61: Here's What's Going to Happen in 2017

The future is pretty difficult to figure out. Was of course a very tough year to have called correctly in many ways. And I think it's a good and mental exercise to try. I you know, it's always sort of foolish, but I'm a strong believer that people should make an attempt to say what the future holds. So this is the this is the tough episode, right, This is where

people have to exercise their mental muscles. They have to think rationally and um all for the purposes of being exposed to ridicule and shame when we're inevitably wrong twelve months from now, yeah, exactly. And you know, there's a lot of journalists are sort of anti predictions. They think it's a foolish thing. They think that it's always going to be wrong. But I just I think that's missing

the point. I think it's a it's a good mental exercise, and it's sort of what you predict is an insight into how you've digested what you've seen so far, and it's just fun to say things that could be proven right or wrong. Okay, Well, in the spirit of fun, uh, let's let's go to our our panelist with us for the second episode in a row. We heard them tell

their favorite stories of twenties sixteen. Now we're forcing them to go out and tell us, look at their crystal balls, what exactly is going to happen in ten Joining us this week we have Ed Hammond, who covers deals for Bloomberg News. Joe, Welcome Ed, Thank you, Thank you for coming back. Mike Reagan, who covers markets for Bloomberg News. He has launched a new markets live blog venture for terminal users. Happy New Year. Thank you. Max Abelson, our

Wall Street expert at Wall Street Whisperers. I think I described him. Thank you for coming back. I can't wait to hear your call for the year. Thanks to you. Megan Murphy, who covered politics for Bloomberg all year and now has taken on a new mission as editor of Business Week. Thank you for coming on. Can't wait to get your prediction. Excited about it see if be as crazy as it was from politics or whatever as two

thousand and sixteen was. And Dan Moss, who has a great track record of predictions, thanks for coming back again. Great to be here. And Ed, Uh, why don't you uh tell us about your prediction for seventeen? Well, I think crystal ball. What's going to be this year? Sprayer

than Yeah? Well, I think last year I just went with the kind of stock m and a bank nonsense of you know, we're going to see more deals in and we didn't see more deals in twenty six we did see lots of fifteen deals get blown up, which was it was quite interesting. I think almost six hundred billion of deals that was that was struck in twenty fifteen was sort of torpedoed in. What's my prediction for

this year? I think, um, I think Nigel Farage, the sort of populist, slightly right wing um political figure in the UK, is going to end uh well, I mean slightly by I suppose by global standards why UK and as I would say extremely I think he's going to end up in a celebrity based reality TV competition, Jule. I was actually thinking Celebrity Apprentice because it would fit well with this sort of Trump loving persona. So that's

that's my prediction. I think he is going to finally bow out from politics for a career in reality television. That's a good one. Did you vote in the referendum? Yes,

I did. I went home to vote in a referend and that's our Seriously, it was quite quite depressing being in London the day afterwards, like the world had ended, because obviously London was desperately against this, and not only that they had had their recently departed mayor be the sort of flag bearer for the for the for the Brexiteers, and that was I think, very very depressing obviously for all concern Alright, Well, I love that prediction because it's con'tcrete,

and at the end of the year we can actually test very clearly whether it happened or not. Max A. Wilson, what is your prediction for Well, Joe, because I'm a complicated man, I've got some complicated predictions. Let's talk about New York City. I got a prection for New York City. When, uh, when Jesse and Zach Mieder and I wrote our story on Trump Tower. But you may remember a couple of months ago. Great story. Everybody should go look it up.

Thank you, Joe, Thank you Joe. One of Donald Trump's friends an Italian man, a man who says he's account actually, although we couldn't confirm that independently, he's he's a friend of Trump's. He's he lives in the building. He's in the far right, he's affiliated with far right Italian politics. He predicted to us, he said, if Donald Trump wins the election, I believe he's not gonna be able to leave Trump Tower because he loves it so much. So

I'm stealing his prediction. Of course, that was before the election. I'm stealing it to turn into a post election prediction that after Donald Trump becomes president, sure he'll be in the White House, but I predict he is going to spend a ton of time here in New York City on Fifth Avenue. We need to say an exact number of nights that he spent and so that we can see if he gets it right. So over, what's the line? All right, Well, let's let's say they're fifty two weeks. Yeah,

Friday and Saturday. You know, that's a hundred, just over a hundred. Could you imagine if you spent more than a hundred knights in New York City in over that that would that would be one year. Okay, let's say four years a hundred nights in New York. Wait, so just twenty five nights a year, that's a lot. Mm hmm. Okay, al right, it seems like you're sitting the bar a little load, Victor. You gotta it's got to be higher because just vacations alone and stuff like that. Let's go

for the first year. Okay, this is an eccentric more Okay, So this is we're going to test. At the end of Max Abelson will have been right if Trump spent more than fifty nights at Trump Tower. It's a bold prediction, but we're bold bold people here. I really like it. And given the issues that will cause New York in terms of security and traffic and everything, into prediction that

has ramifications. Did you see that Tiffany and co branded the police barricks barricades brilliant And you know, analysts have come out and warned that because that Tiffany store, which is right there, a Trump tower right next to it is their flagship store. It could materially hit earnings due to the proximity next to Trump. It's not clear that that's actually developing, but that is a concern of analysts.

Capitalism is amazing only only in New York City? Would you have that baby blue Tiffany on the on the police backcadse Alright, Max A Wilson, great prediction and looking forward to seeing if it turns out right or wrong? All right? Uh, Mike Reagan, what is your prediction for teventeen? Yourur markets? Babing on the panel? Uh? What are we going to be? H? What's the story going to be? Well, I'm gonna make a very cliche prediction. I know, I know, and I also say I'm not confident in this, but

you do say, go out on the limb. I do think we will finally see, if not a bear market in stocks, a very sharp correction. Uh. And I'll tell you why everybody and their brother has become so optimistic about the Trump administration. It's interesting to me here was a guy that from day one as a politician was underestimated. You know, he's not gonna win a single state in the primaries. He's not gonna take the primaries out, He'll never win the election. And the sort of intersection of

politics and markets this year has been very fascinating. Um, and both saw basically the death of conventional wisdom. You know, all the poll numbers and Brexit. Uh, you know it turned out to be wrong, not all of them, but the you know, the consensus. Trump the you know, no one really thought he would win. That turned out to be wrong. Now I just feel like everyone's gone to the opposite side of the boat. There. Their way too optimistic. Uh,

you know, I keep hearing the phrase animal spirits. Ray Dalio used it recently to describe this exuberance over his policies, and I just think, um, you know, we've had this huge rally at the end of the year. Now, I

went from flat flat stock market September. Cent Lazo Berrini, who's a money manager and analyst, who you know, I have a lot of interest in, very very smart guy, describes the phases of a bull market, and that exuberance phase where you have this really last giant rally at the end is often the sign of the end of the bull market. And when I say a possible bear market, I don't think I'm not even sure that the market will well. If we talk about the market next December,

it will be down that much on the year. But during the year, I just feel like there's bound to be some disappointment that will cause maybe a ten to drop in the market. Can I just jump in place.

I was just gonna say, as someone who had was on the Trump beat all year, I think that Mike is exactly right, and that the biggest phenomenon in the sort of arc of storytelling of twenty six, both in terms of Brexit and in terms of the U S election, is just the inability of people to correctly price what was actually going on um in terms of how this

would turn out. And I think that the one thing that I think you have never underestimate his ability to seemingly unbelievably against sort of all expectations of normalcy, normal discourse, normal policy decision making, to sort of bump along in a sort of vaguely positive way. When when I think the biggest risk to the market is going to be big political risk, you know, we look at the drone that happened or some type of incident in the Middle

East or isis. But I think that when you look at his policy and what he's been able to do in the first sort of you know, six months, nine months, if we do see the Affordable Care Act getting scale back, and we do see a comprehensive tax reform package getting put through, if we do see an infrastructure that actually, you know, for me, when I look at it, I can't decide whether the risk is to the upside of

the downside. You know, in terms of estic policy, I see the market to the upside, and I see corporates really seeing repatriation, investment and sort of sentiment being buoyed. But then this really incalculable political um, foreign policy disaster possibility that the market really does not seem to be

pricing in right now. And I see that as a huge downside risk that no one's quite grappling with right absolutely, even if it just ends up being China stopped buying treasuries for example, uh, you know, as a sort of protest measure. But you know, to me, even from the policy standpoint, I mean, it's hard for me to believe that this is a Trump Congress. It's still a Republican

controlled Congress. And it's hard for me to believe that all these Republicans are gonna turn into Keynesians all of a sudden and agree to blow out the deficit um after shutting the government down because of the deficit. Uh you know, in this last term, well, they turned into Keynesians under George W. Bush, who inherited a surplus from Bill in a situation where the US was actually talking

about buying back debt. Right, so they can get religion, and that's not a reflection of their increasingly south base. They can get religion, no pun intended, quite quickly. But making to your point, I wonder whether we in the media, let's acknowledge that and financial markets have had difficulty pricing risk because we are concentrated in the northeast and the West coast, and in the UK concentrated in the London area.

So to an extent, we were talking among ourselves, there aren't that many financial heavyweight Wall Street prognosticators based in Appalachia, and there aren't that many based in Stoke on Trent. Is that part is that part of what's happeningsolutely, I mean, I think we have to be completely candid about that. I think we have to be completely candid about how this dynamic is completely upended the convention of reporting. And frankly,

some people just cannot accept that. They cannot accept what they what they fail to accept is that people who live in different parts of the country are frankly less progressive, not just on a sort of um social mores things like abortion or LGBT rights, they're just less progressive in times in terms of believing in a vision of the country that is very different than the Obama vision than

the Tony Blair vision of this country. Happened and I think that is what the election really reawakened, is that, guess what what you think in New York is very different than what people think. And not just Appalachia, but the submers, Milwaukee, the some of the northern subers, Philadelphia. So there hasn't been that great let's call it the Great rotation and media. We'll have to see if disruptive forces really upend this landscape going forward. How many Americans

have passports? I'm googling it as we start. Um, wait, wait, let's get our let's I'm going there passport. Guess how many? And I'm going there, Megan, because of that group you described that you categorized as less progressive than people on the northeast people on the west coast do they also care less about the world and have less interest in it's complexity and it's rich tapestry. That's why I asked

the passport question. It's thirty according toistics. But I think that you know, this is why I've always strongly resisted that that sort of move to characterize this as ignorant or less worldly, it isn't. It's just that people are familiar with what they're familiar and a lot of people who voted for Trump live in less diverse communities. That's just a fact. That's not a negative or a positive.

And the attempt to sort of put some normative stance on this that they's somehow less or you know, that there's a good or a bad I think that's sort of the trap the media falls into. And I don't think they're less interested. I think they're just they have less experience with the rich tapestry, as you so eloquently put it down, um, the rich tapestry of of the world. But yeah, that doesn't make it a good thing or a bad thing, Megan, can we get your your prediction

for two thousand seventeen. Yeah, unsurprisingly, it's going to keep a little bit into politics. But I think that we will see UM again a mispricing of political risk in particularly in Europe. I was actually going through Goldman's predictions this morning, and we have Teresa May speaking right now, and I think there's a real chance of UM an

outlier event in Germany, France or the UK. I think in France, yes, of course, Philon, will we we assume we'll win in a run, you know, in a second round against Marine le pat And in Germany this expectation of Grand Coalition. I think Merkele is going to face real challenges. I think that people are a little bit too saying one about that, but I think the UK is a real going to be really one to watch

this year. I think when you know Theresa May, yeah, is vulnerable in terms of where the UK economy is going to directionally trend, and I think that that is still a story UM that's going to play out. And I think we're going to see some more real, real convulsions in Europe politically, not just because of populisma, because

of just simple really really bad politics. What would tail risk in the UK look like, because already people assume that there's going to be Article fifty is triggered sometime in the early part of the year and then there's going to be a very tough negotiation. What would be

a scenario that people aren't thinking could happen. Well, I think that we it's been so buffeted by you know, booming retail sales, by you know, um, sort of consumer contempt, confidence by people actually not yet understanding what brags it. I think once we get a few announcements such as you know, big corporates leaving, big banks taking out, they

know that's going to happen. But I think the reality of that happening, in the reality of sort of um, you know, an ability to forge a new manufacturing community in the North, you know, or of all this sort of a technological investment in making Britain a hub of entrepreneurship and you know tech innovation that's not going to happen, so people that and and and that's and that's the realism of it sinking in over time. And I think

that Britain's um. I think you know, obviously, as Dan knows, and everyone who's is tracing house prices such a bedrock of the British economy. We see further declines in that particular in the higher end market, which essentially supports a

large degree of London. We have to remember, you know, Financial Services GDP in London alone is still hovers it something like across the country it's eleven still, you know, a real erosion in that market is over and I think over the next twelve months we will see that is going to be causes a severe, severe disruptive elopment. How do you think Theresa May is doing? Megan? The government seems to tilt one way one week on Breasit, but on other issues as well, then tilt the other

way the next week. It's probably fair to say she didn't begin this year anticipating she would be in number

ten at Christmas. How is she doing? I mean, I think when you talk to people, I mean, I don't want to give my own verdict, but I think when you talk to people, when you talk to sort of you know, other senior, very senior politicians, her peers, or senior corporate leaders in Britain or corpor leaders in America, they are stunned by the seemingly lack of ability to stick to a single plan by this sort of article fifty heartenline to a softening once you see, you know,

sort of by election results and and and the Conservatives, uh, you know, sort of responding on a dime to how the sentiment is. She does seem to be policy by a central, underlying moral compass that the Brexit vote was, you know, a vote to leave that there's no going

back for that. I think they were in a real risk of that that as the economy I don't want to say weekends, but in certain sections deteriorates, as you know, Sterling continues, you know, to remain where it's at that you know, you cannot take a single event, even as an event as you know, cataclysmic as Brexit was, and ignore the reality the economic reality facing your country and

or people in trying to reforge an independent Britain. That will increasingly weigh on her and she's going to have to have smarter people around her and she's going to have to make much smarter decisions. Is she getting a pass on this? Because labor is so weak, week is not even a to begin to describe it. In terms of formulating a credible and I'm not talking in terms of party because party membership is up, but in terms

of forming a credible policy counterpoint to her. Yes, she's getting a pass because you know that that party is so splintered, particularly among the elite of the Labor Party, not being able to weigh and be effectual. But I think the UK again just continues to be one to watch, just more of. It's just a fascinating political um journey right now. All right, I like this call. I so

another year of political risk, this time in Europe. Dan Moss, you have a little bit of pressure on you with your prediction because your sixteen prediction ended up being really, really good. So, um, you've set the bar high for your self. What is it. I'm going to go out on a limb and say that Donald Trump will reappoint Janet Yellen as FED chair. Now, technically speaking, Janet Yellen's

term does not expire to January thirteen. However, typically by the end of the year before the President of the day has made his choice known. And I'm shaped somewhat by history here and somewhat by what we can ascertain so far from what the President elect has been saying and doing. First history, presidents, regardless of what is said on a campaign trail, tend to love low interest rates

when they're in office. There is also a track record in recent decades of reappointing chairs appointed by your predecessor. Ronald Reagan was under some pressure to replace Paul Volker. Jim Baker, looking at the election climate, thought no, let's keep Vulca. The last thing we want is a market upset. As we're getting ready to run for re election. It was thought that Bill Clinton at some point might appoint a Democrat. Instead, he reappointed Greenspan not once, but twice.

Barack Obama reappointed Ben Banankey, and Ben Banankey wasn't interested in the second term, so that gave Obama the opening to a point um his own fit chair. So I'm somewhat informed by history here. The other thing is, look, it's probably fair to say, and Megan can guide me here. Consistency has not necessarily been a hallmark of this political season, none of this political season, but interestingly of Donald Trump.

Since his election, one of the things I've been most fascinated by is people saying, oh my god, I can't believe we have all these generals and Wall Street people and in corporate leaders apport to the cabinet. It's like, that's what he said he was going to do. He was going to go to the military. He believed in it. IF and approaching and incorporators, he is actually executed completely consistently.

He's tweeting policy by tweet this sort of crazy, sort of early morning That's what he's been doing all along. I think more people now are just wake up and seeing it. So I think you're completely right in that consistency hasn't been a hallmark of the season written large, but of the approach he's taken. This is who he is and I definitely don't expect him to change for

four more years. I'm glad you mentioned tweeting. There was a lot of speculation before December's f o MC meeting where they finally raised interest rates that the president elect would start tweeting about the faith. Didn't happen. Silence from the BlackBerry, Megan, Can we infer anything in that? I think that you can infer nothing from his tweet policy. I think it's more if he's paying attention and what the New York Post has said or what he's agitated about.

You know, he tweets mostly over agitation, so we'll have to see. I think that I think nothing is safe, nothing is safe, and nothing is not safe from this. And I you know, I think only in twenty years time where we will be able to look back and sort of really evaluate how the political landscape has been transformed by people talking about sort of China and drones or you know, you know, literally in the only medium

being Twitter. Dan, I really I think there's a great call because again, another one of these calls will be able to say this either happened or didn't happen. And it's definitely counterintuitive. I've been in the camp that there's a big clash that will inevitably see between the FED and the administration this year. But I like your contrary

and take. And just in case people don't realize what Dan's call was, for exactly a year ago, Brazil was in all sorts of economic and political turmoil, and he said that Brazil would recover. And I'm looking at w c r S right now on the terminal, which is the World currency ranking uh UM function, and the Brazilian rail is the second best of the major currents of all countries in the entire world, for only the Russian bull did better this year. So hats off to you.

Great call, and that's why we saved the best for last. Well he comes to my get out clothes. Oh no, don't, don't, don't run it down. You're getting done. No caveats, no caveats. All right, Well, thanks everyone, great, great stories and great predictions, and we'll be back here next year to see who is right and who is wrong ed. Hammond, thank you, Thank you. Mike Reagan, appreciate you, thank you. Oh thanks, and you don't have to score my prediction and I

definitely will. Max A. Wilson, thanks at my pleasure. Megan Murphy, Business Week, thank you, thank you. And Dan Mossara top Echo, our top eco person who nailed your twenty sixteen call. We'll see if you could repeat it in okay, Joe. Um, I've been taking notes. I've got these all down so that we can come back in twelve months and see whether or not they were correct. I know that's not necessarily in the spirit of things, Um, but I can't

hold back my journalistic impulses to hold everyone to account. No, we absolutely have to hold everyone to account, and we have to uh publicly shame the people who've got them wrong, and the people who got them right. We want them, we want to loudly trumpet their brilliance so that for the rest of their lives they could say, I was the person on the Odd Lots podcast who got seventeen exactly right. That's true. That should be on their business cards.

I really liked some of the specificity of the calls that you know that Janet Yellen, will she be uh reappointed or not? I mean, that's like a very black or white question. Or will Nigel Frage appear on a reality show like Dancing with the Stars or something. It'll be very easy in seventeen to look back and say this was either correct or not. Nigel Farrage Dancing with the Stars. Yeah, you can totally that's a good Yeah, I totally kind of it's a good one. Um. You know.

The one that I liked quite a lot was Mike Reagan's call on a stock market correction, because you know, you can see it's sort of coming towards the end of sixteen, the fact that people were getting so enthused about all these Trump related things that were yet to happen, you know, publishing their outlooks talking about massive physical stimulus. Everyone really hanging on to that new market narrative, the one we discussed with Mark Cudmore a little bit before then.

It just astounded me how quickly everything changed, absolutely, And I really liked the way Mike brought in laslow Bernis framework of the various stages of a bull market. Uh, and this idea that what we're seeing now is a finely exuberance because we've had an incredible bull market for almost seven years now, no more than seven years now, and it has a reputation of being a hated bull market because people missed it, the most hated, the most

hated bull market. And it feels like perhaps with the latest leg up, that finally some of the haters are coming over into the lover's category and that after all these games, suddenly now they feel reasons to get bullish and that the animal spirits are awake, which is kind of hilarious, like maybe you should have had that view, uh seven years ago. But Joe, as you like to point out, like capitulation is usually the final thing that happens right before it all falls apart. So if everyone

begins to feel optimistic. If the Bears really start to go into hibernation, that's probably when we need to be careful. Well, on that ut cautious, slightly gloomy note, Welcome to seventeen everyone, Thank you for listening, and we'll be back next week with another episode of the Odd Lots Podcast. I'm Joe Why Isn't All? You can follow me on Twitter at the Stalwart and I'm Tracy Alloway. I'm on Twitter at Tracy Alloway. See you soon,