2016 is behind us and we have started a new year with great gusto and no small measure of anxiety. The potential for unknown unknowns turning into banana skins is very high. Right now we are looking at:
- The broad US stock markets & the UK FTSE are breaking new highs
- Investment flows are rotating from Bonds to Equities on the back of a Trump driven reflation outlook
- Donald Trump is President Elect
- The Fed has initiated a long anticipated rise in interest rates
- Global Debt levels as a percentage of GDP has never been higher
- Britain is going through the painful process of divorcing itself from the EU,
- France is facing elections where far right and and anti EU parties may take power
- Italy’s banking system is in crisis with the weight of EUR 300 Billion in bad debts
- Germany’s Merkel is losing core support and the Anti – EU forces are gathering power
- China is being buffeted by global protectionist rhetoric and lacklustre domestic demand, can she manage the domestic discontented?
What could possible go wrong?
Many of these changes have their genesis in misguided monetary policy, specifically those pursued by the US Fed in the 1990’s and since, with micro management of economies via stimulus, artificial interest rates and the Pandora’s box that is Quantitative Easing. The risk of the “2 a.m. tweet” where policy is poorly stated or misunderstood is very real. What is of real concern is that many of the themes we identify are based on developments that are very new and lack much historic context, especially when one considers the scale of the economies that may be effected.