Thursday, December 31, 2015


Well, 2015 comes to a close.  It could have been worse; it could have been a heck of a lot better.  The problems we faced in 2014 remained with little improvement save for the threat of world-wide default which gripped many in the previous year and faded away--as predicted--in another kick the can exercise.  The EU remained intact and now the greatest threat appears to come not from the Greeks of the world but from the UK which may become quite serious about a referendum unless Brussels discovers that it is not the seat on the universe.  This is going to be THE story of 2016 Over There especially since the UK with now the best economy in Europe (sorry, Little Paulie) gains bargaining strength.  

That is not to say improvement has been absent.  The U.S. economy has once again proven to be the most resilient in the world, aided massively from the drop in energy prices, but that of course is a U.S. made phenonem.  But even with this following wind, the stock market will close out the year essentially where it started indicating a perceived economic weakness going forward and the threat of higher interest rates which of course was the underpinning of equities in the first place allowing financing for the payment of dividends and stock buy-backs.  Frankly, I am less concerned--if that is the word--for the realization of the Fed's projection of four more raises in '16.  With the best estimates for economic growth well within the 2-3% range in this election year this highly politicized Fed is going to be very chary about raising rates less the projections are knocked even lower.  Another rise in March is in the cards but then I think it will be "wait and see" for the rest of the year.  From a foreign  exchange standpoint many will breath easier as the threat of a stronger dollar hangs heavy over the indebtedness encompassing a good deal of the emerging markets. But unless the world economy improves, all of this may well be moot.

Flash points?  Clearly, the Middle East.  There must be stabilization.  Within that geography the critical point is Saudi Arabia about which I know nothing but suspect that any political disruption there will make all that has come before look like a child's game.  The refugee problem has already shaken Euroland to it's core and will continue to have a massive political effect well into next year.

Russia retains the capacity to cause immense problems...not so much on the political front although the concern should remain great...but economicly.  The Ruble in approaching the end of the year has crashed: the Russian corporate sector is awash in hard currency debt, the amount of which is probably not fully known.  As a consequence, the relationship between Putin and the oligarchs must be strained with the future cloudy.  The ultimate emerging market risk/reward scenario.  Funny, of the so-called BRIC nations so much in favor a few years ago, only India shines brightly for the coming year.

Of course the greatest risk of all remains the possibility of a major terrorist event in the United States.    Whilst the probabilities of such an event occuring are reportedly low, the result would be devestating both here and world-wide.  To begin, the election would for all intents and purposes be decided with enormous social consequences as the victorious party would attain huge majorities.  Financially, the outcome cannot be gauged.  Internationally, the U.S. would be forced by its population to take immediate action which as we have seen is not always well-reasoned either in times of crisis or as a result of supposed strategic thought.  When the elephant rolls over...

I'm getting old and as a natural result, I'm becoming more risk adverse.  A word of advice to those of you soon to be in my position: find yourself a university town and when you retire, go there.  It's hard not to be influenced by the enthusiasm and excitement of the students with whom you interact and it is perfect tonic for the grumpy old man attitude one develops as life goes on.  The kids are terrific; they are the perfect embodiment of the attitude that a former Chairman of Salomon Brothers once expressed.  "I want people who come in every morning ready to bite the ass off a bear!"  You need that around you provided you never forget what we of a certain age have all learned;  sometimes, the bear bites back.

Taking a week off.   A Healthy, Happy and Prosperous New Year!


No comments:

Post a Comment