I’ve discussed in detail why annual predictions are relatively useless. In short, a 12 month period is too brief to establish a reliable data set for market predictions. There is simply too much noise inside of this time frame for us to establish high probability predictions. But hey, let’s not rain on the parade here. And yes, there will be a parade of these predictions….I am not going to disappoint you by not contributing to this slew of useless analysis. So, here goes nothing. I hope something here triggers a useful thought or at least some brief entertainment (at my expense of course).
- Stocks are at an increasingly high risk of underperforming bonds on a risk adjusted basis. Okay, this isn’t really an annual prediction as much as it’s a cyclical prediction that can be made until we see some serious mean reversion in the relative risk premium in stocks and bonds. In short, we’re late in an equity market cycle where stocks have become an outsized relative asset in the aggregate financial markets. Low or moderating performance going forward should be expected.
- The Euro crisis will flare up again in 2016. The European economy will remain weak and Greece will test the defection waters again as political instability increases. The Euro will reach parity with the US Dollar at some point during the year. Americans will flock to Europe to stuff their faces with the superior food Europeans produce. German cars will also bounce back in 2016 because they are simply better than most others.
- Continued low oil prices will cause increasing fear in the corporate bond space and will filter over into Middle East tensions. Austerity will slow growth in the Middle East as oil revenues force budget cuts. This will exacerbate instability in the region and will strengthen the position of ISIS. Terrorism will be more prominent than it has in the last few years.
- Donald Trump will be the next President of the United States. The American electorate will reluctantly vote for Donald Trump as he seizes on a world of instability and literally scares the American public into voting for anyone but a mainstream politician. Rising terrorism and economic instability will create an environment in which Trump’s harsh rhetoric and “do something” attitude is embraced relative to what has become the persistent dysfunction of mainstream politicians. He will nominate Marco Rubio as his running mate which will bolster his position in Florida and convince some hispanics that he isn’t a racist. Trump will brilliantly pivot to the center after winning the GOP nomination and will peg Hillary Clinton as a dishonest Washington Insider. He will not win a majority vote in the national election, despite enough clever manoeuvring to win the Electoral College. (This is a major outlier prediction. I request the right to be publicly shamed if I am wrong).
- Leonardo DiCaprio will win best actor for The Revenant despite the fact (yes, the fact) that Michael Fassbender was much better as Steve Jobs (I have not seen The Danish Girl so apologies to Eddie Redmayne). The Revenant will sweep the Academy Awards winning best picture, best cinematography, best director and best actor. Fassbender will be robbed of his superior performance thanks in large part to the brilliance of Alejandro Iñárritu whose magnificent film making abilities will carry many people on his back to award abundance. (I would like to hedge this bet by saying that Spotlight is probably the high probability bet for Best Picture, however I do think The Revenant will win the most awards).
- The Craft Beer bubble will burst. The $1B sale of Ballast Point Brewing will mark the top of the craft beer bubble as the economy slows and people slowly realize that getting drunk on whiskey is much more efficient and cost effective than getting drunk on overpriced IPAs.
- People will revolt against traditional gyms. A slowing economy will lead an increasing number of people to venture outside of the traditional gym environment. Fad workouts will continue to rise in popularity, but the majority will not maintain their recent momentum. More and more people will slowly realize that the best gym is the simplest low cost gym – your living room or the great outdoors. Wearable tech, however, will continue to gain momentum as more and more people utilize technology to explore their new found love for not being in a traditional gym.
- Mainstream media companies will fight tooth and nail in their last media war. The rise of Roku, NetFlix, Hulu and online streaming is just the beginning of a huge change in the way we consume media. Traditional cable companies will continue to lose market share as people “cut the cord”. TV is a medium of yesterday. TV consumption is moving online into shorter and shorter segments. Consumers won’t continue to pay $100+ per month bills for 800 channels they don’t use. Hollywood will also come under increasing pressure as consumers begin to question the rationale behind paying $30+ to see 3 hours of exploding nonsense. Hollywood’s home run reliant business model will become less stable as consumers move away from the theater and into the home theater trading in low quality graphic filled distractions for higher quality reasonably priced home viewing experiences.
- The asset management business will see record breaking consolidation, but M&A on the whole will decline. The rise of low cost asset managers, ETFs, Robo Services, etc will force increasing consolidation in a massive race to the low cost bottom. Consumers will be the big winners in a world where massively overpriced financial advice comes under attack. Hedge funds will lose assets for the first time since 2008 and private and public equity funding will experience year over year declines.
- I will continue to write excruciatingly nerdy and unfunny financial commentary. I will also piss off almost everybody at some point as I criticize the state of the financial industry and the world of mainstream economics. Some of you will love me for it, but most of you will hate me for it.
Happy new year and best wishes to everyone in 2016. It’s off to a fantastic start. And by “fantastic”, I mean shitastic. Here’s to hoping that it’s all up from here!
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.