As career paths of professional investors go, Katherine Collins, CFA, certainly has a diverse one. Formerly a portfolio manager and head of US equity research at Fidelity Management & Research Company, Collins later attended Harvard Divinity School before launching her own biomimicry-based research firm, Honeybee Capital. In The Nature of Investing: Resilient Investment Strategies through Bio - mimicry , Collins examines how a better understanding of the natural world can lead to optimal decision making. In this interview, Collins discusses why honeybees are such good decision makers, the mechanization of the investment industry, and how preparing for uncertainty is different from preparing for risk. ... Biomimicry is the conscious emulation of natural wisdom in our products, processes, and designs. Many people think if you’re just using something from nature, that’s biomimicry. That’s not quite it. It’s the process of looking to nature as a model and a measure of our own endeavors, interwoven in every step of the process.
Statistically speaking, 2013 was a strange year indeed. The US reported very modest consumer price inflation of 1.5%, whereas the European Union and Japan came in even lower, at 0.86% and 0.36%, respectively. But during the same period, a painting by Francis Bacon called “Three Studies of Lucian Freud” sold for $142.4 million, the highest price ever paid for a painting at auction; a 59-carat diamond sold for $83.2 million, the highest price ever paid for a diamond at auction; trophy real estate prices in Manhattan, London, Sydney, and many other places soared past previous records; a limited-edition batch of Kentucky sour mash whiskey sold out at nearly $4,000 per bottle; and, of course, most developed-world equity markets marched in lockstep to new highs. ... The emergence of so many bubble-like niches in an ostensibly low-inflation world is curious. For instance, if the value of such major cur- rencies as the dollar and euro is stable, why were all these assets becoming so much more pricey? That is, after all, the same thing as saying that when valued in fine art or London penthouses, the world’s major currencies were actually plunging. Either those hot asset classes were simply random bits of foam in a vast, otherwise calm, disinflationary sea or the generally accepted definition of inflation is, in some fundamental way, flawed.
Over the past 15 years, the global economy has operated under two different growth models. Between 1999 and 2007, the growth model operated through ever larger trade imbalances between emerging market and commodity exporting countries – who ran larger and larger surpluses – and a group of rich countries – first and foremost the U.S. – who ran larger and larger trade deficits. Global imbalances were then seen as a problem by some, but they were really a symptom of the global geographic distribution of aggregate supply and demand, with excess supply in the high-saving emerging market countries and excess demand in some low-saving rich countries (and with energy exporting countries doing quite well as they exported to both). These supply-demand and saving-investment imbalances generated huge international capital flows that were sufficient to bring global demand into line with abundant global supply of goods at something approximating the full employment of global resources. ... That growth model obviously broke down in the global financial crisis years of 2007–2009 as global imbalances shrunk in line with global aggregate demand. From 2009–2014, the global economy has operated under stimulus from “nontraditional” monetary policies that pushed policy rates to zero and ballooned central bank balance sheets through massive “chunks” of quantitative easing. Also, the global policymakers “went Keynesian” for a couple of years during and following the crisis by delivering a large dose of fiscal stimulus. The good news is that, as a result, the global economy avoided depression and deflation. But that’s all they did or could reasonably do. The reality is that now, five years after the global financial crisis, average growth in the global economy is modest and the level of global GDP remains below potential. The global economy has not as of today found a growth model that can generate and distribute global aggregate demand sufficient to absorb bountiful global aggregate supply. Unless and until it does, we will be operating in a multi-speed world with countries converging to historically modest trend rates of potential growth with low inflation. 0% neutral real policy rates for many developed and some developing countries will likely be the investment outcome.
As crisis-induced fear fades, companies take on more leverage ... Companies are increasing their borrowing for three main reasons. The most obvious is that interest rates are low, meaning a key cost, borrowed money, can be obtained cheaply. That can result in higher returns to shareholders. Moreover, rates are likely to rise, which is encouraging companies to lock in low rates while they can. ... A second driver is the resurgence of activist investors which, emboldened by a benign economic environment, are pushing firms to return to shareholders cash that had been retained for a rainy day. There are weekly announcements of one hedge fund or another pushing a company to buy back shares, as much for short-term reasons—a large buyer in the market might temporarily push up the price of a stock—as for longer-term ones. ... And then, inevitably, there is tax. Many large companies are quietly following the well-publicised example of Apple by issuing debt to fund dividends or buy-backs rather than repatriating cash held overseas that would trigger large tax payments. Aside from the quirk of holding cash abroad, debt itself offers tax benefits: interest payments are tax-deductible and push down taxable earnings.
There are striking parallels between the dramatic recent sell-off in U.S. Treasuries and the Great Bond Crash of 1994. But the summer of volatility now facing financial markets is no doomsday scenario. Instead, it puts the U.S. Federal Reserve in a bind. Higher interest rates will reduce housing affordability, which is especially troublesome since housing is the primary locomotive of U.S. economic growth. That means the Fed, despite Ben Bernanke’s recently announced timetable, may be forced to expand or extend quantitative easing if the housing market’s response to recent events becomes more acute and starts to negatively affect the job market recovery.
The animal spirits are stirring again in the markets as the asset management industry grows to a record level and shrugs off some of the debilitating effects of the financial crisis. ... The amount of money invested globally by asset managers has for the first time surpassed the highs before the 2007-08 crisis, according to Boston Consulting Group, the management consultants. ... Gary Shub, partner at BCG, agreed that animal spirits, a term used by economist John Maynard Keynes to describe positive actions because of instinctive optimism, had recovered in the markets, although he warned it was not a fully fledged revival.
The index fund pioneer’s low fees have driven down costs but is its success a cyclical phenomenon? ... It passed the $3tn mark in assets under management globally last year, as international growth spurted alongside the US; today the total is $3.4tn. ... if there are vulnerabilities, they are in three areas: the shift to passive investing may prove to be partly a cyclical phenomenon; Vanguard’s move into giving financial advice could cause friction; and regulators could decide to step in to stop the firm becoming too big to fail. ... Instead of having outside shareholders, Vanguard is owned by its funds, which means that instead of having to charge fees high enough to generate a profit for shareholders, it operates “at cost” and charges only enough to cover expenses and business investment. ... The Financial Stability Board, based in Basel, Switzerland, has suggested designating every fund with over $100bn in assets as a “systemically important” organisation and subjecting them to tougher oversight and perhaps other requirements, all of which would raise costs.
With its volatile currency and dysfunctional banks, the country is the perfect place to experiment with a new digital currency. ... His occupation is one of the world’s oldest, but it remains a conspicuous part of modern life in Argentina: Calle Florida, one of the main streets in downtown Buenos Aires, is crowded day and night with men and women singing out “cambio, cambio, cambio, casa de cambio,” to serve local residents who want to trade volatile pesos for more stable and transportable currencies like the dollar. For Castiglione, however, money-changing means converting pesos and dollars into Bitcoin, a virtual currency, and vice versa. ... That afternoon, a plump 48-year-old musician was one of several customers to drop by the rented room. A German customer had paid the musician in Bitcoin for some freelance compositions, and the musician needed to turn them into dollars. Castiglione joked about the corruption of Argentine politics as he peeled off five $100 bills, which he was trading for a little more than 1.5 Bitcoins, and gave them to his client. The musician did not hand over anything in return; before showing up, he had transferred the Bitcoins — in essence, digital tokens that exist only as entries in a digital ledger — from his Bitcoin address to Castiglione’s. Had the German client instead sent euros to a bank in Argentina, the musician would have been required to fill out a form to receive payment and, as a result of the country’s currency controls, sacrificed roughly 30 percent of his earnings to change his euros into pesos. Bitcoin makes it easier to move money the other way too. The day before, the owner of a small manufacturing company bought $20,000 worth of Bitcoin from Castiglione in order to get his money to the United States, where he needed to pay a vendor, a transaction far easier and less expensive than moving funds through Argentine banks. ... Avalancha offers customers a 10 percent discount when they use the virtual currency, because accepting credit cards generally ends up costing Avalancha more than 10 percent as a result of the vagaries of the Argentine financial system.
Worries grow about an ill-thought-out new European tax … WHEN the European Commission first mooted a financial-transactions tax (FTT) in 2011, the reaction was subdued. No longer. As plans for an FTT covering 11 European nations—including Germany, France, Italy and Spain, but not Britain—have advanced, opponents have grown more worried. Rather more unusually, supporters of the tax also seem to be more nervous. … In February the commission published a proposal that would allow the 11 countries to press ahead with an FTT without all the other European Union members. It hopes that by the start of 2014 they will begin to charge levies of 0.1% on equity and debt transactions and 0.01% on derivatives.
Machine learning, artificial intelligence and other technological advances are transforming how pensions, endowments, sovereign funds and other institutions manage their assets. ... Will the financial services industry soon be challenged by technology entrepreneurs with little initial - or no exclusive - interest in the investment business? ... The hot technologies being developed today will offer unparalleled insight into the complex world around us, and the applications to the entire domain of finance and investing are countless. ... One example: The ascendance of nonbiological intelligence means computing systems will learn and process many types of inputs far faster than even the most-expert individuals. Once experts partner with the systems, these man-machine teams will become extremely competent at rules-based goal seeking. The days of using scarce computing resources to model complex systems - backcasting, calibrating, validating and eventually forecasting - are nearly over. ... a growing number of computing systems and technologies will empower people, organizations, networks and information in transformative ways. Service industries will be particularly affected, as they often require human, labor-intensive analytics and networking scale. But if technologies can help people network and analyze faster and better, some of the companies in the industries that provide these services will face an existential challenge. As with the rise of computing and the Internet, we expect new technologies in the coming decade to challenge service industries, such as finance, in ways that few people today appreciate.
And as president and CEO of the Federal Reserve Bank of Dallas, Richard Fisher helps make the money go round. Meet the Fed’s most unlikely central banker. ... Fisher, it quickly became clear, also had a knack for colorful anecdotes, which he often drew from time spent on his ranch, in East Texas (the family leases out most of the grazing land but keeps a few dozen Longhorns for breeding purposes and rhetorical flair). A good example of this comes from a speech Fisher gave last year, in which he explained to a group of North Texas businessmen and women that his breeding bull, Too Big to Fail, has “plenty of liquidity at his disposal” but that the bull couldn’t do his job if there was a fence between him and the cows. American businesses, he continued, are faced with a fence of their own—a “fence of uncertainty.” The talk got a mixed reception. “Some people in Washington were aghast,” he told me later, but he had received a nice message from one of the cattle ranchers in the audience, who said that for the first time he understood monetary policy.
In four quick years, the concept of the "new normal" has gone from being viewed as unlikely by most analysts and policymakers to becoming consensus. The popular application of the phrase now extends well beyond its original conceptualization that simply encompassed economic and financial prospects. It has also been used to describe medical procedures, unusual weather patterns and geopolitical shifts. It even gave rise to a television series. ... Yet all is not well for the concept of the new normal. Yes, its popularity has expanded. Yes, it has become conventional wisdom in most policy and market circles. And yes, the concept has proven consequential for evaluating the effectiveness of policies and the potency of traditional investment approaches. But there is also an important qualification: The concept itself is morphing, evolving to describe a contextual configuration that is less stable and more unpredictable. ... The purpose of this paper is to analyze what lies ahead for the new normal, and why.
The inside story of two crypto-anarchists and their quest to create ungovernable weapons, untouchable black markets, and untraceable money. ... Concerns about the police are justified for Wilson and Taaki, who have dedicated their careers to building some of the most controversial software ever offered to the public. Wilson gained notoriety last year as the creator of the world’s first fully 3D-printable gun, a set of CAD files known as the Liberator that anyone can download and print in the privacy of their home to create a working, lethal firearm. Taaki and his collaborators recently unveiled a prototype for a decentralized online marketplace, known as DarkMarket, that’s designed to be impervious to shutdown by the feds. ... The programming provocation they released a few hours ago is called Dark Wallet, a piece of software designed to allow untraceable, anonymous online payments using the cryptocurrency bitcoin. Taaki and Wilson see in bitcoin’s stateless transactions the potential for a new economy that fulfills the crypto-anarchist dream of truly uncontrollable money. ... “I believe in the hacker ethic. Empower the small guy, privacy and anonymity, mistrust authority, promote decentralized alternatives, freedom of information,” he says. “These are good principles. The individual against power.” ... According to a study published in May by the nonprofit Digital Citizens Alliance, more than 40,000 mostly illegal products are now listed for sale on the obscured corner of the Internet known as the dark web, more than twice as many as before the Silk Road bust. ... Wilson and Taaki intend Dark Wallet to be the most user-friendly method yet to spend bitcoins under the cover of anonymity’s shadow—without switching to a niche alternative coin or trusting any shady middleman.
In 1948, the behaviorist B.F. Skinner reported an experiment in which pigeons were presented with food at fixed intervals, with no relationship to any given pigeon’s behavior. Despite that lack of relationship, most of the pigeons developed distinct superstitious rituals and maneuvers, apparently believing that these actions resulted in food. As Skinner reported, “Their appearance as the result of accidental correlations with the presentation of the stimulus is unmistakable.” ... Superstition is a by-product of the search for patterns between events – usually occurring in close proximity. This kind of search for patterns is essential for the continuation of a species, but it also lends itself to false beliefs. As Foster and Kokko (2009) put it, “The inability of individuals – human or otherwise – to assign causal probabilities to all sets of events that occur around them… will often force them to make many incorrect causal associations, in order to establish those that are essential for survival.” ... The ability to infer cause and effect, based on the frequency with which one event co-occurs with some other event, is called “adaptive” or “Bayesian” learning. Humans, pigeons, and many animals have this ability to learn relationships in their world. Still, one thing that separates humans from animals is the ability to evaluate whether there is really any actual mechanistic link between cause and effect. When we stop looking for those links, and believe that one thing causes another because “it just does” – we give up the benefits of human intelligence and exchange them for the reflexive impulses of lemmings, sheep, and pigeons.
“We’ve lost credibility in the market,” said Sergio Marxuach, director for policy development at the Center for a New Economy, a nonpartisan research institute in San Juan, the capital. “We used all that money to finance current expenditures, to refinance debt that had little or no impact on the real economy.” ... Colon de Armas said Puerto Rico’s leaders haven’t done enough to make local industry competitive in the global economy and are instead counting on tax incentives or other assistance from Washington to protect businesses. The global slowdown and Detroit’s bankruptcy are less important, he said. ... “We were in recession when the world was having good economic times,” he said. “It’s true that the world has had bad economic times recently, but we are uniquely depressed.” ... Besides the economy, rising crime is also persuading people to leave. The homicide rate is about 27 for every 100,000 people, compared with the U.S. average of 4.7, according to 2012 data from the FBI.
In this essay I want to build on some of the ideas that were developed in my last essay specifically as they pertain to thinking about asset markets. The most obvious place to start is with the idea that the natural rate of interest is a myth. Accepting this idea has many ramifications for the way in which one conducts asset pricing. ... Perhaps the clearest implication from my previous essay with respect to investing is that the cash rate is potentially unanchored. That is to say, without a natural rate it isn’t obvious what cash rate one should expect to see in the long term. ... If, like any number of my colleagues, you don’t believe a word I’ve written (and quite possibly think that I either have escaped from or belong in an asylum), then let me leave you with one last chart. Even if you believe that real interest rates do matter for equity market valuations, and, hence, that lower real rates justify higher sustainable levels of P/E, you still need to ask yourself the following question: Would I need to believe that today’s U.S. equity market valuations represent fair value?
So the Fed has chosen to hold off on their goal of normalizing interest rates and the ECB has countered with the threat of extending their scheduled QE with more checks and more negative interest rates and the investment community wonders how long can this keep goin’ on. For a long time I suppose, as evidenced by history at least. ... zero bound interest rates destroy the savings function of capitalism, which is a necessary and in fact synchronous component of investment. Why that is true is not immediately apparent. If companies can borrow close to zero, why wouldn’t they invest the proceeds in the real economy? The evidence of recent years is that they have not. Instead they have plowed trillions into the financial economy as they buy back their own stock with a seemingly safe tax advantaged arbitrage. But more importantly, zero destroys existing business models such as life insurance company balance sheets and pension funds, which in turn are expected to use the proceeds to pay benefits for an aging boomer society. These assumed liabilities were based on the assumption that a balanced portfolio of stocks and bonds would return 7-8% over the long term. Now with corporate bonds at 2-3%, it is obvious that to pay for future health, retirement and insurance related benefits, stocks must appreciate by 10% a year to meet the targeted assumption. That, of course, is a stretch of some accountant’s or actuary’s imagination.
For Zeines and Hurwitz, their time in the promised land has turned out to be a little disappointing. Given the things they’ve seen, life’s long since lost the ability to surprise. With a pound of lox as a housewarming gift, I’ve come to their tax-haven sex mansion to hear their improbable story—how two sons of an ultrareligious Jewish neighborhood in Brooklyn witnessed the birth of a new kind of lending, made a fortune, and then saw it all come to an end. Not in the form of an FBI raid, but with Wall Street bankers paying millions to take over the action. ... Zeines and Hurwitz made their money in a field that’s now called merchant cash advance. ... At Second Source, the best customers were the most desperate. Often they were immigrants with poor English. Brokers bragged about their biggest rip-offs. For motivation, Hurwitz would tape $100 bills to the wall. Salesmen who weren’t cutting it would have their chairs taken away. “Why are you sitting on my chair,” Hurwitz would yell, “if you’re not making me any money?”
Byron Trott has long been a trusted advisor to clients with names like Buffett, Walton, and Pritzker. Now the ultra-discreet financier is raising his profile by investing alongside them. ... “Not a lot usually shakes me, but I was scared to death when I walked in,” says Trott, who prepared for the meeting by reading all of Berkshire Hathaway’s annual reports. The two hit it off, and the get-to-know-each-other session, scheduled for an hour, ran to three. Before it was over, Trott had a fee-generating assignment from Buffett, who is notoriously stingy about paying investment bankers. “I did what I do with most clients for the first time,” says Trott. “I say, ‘Give me your toughest problem. What have you not been able to accomplish?’ ” ... “Let us understand you, your company, your long-term objectives, and let us help you by being a true solutions-based adviser on your side of the table, not the kind of idea-of-the-day, dialing-for-dollars banker,” he says, summarizing his approach. ... What sets Trott apart, along with his unique clientele, is his ability to sit on every side of the table. By stressing discretion, confidentiality, and patience, Trott and his colleagues repeatedly do what few other bankers can: They advise multiple parties to the same transaction—and then invest capital in some of the deals they’ve just brokered. In this fashion BDT has raised two funds, worth $8 billion, in five years and acquired stakes in companies that include Tory Burch, Peet’s Coffee, and the Pilot Flying J truck stop business. The capital comes largely from BDT’s own employees and the families in its network, who essentially are providing patient investment dollars to one another.
Future business activity will reflect two economic realities: 1) the over-indebted state of the U.S. economy and the world; and 2) the inability of the Federal Reserve to initiate policies to promote growth in this environment. ... The first reality has been widely acknowledged, as developed and developing countries both have debt-to-GDP ratios sufficiently large to argue for a slowing growth outlook. ... The second economic reality is the failure of the Federal Reserve to produce economic progress despite years of wide-ranging efforts. The Fed’s zero interest rate policy (ZIRP) and quantitative easing (QE) have been ineffectual, if not a net negative, for the economy’s growth path. ... The evidence speaks for itself: the Fed cannot print money. The Fed does not have the authority or the mechanism to print money. They have not, they are not and they will not print money under present laws.
What if you had the opportunity to learn how to improve the quality of your forecasts, measured as the distance between forecasts and outcomes, by 60 percent? Interested? ... Phil Tetlock is a professor of psychology and political science at the University of Pennsylvania who has spent decades studying the predictions of experts. Specifically, he enticed 284 experts to make more than 27,000 predictions on political, social, and economic outcomes over a 21-year span ended in 2004. The period included six presidential elections and three wars. These forecasters had crack credentials, including more than a dozen years of relevant work experience and lots of advanced degrees—nearly all had postgraduate training and half had PhDs. ... Overall, Tetlock’s results provide lethal ammunition for those who debunk the value of experts. ... While famous experts had among the worst records of prediction, they demonstrated “skill at telling a compelling story.” To gain fame it helps to tell “tight, simple, clear stories that grab and hold audiences.” These pundits are often wrong but never in doubt. ... foresight is a real and measurable skill. One test of skill is persistence. High persistence means that you do consistently well over time and are not a one-hit wonder. About 70 percent of superforecasters remain in those elite ranks from one year to the next, vastly more than what chance would dictate. ... second is that foresight “is the product of particular ways of thinking, of gathering information, of updating beliefs.” Importantly, the essential ingredients of being a superforecaster can be learned and cultivated. ... Tetlock and his colleagues found four drivers behind the success of the superforecasters:
- Find the right people. You get a 10-15 percent boost from screening forecasters on fluid intelligence and active open-mindedness.
- Manage interaction. You get a 10-20 percent enhancement by allowing the forecasters to work collaboratively in teams or competitively in prediction markets.
- Train effectively. Cognitive debiasing exercises lift results by 10 percent.
- Overweight elite forecasters or extremize estimates. Results improve by 15-30 percent if you give more weight to better forecasters and make forecasts more extreme to compensate for the conservatism of forecasts.
On a typical day Westlake finances 750 cars. It currently has 336,000 outstanding loans, each originating from one of the 23,000 dealerships it works with (everyone from CarMax to small mom-and-pop used car lots). ... most of Hankey’s borrowers aren’t average–they are financial underachievers with credit scores below 600. Many have bankruptcies, past repossessions or limited credit histories–things that make them unattractive to traditional lenders. That’s where Hankey steps in. While Westlake offers loans as low as 1.65%, it specializes in financing credit-challenged car buyers–at an eye-popping rate of 19%, more than double the average for used car loans. ... They typically shell out $344 per month over 49 months, or $16,860 on a $12,000 loan. That translates to an extra $3,920 in interest over the life of the loan when compared to the 3.67% rate a borrower with good credit gets when buying a new car, according to Experian. Sure, each month the company has to write off about $17 million in unpaid loans, but it still banks a profit of around $20 million. In 2014 Westlake netted $230 million on $600 million in revenues. ... He joined forces with the ride-share leviathan in September 2014 as its only outside financing partner. Spanish bank Santander had been working with Uber, offering a lease-to-own program, but that relationship ended earlier this year. Would-be Uber drivers who are looking to purchase a car can get pre-qualified online in a matter of minutes. ... so far a greater portion of its Uber drivers are behind on their payments compared to its typical subprime borrowers, apparently not earning enough to cover the costs.
When the U.S. Civil War broke out in 1861, cotton was king. The southern United States produced and exported much of the world’s cotton, England was a major textile producer, and cotton textiles were exported from England around the world. At the time, many around the world depended on cotton for their livelihood. The South believed this so deeply that when the North blocked Southern ports to cut off the South’s primary means of financing war—cotton sales—Southern leaders were sure that Britain would enter the war on their side. That never happened. So when cotton supplies dried up in late 1862, thousands in Manchester and Lancashire who either directly or indirectly depended on cotton for a living found themselves without work. In this post, we describe the British cotton famine of 1862-63 and the stoic British national response. We draw primarily from a fascinating BBC Radio broadcast on the subject and John Watts’ matter-of-factly named Facts of the Cotton Famine, published in 1866.
Over the past year it has doubled in size to 380 employees and snatched investments that value it at $5 billion, up from $3.5 billion a year earlier. (Recently public Square is worth $4 billion.) Once a U.S.-only service that had to beg for an audience with a bank, Stripe has expanded to 23 countries and is routinely striking partnerships with the likes of Visa, Apple Pay and Alibaba. Facebook, Twitter and Pinterest have chosen Stripe to power their e-commerce efforts, and traditional retailers like Best Buy and Saks Fifth Avenue picked Stripe for their forays into mobile. Slack recently turned over its payments to Stripe after ditching a rival product. ... Industry sources put Stripe’s payment volume at about $20 billion a year. For every transaction it processes, Stripe in the U.S. gets a swipe fee of 2.9% plus 30 cents, roughly the same as other payment firms such as Square, though large customers get volume discounts. That would peg Stripe’s revenue at more than $450 million. The company says that 27% of Americans will have bought something through Stripe in the past year, a big bump from just 3.8% two years ago. ... Stripe’s success at making digital payments easy to process is only a step toward its larger ambition: becoming the edifice upon which new forms of commerce are created. Think Amazon Web Services (which supports all kinds of Internet businesses) but focused on financial transactions. ... The company faces formidable rivals. Braintree, which is owned by PayPal , has said it will process some $50 billion in 2015
It has always baffled me how the financial industry in general, and financial newspapers in particular, appear to be hell-bent on forecasting this or that in early January. I actually find it outright laughable when someone projects the FTSE100 to be at 7,000 by Christmas time, or for the U.S. 10-year T-bond to hit 2.5% by midsummer. How on earth do they know? The generally poor predictive record proves they don’t, I suppose. On the other hand, that is perhaps what the majority of investors want. If you belong to that majority, there is no need to read any further. You will be wasting your time. ... If you see any forecasts from me (and you do), you will note that (i) they are very long term in nature, and (ii) they are based on structural trends, not tactical (cyclical) trends. Why is that? Partly because I think short-term forecasting is a sucker’s game, and partly because I know for certain that the structural trends that we have identified will happen. It is only a question of when, but more about that later. ... You can hardly open a newspaper these days without some commentator looking to buy fame by attempting to predict the next crisis but, as I just pointed out, the last one isn’t over yet. Therefore a far more relevant question is: What is likely to be the next leg of the GFC? ... I think three topics are particularly likely to steal the limelight in 2016:
- All sanctions against Russia to be lifted and trade relationships to be normalised.
- The EM crisis widens as commodity prices continue to fall.
- The credit market is spoiling the party again.