The turning of the calendar bring many to espouse their views for the coming 12 months. In the spirit of our Digital Diary, we decided to grab a few of the more popular and a few that you may not have heard of but we follow!
We will review these next year to see how everyone has done:
Byron’s Ten Surprises for 2016 are as follows:
1. Riding on the coattails of Hillary Clinton, the winner of the presidential race against Ted Cruz, the Democrats gain control of the Senate in November. The extreme positions of the Republican presidential candidate on key issues are cited as factors contributing to this outcome. Turnout is below expectations for both political parties.
2. The United States equity market has a down year. Stocks suffer from weak earnings, margin pressure (higher wages and no pricing power) and a price- earnings ratio contraction. Investors keeping large cash balances because of global instability is another reason for the disappointing performance.
3. After the December rate increase, the Federal Reserve raises short-term interest rates by 25 basis points only once during 2016 in spite of having indicated on December 16 that they would do more. A weak economy, poor corporate performance and struggling emerging markets are behind the cautious policy. Reversing course and actually reducing rates is actively considered later in the year. Real gross domestic product in the U.S. is below 2% for 2016.
4. The weak American economy and the soft equity market cause overseas investors to reduce their holdings of American stocks. An uncertain policy agenda as a result of a heated presidential campaign further confuses the outlook. The dollar declines to 1.20 against the euro.
5. China barely avoids a hard landing and its soft economy fails to produce enough new jobs to satisfy its young people. Chinese banks get in trouble because of non-performing loans. Debt to GDP is now 250%. Growth drops below 5% even though retail and auto sales are good and industrial production is up. The yuan is adjusted to seven against the dollar to stimulate exports.
6. The refugee crisis proves divisive for the European Union and breaking it up is again on the table. The political shift toward the nationalist policies of the extreme right is behind the change in mood. No decision is made, but the long-term outlook for the euro and its supporters darkens.
7. Oil languishes in the $30s. Slow growth around the world is the major factor, but additional production from Iran and the unwillingness of Saudi Arabia to limit shipments also play a role. Diminished exploration and development may result in higher prices at some point, but supply/demand strains do not appear in 2016.
8. High-end residential real estate in New York and London has a sharp downturn. Russian and Chinese buyers disappear from the market in both places. Low oil prices cause caution among Middle East buyers. Many expensive condominiums remain unsold, putting developers under financial stress.
9. The soft U.S. economy and the weakness in the equity market keep the yield on the 10-year U.S. Treasury below 2.5%. Investors continue to show a preference for bonds as a safe haven.
10. Burdened by heavy debt and weak demand, global growth falls to 2%. Softer GNP in the United States as well as China and other emerging markets is behind the weaker than expected performance.
01U.S. real GDP remains below 3% and nominal GDP below 5% for an unprecedented tenth year in a row
02U.S. Treasury rates rise for a second year, but high yield spreads fall
03S&P 500 earnings make limited headway as consumer spending advances are partially offset by oil, the dollar and wage rates
04For the first time in almost 40 years, U.S. equities experience a single-digit percentage change for the second year in a row
05Stocks outperform bonds for the fifth consecutive year
06Non-U.S. equities outperform domestic equities, while non-U.S. fixed income outperforms domestic fixed income
07Information technology, financials and telecommunication services outperform energy, materials and utilities
08Geopolitics, terrorism and cyberattacks continue to haunt investors but have little market impact
09The federal budget deficit rises in dollars and as a percentage of GDP for the first time in seven years10Republicans retain the House and the Senate and capture the White House
10Republicans retain the House and the Senate and capture the White House
SeaBreeze Partners Doug Kass: Note Potential Surprises – Outliers
Surprise No. 1: Terrorism Dismantles an Already Fragile Global Recovery
Surprise No. 2: Terrorism Goes Cyber
Surprise No. 3: ‘The Mother of All Flash Crashes’
Surprise No. 4: Terrorism Hits Mideast Oil Infrastructure
Surprise No. 5: America Falls into Recession and Stocks Tank
Surprise No. 6: Stagflation
Surprise No. 7: The Federal Reserve Doesn’t Raise Rates
Surprise No. 8: China and Russia’s Economies Falter
Surprise No. 9: The European Union Begins to Unravel
Surprise No. 10: It’s Hillary vs. The Donald
Surprise No. 11: Housing and Autos Tank
Surprise No. 12: Warren Buffett Stumbles (Literally and Figuratively
Surprise No. 13: Goodbye FANG and NOSH, Hello CRABBY
Surprise No. 14: More Unicorns
Oil goes to $65 a barrel in 2016 !
Have a great Day!
John A. Kvale CFA, CFP
8222 Douglas Ave # 590
Dallas, TX 75225