Those who have knowledge don’t predict. Those who predict don’t have knowledge.” ~ Lao Tzu, 6th century BC poet and father of Taoism
It appears Lao Tzu anticipated the accuracy of our 2016 predictions twenty seven centuries ago. While we got a few right (rebound in gold mining and Brazilian stocks, the demise of Valeant Pharmaceuticals, and 50/50 chance Trump would be the next president), we got plenty wrong, most notably a 25% bear market in stocks.
Bloodied, but unbowed, here is our short list for 2017:
1) The Trump honeymoon is short-lived, doomed by absurdly high expectations, faulty economics and political expediency.
– positives: Sanctions against Russia end as the Cold War thaws. Regulations are cut, especially in the energy sector. U.S. corporate tax rate is cut to 25%, bringing it more in line globally.
– negatives: Obamacare is not repealed, but instead replaced with a watered down version, dubbed “Trump Care.” The debt ceiling is raised in March and federal spending continues to grow unchecked, even adjusted for inflation and population growth. Trade tensions increase. Common Core is not repealed.
2) Global economy officially enters recession. China, the Euro Zone and U.S. all join the fray.
3) Global backlash against the political establishment continues. Populist parties do especially well in Europe. French, German and Italian bonds suffer. Heading into 2018, a breakup of the EU looks like a serious possibility.
4) Most global equity markets enter bear market territory. The S&P 500 ends the year down over 20% (below 1800).
– worst performers: financials (global banks, investment banks, auto finance, bond insurers), REITs (retail and office), technology, industrials, Chinese financials
– best performers: discount retailing (Wal-Mart, Dollar Tree), food-related, fertilizer, genomic sequencing (Illumina), cancer drugs (Bristol Myers)
5) Inflation begins to become a concern. Gold and gold mining stocks do very well.
6) U.S. dollar peaks, losing ground to the Swiss franc, euro, British pound and Japanese yen.
7) China cracks widen. Bonds extend losses. Equities fall over 20%. Yuan experiences at least one official devaluation, even though the Chinese sell over $200 billion in U.S. Treasuries to shore up their currency. Trump cries fowl, labeling China a “currency manipulator.”
8) Official U.S. deficit for fiscal year ended 6/30/17 exceeds $600 billion. Talk of future trillion dollar deficits becomes more commonplace.
9) Active investing makes a comeback. BlackRock is a notable underperformer.
10) Global free market reforms are a mixed bag. Brazil makes progress, India regresses.