To kick off the 2016 period, I thought I’d share some thoughts on the world as things stand and offer some predictions for the year.
Missing Billionaires, a lost election in Taiwan, abducted Hong Kong Journalists, a public rebuke to George Soros and suggestions that China’s economy may be growing at nearer 2.4% than 6%….2016 is certainly an interesting time to watch the Middle Kingdom. For my two cents the Chinese seem spooked, but their actions appear to be precautionary measures rather than those driven from a general fear that all hell will break loose. Expect more bad news and panics in the market, but that is unlikely to reflect a true collapse in the Chinese economy and a “hard landing” is still far from predictable.
From the Iran side, it remains “too early to tell”. What seems clear is that the oil oversupply argument is over-hyped. Iran already exports circa 1m barrels per day and likely smuggles 300-500k a day. At most it can add another 1m, but even that is uncertain. At the same time global oil production is at maximum, so the system has no spare capacity should a shock hit a major supplier (look to Venezuela for a possible negative oil shock by the end of the 2nd quarter 2016).
The Refugee crisis seems destined to dominate the EU discourse. There remains no easy solution, short of following the advice of an article from The Times and letting migrants drown in the Aegean (with mercy killings for those who survive their ship sinking). The mood however is clearly ugly and this looks unlikely to change. With Europeans feeling poorer and more afraid than ever, expect the ugly monsters of racism, extreme nationalism and xenophobia to provoke ever harsher measures. Still, these will deter none. The alternative remains worse for the refugees. Watch the Greek-Macedonian border for the first signs of trouble.
Brexit will still loom large in the UK, but investors and politicians will be forgiven for their lack of patience. At the end of the day, this is nothing to do with economics or politics and everything to do with Britain’s identity and place in the world. The UK will likely become more insular in its affairs leading up to June and no meaningful concessions will be made to Cameron. Still the Out campaign have their work cut-out. The lobby of big-businesses and institutional vested interests, coupled with British inertia to radical change, gives the edge to a “yes” vote to stay in Europe. Still, Labour is not as pro-Europe as it has been, with many Corbynistas seeing the possibility of Brexit as a chance to allow state-aid and interventions into the private sector. However don’t rule out Cameron bottling the whole thing and waiting till 2017. After-all Brown made the same mistake when he failed to call a General Election in 2008, despite holding the upper hand.
Lastly the US election. My increasing feeling is that Trump will actually get the nomination. The other “moderates” have run out of time and increasingly the view is that any establishment branded candidate is doomed in the current political atmosphere. Given the evils of Trump or Cruz, most commentators overwhelmingly back Trump to make the deals necessary to secure the establishment support at the final hurdle and knock out Cruz. This then creates two challenges – do the Democrats react with their own radical (Sanders) or play it safe with Hillary? Hillary is dull and a known entity, rightly many are asking whether she could energise a campaign in the same way that Trump has energised his parties base. It is still highly unlikely, but I reckon there is a 25% chance of a Sanders v.s. Trump campaign and of Americans being offered the most divisive split of candidates in a generation. Of course, at that injunction maybe we will see that famous “3rd party” entrant, with Michael Bloomberg looking very dangerous in such a role. If, and its a big if, that becomes the 3 way split in 2016, the outcome will be huge for America and the world writ large.