Archive for December, 2016

Top 10 Predictions For 2017

Tuesday, December 13th, 2016

Time again to take out my crystal ball (or magic eight-ball) and have a little fun predicting what will happen next year. These predictions are in no particular order (and please remember that these are predictions of what I think will happen, not necessarily what I want to happen; click here to see how I did with my 2016 Top 10 Predictions):

10 – President Obama will not leave office quietly, issuing a number of Executive Orders and controversial pardons during his last few weeks in office (but not Hillary Clinton or Edward Snowden). While the Executive Orders may be quickly reversed once the President-Elect takes office, the pardons will anger Republicans and set a more negative tone as the political transition takes place. In addition, Democrats, still angry over how they feel Republicans have treated President Obama over the past eight years, particularly their obstructionism over filling the current Supreme Court opening, will try to make the confirmation of some of the more controversial Cabinet selections more difficult than is customarily the case.

9 – Whether because of (10) above, or because of the fight Democrats are sure to put up when then President Trump nominates his choice to fill the current Supreme Court vacancy, the Republicans will finish what Harry Reid started – the nuclear option – and legislate away the need for 60 votes for Cabinet and judicial appointments, including the Supreme Court.

8 – As to foreign policy, given the hawkish nature of the proposed military side of the Cabinet, the Trump Administration will be more proactive in working to fight ISIS (whether with our allies or going it alone), but will not send in a large number of ground troops. This will be a subtle change and in many senses a continuation of the current policy. However, rather than give in to Putin as many fear, Trump will actually work better with Putin, particularly as it comes to fighting ISIS in the Middle East, and this partnership will be more effective than the current alliance. Unfortunately, this partnership will not extend to Syria, and Assad will remain in power.

7 – As ISIS continues to lose ground in the Middle East (particularly in Iraq), they will continue to export violence to the West. There will be at least one major terrorist attack in Europe, and a continuation of lone wolf attacks around the world, including  in the U.S. Domestic non-ISIS terror will also become more common on both the left and the right in an increasingly divided U.S.

6 – Political turmoil will continue in Europe. We may see another economic crisis in Greece, a slew of bank rescues in Italy to avoid a complete banking collapse and at least one far right party attaining power. Tensions between Turkey and the U.S. and EU will continue to grow as the post-coup arrests and crackdowns continue; the EU will end talks with Turkey over membership. The Turkish Lira will continue its downward spiral, turning Turkey to the East and stronger Sino-Russian ties.

5 – Despite rejecting TPP (which Trump will do), relations with Japan and China will stabilize and there will not be a trade war. Trump will talk and negotiate tough, but stop short of doing anything to really escalate tensions. Relations with Taiwan will remain as is. Asian economic growth will eclipse that seen in Europe once again, and the trajectory of the militarization in the South China Sea will flatten out. Actions by the Philippines government will embolden China.

4 – The U.S. economy will grow slightly quicker than it has the past few years, and inflation will remain tame but rise slightly. The stock market will gain between  5% – 7%, continuing the current bull market, but there will be increased volatility which will follow the ups and the downs of the Trump Administration. The Fed will only raise interest rates two times during the year (25 basis points each time) as slowing growth in Europe and Asia, and perhaps some global destabilizing events, will offset some of the optimism in the U.S. The Fed will retain its overall dovish stance. The new administration will begin to realize the impact of rising interest rates on the national debt and will try to exert pressure on the Fed. Yellen will finish out her term and not resign during the year.

3 – The new administration will be able to enact an infrastructure spending bill and some tax reform, including repatriation of money back to the U.S., but the bills will be smaller than President-Elect Trump wants, and will be harder to enact due to resistance from both parties. The Republican Party will remain fractured, but has a vested interest in seeing Trump succeed. There will be changes made to Obamacare, but there will not be a full repeal, as Republicans need to make good on their promise to not have people lose existing coverage or the coverage of pre-existing conditions. There will be a major cyber event as well as an attack on the nation’s electric grid, resulting in increased spending to prevent such attacks in the future.

For the financial services industry:

2 – The Fiduciary Rule will not be repealed and the first part of the law will go into effect in April. This issue has not even been on Trump’s mind or agenda. There will, however, likely be changes made to the law throughout the year, somewhat softening the law before its final implementation in January of 2018. There will be increasing talk of repealing Glass-Steagall, but nothing definitive will happen in 2017.

Because of increased volatility in the market, active management will regain some momentum in its on-going public relations battle with passive management. ETF growth will slow, and I give a 50% chance of some kind of flash crash caused by ETF trading. Mergers and acquisitions among B/Ds and money managers will be slightly above average, and the overall movement of advisors and RIAs will be below average because of uncertainty over the Trump Presidency.

1 – Finally, some sports predictions: The doping scandal surrounding Russia will continue to increase, but FIFA will not move the 2018 World Cup which is scheduled to be held there. Alabama will repeat as National College Champions, beating Clemson (who will upset Ohio State in the semi-finals), the Dallas Cowboys will beat the Kansas City Chiefs in the Super Bowl, Kentucky will win the NCAA tournament, the New York Rangers will win the Stanley Cup, the Golden State Warriors will reclaim the NBA Championship and the Boston Red Sox will upset the Chicago Cubs in the World Series.

How Did I Do? A Review Of My Top Ten Predictions For 2016

Monday, December 5th, 2016

Time to review my Top 10 predictions for 2016. It was an interesting and unpredictable year, and my picks kind of followed that pattern – some good, some not so good. Analysis follows each prediction.

10 – Hillary Clinton will be elected to be the next President of the United States, beating Republican nominee Marco Rubio. She will be able to withstand the continued scrutiny over her e-mails, and despite the fact that many people will not be excited voting for her, the Republicans will have alienated too much of the electorate with their emphasis on social issues and overturning Obamacare. (Trump will not run as a third party candidate. At some point, he will get frustrated and quit, and justify it by saying he can make more money in the private sector!) I can’t imagine too many people got this one right. Even up until a few weeks ago I felt pretty confident about being half right. I was not the only person to underestimate the anger and division within the country. Clinton compounded the problem by running an uninspired campaign. 

9 – The Republicans will retain a majority in the House of Representatives, but the Democrats will retake the Senate, though fall far short of the 60 seats needed to enjoy a super majority. The result will be more gridlock, but that is a 2017 issue. There will still be gridlock because the Republicans don’t have a veto proof majority of 60 in the Senate, but I do think if the Democrats become obstructionists, the Republicans may do what the Democrats did a few years ago and legislate that rule out too. 

8 – President Obama will continue to go around the Congress with a number of Executive Orders, but the Supreme Court will uphold the illegality of his Order on immigration. He will also not be able to successfully close Guantanamo Bay before his term in office is over. Got this one right! I think Trump will reverse many of his Executive Orders in short order.

7 – ISIS will continue to wreak havoc in the Middle East and the world, despite increased bombing by the U.S. and its allies, and the U.S. will get drawn further into the battle. ISIS may lose land, but their global influence will increase, as will terrorist activities outside of the Middle East, including here in the U.S. There will be no leadership change in Syria. Got this one kinda right, as ISIS has exported its terror to the West. Still a lot of uncertainty of how this will all end up as the Iraqi army has done better than expected. Yup, still dealing with Assad.

6 – Russia’s global influence will continue to grow, as Putin aggressively props up the Assad regime and works to counteract the U.S. and its allies in the fight against ISIS. Tensions with NATO and Turkey in particular will increase, but Putin will stop short of provoking any military confrontations. Three in a row! Putin is probably pretty sad to see Obama go, as he has definitely expanded his influence over the past eight years. 

5 – The U.S. economy will continue to grow at a modest rate – in the 2% to 3% range, and inflation will remain tame. This modest growth will allow the Fed to tighten 3 times, but these will be small 0.25% increases and the Feds’s overall stance will remain dovish. The economy did grow about as I expected, but the Fed held tight on interest rates, mostly because of volatility at the beginning of the year and then global uncertainty as the year wore on. The Fed certainly remained dovish!

4 – The continued strength of the U.S. dollar (as European and Asian Central banks remain accommodative in their monetary policies), and the continued weakness in the price of oil, aided by new supply from Iran coming on the market, will continue to hurt profits of U.S. companies and will put a cap on the stock market. The market will be down 2% – 3% for the year. Missed this one. Despite the dollar and oil, the market behaved better than expected, certainly after the first six weeks of the year. U.S. companies also become more productive, so corporate profits are on rebound again.

For the financial services industry:

3 – ETFs will continue to come under increased scrutiny, following a tough 2015. Because we will be in a flat market, active management and stock picking will outperform, and I would not be surprised to see another ETF-induced selling panic, followed by a lot of negative press over the growing influence of ETFs. ETSs did come under some scrutiny, but things were not as bad as I thought that they would be. The active v. passive debate remains in full force, yet to be decided!

2 – Consolidation in the asset management industry, which was slow throughout most of 2015 before picking up at the end of the year, will continue and actually accelerate. There may also be a few large deals among the B/Ds as overall industry consolidation increases in the face of a second straight tough year in the stock market. There was consolidated among money managers, but less so among B/Ds, as the market rally continued. Fears and costs of the proposed Fiduciary Rule did have some impact (more on that to come this year.)

1 – And of course, some sports predictions: The Rio Olympics will be plagued by problems, in part a result of the political and economic turmoil plaguing the Brazilians. It will go down as the most poorly run and executed olympics in history. The Patriots will make it two in a row, overcoming all of their injuries and beating the Cardinals in the Super Bowl. Golden State will easily repeat as the champions of the NBA, and Alabama will beat Oklahoma for the college football national championship. The Rio Olympics went off better than I expected, and the biggest debacle was actually Ryan Lochte and friends! Kudos to the Brazilians, although the contrast between the Olympic venues and the abject poverty in the country did shine a light on whether the Olympics are really worth the expenditure. Missed the Super Bowl – didn’t see the Broncos coming; although things might have been different if the Pats hadn’t “thrown” the game in Miami and lost home field advantage. Alabama did win the National Championship (over a different opponent), and I could not be happy that I was wrong about the NBA. GO CAVS! You can take the boy out of Cleveland, but you can’t take the Cleveland out of the boy.