crystal-ball-2017Market predictions 2017. As the year turns once again, many now are turning to a review of the past year, but more importantly, try to know where we are going in the future. So at Blue Point Trading we put together a list of ideas of what we could see for 2017. First, let’s review what we said last year at this time and see if we are right. Click here for the 2016 predictions.

The results of the 2016 predictions again (from 2015) followed pretty much with our theme of stagnation and a deflationary environment. Mostly flat on most asset classes, with small gains. One notable miss was the Brexit and the surprise win of Trump in the US elections. This affected the UK markets and with the surprise election win of Trump, sparked an asset rotation from Bonds to Stocks in the last month of 2016.

The 2016 market predictions results (click here and here to see where this an more economic YTD data can be found):

  • Prediction: Equities to finish flat. Results: US +8.50% and globally +4.60%. Though largely true for most of the year, the last month due to the Trump suprise win, which sparked a spectacular year end rally.
  • Prediction: Bonds to finish flat. Results: US T-Bonds +0.15%, US Corporates + 4.3% and globally -1.8%. Largely in line.
  • Prediction: The Dollar could go higher, flat to +5%. Results: +4.9%. Largely inline.
  • Prediction: Specific commodity and currency pairs: Bullish: USJPY, NZDUSD, USDCHF and AUDUSD. Bearish: EURUSD. Flat: USDCAD and GBPUSD. Gold and Oil could be ready for a slight bullish run. Results: Somewhat in line except for the GBPUSD due to Brexit and Gold in the last month due to the December Bond sell-off.
  • Prediction: Commodities flat to up +5%. Results: +9.8%. Somewhat in line, with some specific case commodities boosting the overall average.
  • Prediction: Real US GDP to average +1.5% to +2.5%. Results: +1.7%. Largely inline.
  • Prediction: Corporate earnings (profit after tax) look to stagnate again around 0% to +3%. Results: 4.26%. Mostly inline.

The multi-year mega trend of continued and accelerating fractional reserve lending, yielding ever higher wealth inequality, social dis-cohesions grows. Rising terrorism, nationalism, and racism were themes in 2016. This also caused a shift to the right politically manifesting in key political shifts globally as evidenced with Brexit and the US presidential election of Trump.

Key 2017 themes and risks:

From the 2016 theme of “stagnation and a deflationary environment”, the world may be giving way to a new world of “growth and risk” for 2017. With the rise of global populism, elites are responding to the movement and will coerce global institutions (public, but mostly private) to open the floodgates of investments, taking on new risks to try and satisfy the populist demands. Expansion of credit and money will provide money to new opportunities. The doomsayers in financial markets could get cleaned out creating an even bigger bubble than we have seen in decades. Hedge fund managers will be too scared to be short and not to be long.

The US will continue to be the engine for global growth. Regardless of what you think of the US election of Donald Trump, the economy and markets could get a boost. Deregulation, fiscal stimulus (government spending), and lower taxes are engines of growth – at least in the short run from an aggregate viewpoint. With all branches of the US government under one political party, it will allow many things to get done. How you do personally is not what we are measuring. The disconnect from Main Street and Wall Street will stay intact.

You might think this paints a rosy picture. In the moderate term (1 to 2 years) this may be true. So do not wallow in the pessimism porn of the doomsayers. But I said “growth and risk.” Markets and economies always overshoot. This expansion does carry risk. Too risky and/or poor allocation of capital will lead on the back end to credit problems on a massive scale. But this is for another time, and we have to deal with what we see today, not the fears of tomorrow as market participants.

The biggest short-term risk are two-fold. First is the instability of leadership, specifically Trump, but there are others. This instability could cause a self-induced geopolitical/policy misstep and cause an event leading to a spectacular crash. These risks are higher than normal and very hard to predict. The other is what I call the “jackals in the forest.” The world is currently realigning in so many ways, as people welcome any change. These jackals are plotting and will use this instability in leadership to co-opt opportunities to their own gain. Knowing human nature, this is highly likely. The results of these two risks are the same, a potential spectacular crash, and then the doomsayers will be correct. But waiting for a crash is a fools game, besides if a crash comes, everyone will be affected and it will be hard to hide from it’s impacts.

All this being said, the multi-decade monetary system of fractional reserve lending surpasses all trends. I have said many times, fractional reserve lending is the source of wealth inequality. The rich will get richer, though some trickle down will occur to keep the masses at bay for a time. When this new bubble eventually pops – oh dear. With a destabilized world and financial chaos, anything can happen. When will this happen? Markets and economies go longer and farther than you think. So for now ride the trend, and watch carefully with the finger always ready to sell.

Other specific predictions for 2017:

  • Terrorism is the new norm. People will learn to live with it. We will continue to see these incidents on a regular basis. It will be used to enable the ever increasing surveillance state. But people will give up their personal freedoms to the state in search of security – a decision later to be regretted in the future. This being said, the world is always one “911” event away from being shaken off its foundations – something always to watch.
  • Geopolitical and trade wars. The days of well-organized terror is ending (ISIS and Al-Queda). Governments are getting good at tracking and stopping them. Instead, these groups will decentralize and move even more online (private networks), working on low-tech ways on soft targets to disrupt and terrorize their enemies. They will live and operate within the defending host countries. Failed states will be used as pawns and military training grounds for new weapons of war. This gives way to regional wars, in the name of fighting terrorism. Raising borders will also be a new theme (the Trump Mexican wall and Europe’s Schengen agreement), which will be coupled with trade protectionism to of course fight terrorism and crime.
  • Technology and the war on cash. In general, technology innovation is a good thing. But frankly, there has not been much positive innovation recently. Most recent innovations have focused on disintermediating existing businesses, tracking people to benefit from people’s lack of security and personal failings, centralizing payment mechanisms (elimination of cash) to take a bigger bite of the shrinking potential profit (and collect taxes), and limiting free speech/ideas via public coercion (YouTube and Twitter participation is dropping). Perhaps these technologies have run their course. Technologies that enable the smaller individual to escape the mega companies might do better – Bitcoin and decentralized block chains (peer to peer) technologies for example. One controversial bright spot here may as well be the expansion of robotic/drone technologies.
  • Asia remains a global engine of growth. Growth however, causes change in the elite power structures. Will the current elites allow this change to occur or revert back to 20th-century tactics? This is a major risk for Asia. Asia must change, as the 30-year labor arbitrage with the West that it has benefited from is coming to an end. If “growth and risk” fails, Japan (financial) and China (political) will be ground zero for any crisis that will occur in Asia.
  • Europe remains the biggest drag on the global economy. Their behemoth social states are crumbling and the digestion of immigration will be problematic. Europe lacks leadership, and this does not look to change. At best they tread water and could get some meager growth. At worst, if “risk and growth” fails, it will be ground zero for a global crisis.
  • Emerging markets will continue to suffer under the weight of corruption. They will continue to go nowhere in 2017. However, if this global theme of “growth and risk” take hold, perhaps an interesting story for 2018.
  • Russia will continue to stomp around the world trying to remain relevant. Russia an interesting political football, is largely going nowhere – corruption and lack of innovative freedom due to its centralized power structure.
  • The death of the SJW (Social Justice Warrior). The SJWs have often gone into lunacy and hypocrisy and hence, the masses are rejecting the victimization mentality and trying to coerce their neighbors to their utopian world. People will be too focused on opportunity. Yes the SJW do have some points to be made, but a rising tide will lift all boats (or make everyone equally poor) making the net differences smaller, making their usefulness less significant.
  • Pandemics, climate change and natural disasters. Regardless of your belief that climate change is man-made, it is happening. Along with other natural disasters (increase earthquake activity), these events will be used to coerce the populist to run to governments to protect them. The other point here is the “loose” experimentation of genetics and GMOs. With a more connected world, a scientific misstep could unleash a man-made pandemic.
  • Inflation could be a theme for 2017. With “growth and risk” comes inflation and jobs, as the years of past central bank stimulus and potentially more fiscal stimulus in 2017 come into play. Some trickle down may finally come.
  • Real estate and other hard assets. With the monetary base set to expand significantly (and interest rates), now may be the time to get out of cash and get into hard assets – like real estate or gold.
  • Once again, central bank policy will be key. Though QE will continue, central banks may shift their money printing tactics by directing banks to increase loan risk profiles. Hence, an enabler of a cycle of increased “growth and risk” is coming.
  • The one potential positive “Black Swan” is energy technology. I would suggest that we are within 10 years of transforming the global economy from the fossil fuel age to a new source of energy that is a quantum leap in power amount, footprint size, and cost. We are talking not just alternative fuels of wind and solar, rather things like, fusion reactors or some type of antimatter engine. I don’t have to tell how transformative this innovation would be to the current global paradigm.

Every year I asked the question, “Will the people rise up?” – in a “Black Swan” event to demand a revolution? Here I got this one wrong in 2016. The people did rise up in the form of Brexit and the Trump election. This phenomenon has gone global and could continue in 2017. The status quo is changing, though perhaps not like many were thinking. The question now is, will it improve the lives of the ordinary people or, lead to something even darker? In the medium term (1 to 2 years) the answer to this could be yes. Longer term, greed and corruption may very well take over and the benevolence of the leaders of the movement may wane quickly, leading to an even a bigger crisis. We will have to watch and see.

One final note. Whatever the political or financial situation you may be living in, your personal career or personal life, we can not let these things stop our personal development and improvement. Whatever happens, we need to push forward and advance despite the world around us. Don’t let any negatives stop you from achieving your own personal goals. Let’s move forward!

The 2017 market predictions:

  • Equities – with the “growth and risk” theme, equities could see a good year with positive gains of 5 to 15%, though volatility will make it an interesting trading year.
  • Bonds – interest rates will continue to rise, though perhaps not as fast as the market thinks, finishing 0 to -5% down for the year.
  • The Dollar could continue its advance early in 2017 and then wane in the back half of 2017 to finish flat.
  • Specific commodity and currency pairs: Bullish: USJPY and USDCHF. Bearish: EURUSD and GBPUSD. Flat: NZDUSD and AUDUSD, though could rise in the back half of 2017. Gold will be looking to find a bottom in 2017 (around the $1000 area), setting up a long term buy. Oil looks to rise moderately 5 to 15% as supplies continue to weigh on the market.
  • Commodities – the bottom may have been put in the commodity markets in 2016. With an inflation theme setting in, we could see some good rallies of > 10% in commodities.
  • Real US GDP looks to advance 2.5 to 3.5% with similar global growth.
  • Corporate earnings (profit after tax) look to advance at a rate of > 10% over 2016, giving fuel to an equity rally.

Here is a potpourri of links to other predictions and YTD interesting chart data (if you find more interesting links, please put them in the comments section of this Blog post):

Learn more on this, review of the news headlines, technical analysis and more on your daily YouTube Blue Point Trading Morning Call. Click here, or watch below a video summary of this report.

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Blue Point Trading – Market Predictions 2017

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