Macroscope | Happy forecasting 2018: you couldn’t ask for better conditions to make money
Markets have been pricing in a Goldilocks scenario: an economy that is not so hot that it causes inflation but not so cold it causes a recession; where there’s slow central banks and therefore high valuations and low implied volatility; and one that is providing full employment and economic stability
I’m sure you have heard enough dismal 2018 forecasts for one end-of-year already. Mine are a lot more accurate. There will be a football World Cup, Donald Trump will send a tweet, and Friday 13 will occur twice, in April and July.
Contrasting that groundbreaking piece of forecasting is the inaccuracy of most economic and financial forecasts. However looking forward to 2018 we have a veritable Goldilocks economic environment: booming economic growth, low inflation, low interest rates (rising from a very low base), muted salary rises, robots have never been so cheap, nor productivity (if measured properly) so high.
You couldn’t ask for better conditions for companies to make money!
On top of this, President Trump has given the US and therefore the world economy a huge Christmas present in the form of his tax bill, which has dumped US$1.5 trillion into the economy.
In perspective, the US Federal Reserve injected US$4 trillion to pull the US economy out of the deepest recession in nearly a century. Trump has poured fuel on the flames of a booming economy – he will most probably be faced with the inevitable crash before his first term ends. Explain that legacy to the “millenniums” whose economic futures have been crushed.
It takes time for markets to lose confidence. The biggest economic risk this year is likely to come from proxy scraps between the superpowers such as (another) Korean War, which would be very damaging for China too
But such bad times will almost certainly not happen in 2018. It takes time for markets to lose confidence. The biggest economic risk this year is likely to come from proxy scraps between the superpowers such as (another) Korean War, which would be very damaging for China too.