Well, 2016 is over half way in the books. And since I am a big fan of personal accountability I am going to hold myself personally accountable for my “useless” predictions for 2016. I must say, however, since they’re “useless” and forecasting is out of fashion these days (not sure how anyone can make decisions about the future without making implicit forecasts, but whatever) then hopefully none of you will hold me too accountable here. This is, after all, mostly for fun….
Prediction #1 – Stocks are at an increasingly high risk of underperforming bonds on a risk adjusted basis.
Update – My cyclical view on stocks vs bonds is that we’re late in an equity market cycle where stocks have become richly valued and are likely to generate lower future returns, though not necessarily lower volatility type returns. This is consistent with historical performance late in a bull market where stocks tend to generate worse risk adjusted returns.
With the MSCI All World Stock Index up 4.6% and the Global Bond Index up 5.8% I think it’s safe to say that this has been pretty spot on so far. On a risk adjusted basis it’s not even close as bonds have been extremely stable relative to the rollercoaster ride we’ve seen in stocks….
Prediction #2 – The Euro crisis will flare up again in 2016.
Update – Well, it wasn’t much of a flare up, but Brexit certainly caused some short-term upheaval in the markets. I didn’t think it would be a big deal and I said people should “Bremain Brational”. That didn’t stop markets from falling sharply in the aftermath only to realize that that shouldn’t have fallen at all in the first place….The Eurozone is the economic turmoil gift that keeps on giving.
Prediction # 3 – Continued low oil prices will cause increasing fear in the corporate bond space and will filter over into Middle East tensions.
Update – Oil prices are up 22% this year and still 58% off their 2014 highs. I guess you could say that these prices are still low, but there hasn’t been much fear in the corporate bond space and especially the energy space. This has been a pretty worthless prediction so far.
Prediction #4 – Donald Trump will be the next President of the United States.
Update – This was my big outlier pick. And it was the one that caused the most angry/shocked emails. I wasn’t really making a political pick as much as I was reading the temperature of the voting public. And people are angry. They want real change. They want an outsider. In a field of weak candidates Trump was the only one who fit the bill. Will he still win? I don’t know. I had since updated my pick here to Hillary based on some of the crazy things Trump has said, but he sure looks like the Teflon Don at this point. Hillary is a very vulnerable candidate that Republicans can easily rally against, but I suspect we’ll learn a lot more about these two candidates when they stand on a debate stage together. I hope you have plenty of popcorn ready for that. It should be incredile TV, which is kind of sad considering that politics shouldn’t resemble the circus it seems to have become….
Prediction # 5 – Leonardo DiCaprio will win best actor for The Revenant
Update – It was only a matter of time. I actually thought Tom Hardy was the better character in this film and certainly had the better beard, but I guess they don’t hand out awards for great beards. Which is a real shame because I’ve got one going right now that, in my opinion, rivals just about any great Civil War beard. Here’s an update at the right of me lecturing Josh Brown’s office mates in NYC last month. Look how bored both guys in the doorway are. I guess beards don’t make lectures on economics any more exciting.
The rest of my predictions were fluff so I will spare you the further ramblings on them.
I hope your 2016 is turning out better than the news headlines might make us believe.
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.