At the beginning of every new year, all of the experts come out with their yearly predictions. Guessing about what the future holds should always be taken for what it is – a guess. Last I checked the future is still unknown. I’m not really convinced that even having an educated guess helps us. In some ways, I’m sure it hurts our ability to adjust when new information is received that contradicts our original thesis, perhaps warranting a new course of action. So with that as a backdrop, I’ve listed below what I am looking for in 2017. I actually had to laugh when I finished my list. For someone who tries not to forecast, I sure had a lot of forecasts! Oh well.
US Stocks should post very healthy gains in 2017 – like 20%. The outcome of the election has caused a paradigm shift in policy. The drumbeat is now away from monetary policy (various QE schemes) to fiscal policy around reflation and growth. Trump was able to deliver a message of government spending that captured the bulk of left-of-center voters and pro-business, deregulation that captured the bulk of right-of-center voters.
Expect greater volatility in 2017 as our economic system moves away from financial repression (low/negative interest rates). Asset correlations begin to breakdown in 2017 and we can get back to making money like the good-old days!
Fed is behind the curve in this inflationary cycle. Cyclicals should do very well this year. We should actually see some wage growth in 2017. We should also see the labor force participation rate begin to tick higher. This has been the big knock on the low unemployment rate.
While I don’t think we are quite ready to see a large back-up in yields, increasing rates keep bonds in negative territory. Dividend focused stocks muddle through. I don’t have high expectations for this group of securities.
China and pretty much all of Europe continue to have weakening economies. Way too early to begin thinking about placing money in these areas. China makes me nervous.
The US dollar is leaving the train station. The green-back should post a solid year. The US dollar is up over 25% from the lows in 2014. The US dollar has traded sideways for the better part of 20 months. The stage seems to be set for another leg higher. Historically, it is at this point we see foreign debt and currency crisis begin to take place.
Precious metals lose some luster this year. Dig a hole and put back in the ground! Gold will have its day, just not in 2017. The bear market in gold should continue.
Both emerging markets and their currencies have a difficult year. I wouldn’t be surprised if we experience some kind of major blow-up in this area. Given the massive amount of US dollar denominated foreign debt it is difficult to assess, but most likely not limited to a single country. I would expect more of a domino reaction this time.
The US probably sees a big increase in defense spending – concentration on cyber security. Cyber security names have been beaten up in the prior 18 months, so this is definitely an area of focus for 2017.
The war on cash continues. Digital currencies become headline grabbers. Blockchain technology is at the forefront. Still looking for a way to capitalize on the greatest technology in 20 years – in my opinion.
Populism continues. French and German elections continue to remind politicians that we are in a secular decline in government. What I mean by decline is that promises of benefits to individuals will not be fulfilled. Unfortunately this historically has lead to violent behavior as individuals see no other way to deal with this new reality.
Traditional media is in decline. Real vs. Fake News continues to be a big problem in 2017.
At least one emerging market country will default in 2017.
Massive infrastructure spending in the US in 2017. Industries that should benefit are; engineering, construction, and materials.
Valuations on many biotechnology and pharmaceutical companies look very attractive. Many of the companies in these industries have seen their share prices collapse. 2017 should be a good year to begin to accumulate such companies as demographics continue to point to incredible demand.
Humbly,
P. Franklin, Jr.
January 20th, 2017
All opinions and estimates included in this communication constitute the author’s judgment as of the date of this report and are subject to change without notice. This communication is for informational purposes only. It is not intended as an offer or solicitation with respect to the purchase or sale of any security. This information is subject to change at any time, based on market and other conditions. Any forward looking statements are just opinions – not a statement of fact.
Investing may involve risk including loss of principal. Investment returns, particularly over shorter time periods are highly dependent on trends in the various investment markets. Past performance does not guarantee future results.