A year ago the world waited nervously for the inauguration of Donald Trump to see what sort of presidency he would bring and as I wrote at the time his unpredictability may well prove to be his greatest asset. It’s interesting to see that indeed this trait, especially on Twitter, has infuriated the mainstream press and indeed the political establishment. Whether it’s tough talking to the fat kid in North Korea or criticism of the UK it is very hard to read his motives. Or is it? What you see on the label is what you get in the jar and it’s the contents which are so often unpalatable to the career politicians and journalists.
What is beyond doubt is that Wall Street, or more accurately the stock markets, have loved him. Many a time this year I have said “this is the top” of the market, thankfully normally privately, and yet the market has ignored all sages and carried on up regardless. In fact it has not only consistently made new highs it has cracked its own records of records. As I write this the Dow has broken new 1000 point milestone highs four times this year and if it finishes the year at 25,000 plus that would be five, yes five, thousand point gains in a year. As of today it has had 67 new highs in the year and finished ahead eight months in a row, the first time since 1995 that it has managed to do this. The Dow closed on 3rd January 2017 at 19,881.76 and despite the fact that it’s been driven by relatively few stocks it’s an awesome move. I wonder though if Trump’s tax changes will be the final piece of good news, just remember buy the rumour sell the fact. I wrote a year ago” buckle up for a bumpy ride” and if I was you I wouldn’t reach for the buckle just yet as I feel that the flattening of the 10yr -2yr yield curve is telling us something unpleasant.
Looking back over the year I also alluded to the rise of populism. At the time I thought that there was a real chance of some political upsets in Europe most likely in France and Italy. In France the outsider Macron was elected easily beating my tip Le Pen on many a promise of reform but already he seems to be struggling with this as well as with his own party where 100 party ,members are threatening to resign. I didn’t see though that Merkel would be unable to form a government or just how badly Theresa May could run an election campaign. Italy, of course, is Italy and whether its Beppe Grillo or Silvio Berlusconi it appears that their politics will continue to entertain. Populism is often used as a label by the “elite” to sneer at popular opinion as it turns against their arrogance. Sadly the feelings of frustration are being expressed in the rise of extreme politics, and politicians, and sadly the reality is now that Austria has a powerful far right element in its government. The powers that be in Europe continue on their course of federalism and ignore the voice of the people, whether they be in the U.K., Catalonia or Poland. Dangerous times indeed and increasingly it feels like the lights are starting to dim in Europe and the lessons of the thirties are being ignored.
Looking forward I have been trying to get an old Ian Dury song “ Reasons to Cheerful , Number Three” out of my head. It’s really an early rap song, not typical of Ian Dury at all, and consists of a list of his favourite things in life from Jon Coltrane’s soprano to British Motorcycles. An eclectic amusing song that has had me trying to think of reasons to be cheerful, sadly what I keep going back to are reasons to be fearful. So in keeping, vaguely with the song, here are firstly my Reasons to be Fearful , one , two , three.
Reason one to be fearful is the bursting of assets bubbles. With every day that the price of Bitcoin gyrates upwards we come closer to a major pullback. This is a fact, end of story. Nothing has such a steep rise, as Bitcoin has had, without a setback. If you look across assets everything from Fine Art, Equities to Bonds look overinflated. I am too long in the tooth , those that are left anyway, to want to predict when this will happen but happen it will and just hope that one pop doesn’t lead to the next pop because if it does we will see the opposite of good money chasing bad and the mother of all recessions. Is this what the US yield curve is telling us? Be afraid, very afraid if it inverts as we all know that the last seven times it has done this a deep recession has followed,
Reason two is the developing situation, which I wrote about recently, in Poland and other parts Eastern Europe. How much of the rise of the right in Poland and the political problems in The Ukraine are inspired by Putin is impossible to know but in my humble opinion it is much more likely than Russia interfering in the US or UK elections or indeed cutting underwater communication cables. Not only more likely but much easier. Europe moves inexorably towards the creation of a federalist state with aspirations towards a European Army whilst Eastern European countries move increasingly out of line with Western European policies. That sounds a bit familiar; I mean what could possibly go wrong?
Reason three is one name. Corbyn. I am going to assume that the majority of my readers understand the real threat that Corbyn, or more accurately his puppeteers represent to not only to the economy of the UK but also to its democracy. I for one, feel very uncomfortable when my grandchildren tell me what a lovely man he is and that their teachers all love him. Be under no illusion there is a sinister undertone to far left and there is a very real danger he could get into power.
So three reasons to be fearful but as New Year approaches but I can’t possibly end on such a down note! I have scratched my head to find some cheer and in doing so I have returned to Ian Dury’s song. In it there are many, many reasons given to be cheerful some very personal and some too rude to transcribe but my favourites and I am sure no one will disagree with these three are Harpo, Groucho and Chico. That’s three reasons to smile. The strongest reason for optimism , though, is that all though I’ve been close on my predictions in the last year I have very rarely spot on and I hope my pessimism in this column is misplaced and my reasons to be fearful are overdone.
I can now hear the closing bell for the year so firstly thanks for reading, I hope I have amused you and made you think on occasions. More importantly I wish you all a happy, prosperous and safe New Year.