A year ago I wrote a piece giving 10 financial predictions for 2012 (you can read it here). Surprisingly, I actually got quite a few right. Anyone with half a brain knows that nobody can predict the future, no matter how bright they might think they are. But there are some things which just seem obvious, or at least more than likely to occur. And so I’ll try and put them to paper again for the coming year.
It should be noted (to cover my arse, and the communal arses that run this blog) that I am not a financial adviser and that all assets can both rise and fall. I should also note that I have recently sold out of almost all of my specific equity holdings in the developed world. I am now long RBS and Vodafone, Chinese and Pan-Asian equity funds, a couple of funds that invest in gold and mining stocks, and a collection of commodities ranging from oil to gold.
So… stuff I got right last year. Greece defaulted (the largest ever restructuring of sovereign debt), London property remains obscenely expensive, the US did suffer from economic and political turmoil as they try and fail to solve their debt troubles, equities rallied across the globe (best performing was Venezuela +303%), Facebook IPOd and duly dropped 50%, inflation remains high although governments keep pretending it’s not by massaging the numbers, and China struggled but bounced back in Q4. Stuff I got wrong included Germany accepting Eurobonds and the UK not going back into recession. Oh well, you can’t win them all.
But what does 2013 bring? Well I’m afraid I’m pretty bearish and, given that, here are 10 predictions:
1. Money printing will continue across the world. Central bankers are ripping up the rulebook, ignoring inflation and focussing on nominal gdp and unemployment. Japan is going all guns blazing, Bernanke is chief cheerleader in the US, and incoming Bank of England Governor Carney is already a convert to the monopoly madness.
2. The endless printing of money by these careless comedians masquerading as fiscal competents will push commodities higher. This will force millions of people in the developing world into poverty and starvation. You think the Libyan, Tunisian or Egyptian people all woke up one day as libertarians and democrats after decades of authoritarianism? They couldn’t buy food and nothing makes a man angry like hunger. Expect more unrest across the globe.
3. The price of oil will go higher. At a 2% per year increase in global oil consumption, we will have run out within 20 years. Oil today is $100 a barrel in the middle of the worst depression since the 1930s. It’s not going lower any time soon. I can see it hitting $300 a barrel at some point in the next 5 years – an oil shock is on the cards.
4. The European debt story will revert to type and leave the continent in a state of panic. Investors will start to unwind longs in peripheral bonds, causing yields to rocket and the market to test the ECB’s willingness to buy unlimited amounts of worthless paper. Draghi said he would do whatever it takes. We shall see.
5. What he most certainly will do is cut the Eurozone deposit rate to a negative level, meaning they will charge banks to hold cash overnight with the ECB. The growth outlook for 2013 is terrible, and will get infinitely worse once Spain and Italy come under pressure again.
6. Also beware France, a financial basket case, and the final piece in the puzzle. I certainly don’t expect 10yr France to be yielding just 2% on 31st December 2013.
7. The US will be welcomed to the austerity party as they start to finally face up to their enormous debt pile. Under Obama’s Presidency, the US has accumulated as much debt as in the 200 years between GeorgeWashington and George W Bush. It’s a total disaster and they have very little time to bring it under control. Fiscal Cliffs and Debt Ceilings will be in the press a lot.
8. The Municipal bond market in the US will start to unravel as state governments across the country find themselves unable to pay workers or fulfil social welfare obligations. Warren Buffett recently cancelled all of the insurance he offered on muni bond default, a leading indicator that this $4 trillion market is in rapid decline.
9. The UK will struggle to grow, weighed down by huge public and private debt loads. Osborne will fail to meet his golden rules, the defecit will increase and the UK will be downgraded by at least one of the ratings agencies.
10. Equity markets across the western world will close the year lower. The rallies this year, fuelled by newly printed money delivered direct to the doors of banks across the world, are unsustainable and have merely sucked people in before yet another stage of the crisis hits. On that note I expect Facebook to have another plunge to new lows, and I will be buying them at $12 a share when they get there.
Happy new year!
by James Russell