The New Year has arrived, bringing with it a fresh slate of possibilities and aspirations. As we look forward to 2016, it’s a time for renewed hopes and dreams, all ripe for the taking. But what else does the future hold for us this year?
Today, we gaze into our metaphorical crystal ball, searching for insights about the year ahead. What will the financial markets look like? Is there potential for global conflict? Who will emerge as the next President of the United States?
These are just a few of the questions we aim to explore. While predictions made through crystal ball gazing may seem whimsical, they share a certain kinship with market forecasting. Keep in mind that past trends don’t guarantee future outcomes; hence, we’re setting aside traditional forecasting methods for this more intuitive approach. However, a word of caution before diving into our predictions…
Our understanding of the future is clouded by uncertainty. Much of what we think we know is often tainted by misleading statistics and personal biases. In essence, our knowledge may be less than we believe.
With that in mind, let’s embrace our limitations and share a few lighthearted predictions for the upcoming year.
Strategic Bets
First and foremost, expect continued aggressive monetary interventions. Central banks around the globe will spare no effort in expanding the money supply and promoting credit growth—often leading to extreme market fluctuations followed by dramatic downturns.
Right now, we find ourselves entrenched in a phase of inflated market valuations. History suggests that we could face another significant market correction, akin to those of 2000 and 2008. However, it’s possible we might see even more pronounced highs before any downturn occurs.
Given these circumstances, the current stock market is speculative. Be honest with yourself before making any investments. If you’re aware of the risks involved, feel free to make some calculated investments. Yet, keep the following in mind:
Be cautious about pursuing low-cost stocks in sectors like energy, mining, and emerging markets; their prices have already fallen significantly and are likely to drop further.
Avoid buying utility or consumer staple stocks solely for dividends. With the Federal Reserve intent on raising interest rates, riskier dividend-paying stocks may lose their appeal as Treasury yields increase. While a reversal by the Fed is always possible, it’s likely they will persist until a crisis occurs—regardless of the ultimate rate they reach.
If you wish to take calculated risks on rising interest rates, consider investing in banking sector stocks. Banks stand to benefit from an increased spread between borrowing costs and lending rates, thus potentially boosting their net interest income—assuming the Fed continues on its current path.
Who Will Be President and Other Predictions for 2016
The upcoming year is poised to be turbulent. As the global economy and the U.S. teeter on the brink of recession, world leaders will likely look to deflect blame for their shortcomings. They may seek diversions to channel public frustration, searching for grander purposes amid rising unemployment.
Conflict among global factions appears imminent. The current proxy wars and the fallout from the ISIS situation in Syria will likely escalate. Meanwhile, tensions in Ukraine will continue to fester, and disputes among nations over territories in the South China Sea and the East China Sea will grow more intense.
As leaders rally support for potential military actions, the drumbeat for conflict will become increasingly loud. By the end of the year, we may find ourselves witnessing a major clash between rival powers.
Despite your personal feelings about military actions, maintaining a pragmatic approach could yield financial rewards. Understanding the current state of the world is crucial; thus, investing in defense sector stocks, like Lockheed Martin and Northrop Grumman, might prove to be wise in 2016, even if it’s not a preferable scenario.
When it comes to gold, it may take another year to shine. A strong dollar and rising interest rates will likely suppress its value. Nonetheless, gold remains undervalued when compared to stocks, bonds, or real estate. This could present an excellent opportunity to accumulate physical gold while prices are low. In five years, you may be grateful for your foresight.
Lastly, it pains us to predict that Hillary Clinton will be elected President in November. We sincerely hope we’re mistaken on this one.
Here’s to a year of health and prosperity!
Sincerely,
MN Gordon
for Economic Prism
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