones and cars have run their course) STILL WAITING, though self-drive cars are where the money is being thrown. 

- Battery energy density break through. Not yet. Musks's gigaplant producing Li-Ion batteries is probably safe for another year though Na-Ion may be next. 

- Someone invents a new class of antibiotic. Unfortunately not

- Scotland gains independence whether they like it or not. Unfortunately not

- Peak Political Correctness occurs when my offence at your offence causes stalemate in the Ombudspersons judgepersonst. Well in a way Brexit and Trump wins probably did mark the peak of political correctness. 

- People reading from 2000yr old books stop trying to change my life. MISS They still try, but have now been joined by people I just generally don't agree with. And there a lot more of them. 


No surprises there really.

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