Forecasting with Friends

Gavekal: A Spectrum of Views

“The best way to predict the future is to create it.”

– Peter Drucker

“Do not dwell in the past, do not dream of the future. Concentrate the mind on the present moment.”

– Buddha

Forecasting the New Year is a curious tradition. Much evidence suggests that no one does it both accurately and consistently, yet everyone keeps trying. Why is this?

In some ways, I think it’s just entertainment. You might compare our prognosticating to what happens with NFL football. For weeks before the Super Bowl, we devoted fans will spend hours speculating on the game’s every detail. We’ll dissect the rosters, talk about each team’s strengths and weaknesses, debate game plans, and so on. Is any of this ritual necessary or useful? No, but it extends the experience and we enjoy it.

Economic and market forecasting are similarly pointless fun if you don’t try to turn your forecast into next year’s trade list. Just as no war plan survives contact with the enemy, no investment plan survives contact with February. The real value of an annual forecast is strategic. It helps you set priorities, define important issues, and think about what you should anticipate and what you can safely ignore. That’s a good exercise to go through periodically, and January is as good a time as any.

I gave you my own thoughts last week (see “Skeptically Optimistic”). Today we’ll review several other forecasts from people who deserve your attention. Of necessity, I must leave out some good ones, but I think the ones I cover will give you plenty of useful information.

As I noted last week, this particular upcoming year is unusual due to unfolding political events. The next three months or so will tell us a lot more about how US fiscal and monetary policy will change. The last eight months of 2017 are highly dependent on what happens in the first four. We could easily be in a whole different environment by May, and it could be a better one, or it could be worse.

In that regard, my Strategic Investment Conference is perfectly timed for May 22–25 in Orlando. By then we will know much more about changes in US tax policy, stimulus spending, and Federal Reserve and Supreme Court appointments. We’ll have more visibility on Italy’s bank problems, and we’ll know who won the French election. SIC will be our chance to review and update what we’re thinking. I hope you’ll join me and my all-star guests. It’s going to be a fantastic event. Click here to learn more.

And now let’s plunge into the new year with Gavekal, David Rosenberg, Christopher Wood, and Bank Credit Analyst.

Gavekal: A Spectrum of Views

The Gavekal team, led by co-founders Charles Gave, Louis-Vincent Gave, and Anatole Kaletsky, have a knack for asking the right questions. Sometimes that’s half the battle. Having asked the right questions, they frequently disagree on the answers. But unlike many research firms, they aren’t afraid to reveal their differences. The resulting conversations are inevitably fascinating and informative.

This month Gavekal published “Our Top 12 Questions for 2017.” I’ll give you the full list first, then we’ll zero in on their most important answers.

Global Issues

  1. Will the US dollar continue its strong rally?
  2. Will US bond yields move permanently above 3%?
  3. Will the eurozone succumb to an existential crisis?
  4. Will capital outflows trigger financial panic in China?
  5. Will the oil price end 2017 above US $55?

Regional Markets

  1. US: Will tax reform push up the dollar or improve the US trade balance?
  2. US: Will bonds outperform equities?
  3. China: Are A-shares poised for a rally?
  4. Europe: Will Britain face recession and sterling fall more?
  5. Europe: Will EU equities finally outperform?
  6. Emerging markets: Will a dollar squeeze cause financial crisis?
  7. Emerging markets: Will Indian growth recover from demonetization?