A Pessimist's Guide to 2017

As the forum's official Doom and Gloomer, it's my duty to post up Bloomberg's Pessimist's Guide to 2017. This is a follow-up to last year's predictions, and the Property Chat thread I started.

They called Trump and Brexit last time, so what's in store for 2017?

Trumplandia

Political unrest follows Trump's inauguration, leading to a progressive movement in California taking him on. Threats of splits in the Republican party and Calexit arise.

Yalta 2.0

Germany finds itself trapped between an expansionist Russia, and an isolationist USA. Should they lead a military build-up against Putin, or strike a grand bargain with him?

Economic war between China and America

Trump brings in tariffs against China, who suppress the Yuan and block exports of consumer goods like the iPhone. This leads to a financial crisis and recession in the Far East.

Kim trumps Trump

Trump withdraws the US from its NATO and UN commitments. North Korea and ISIS cause trouble, and he's forced to cut a deal with China to deal with the consequences.

Heads roll in Europe

Populists such as Marine Le Pen win the upcoming elections across Europe. There's a Greek crisis, collapse in the Euro, and France threatens to leave the EU.

The Internet of (Bad) Things

Wikileaks turns on Trump, the big Internet companies are revealed to be using connected devices as wiretaps, and hackers launch large-scale cyber attacks. This results in tech stocks taking a serious beating.

Cuba - back in the USSR

Trump reverses Obama's rapprochement with Cuba, who get back into bed with Russia, and in turn establish a spy base in Havana. That doesn't go down well.

Mexico Meltdown

Trump pulls the US out of NAFTA. Mexico suffers recession, and elects a populist leader.

Saudi Arabia’s Golden Boy is Sidelined

Saudi attempts to diversify away from fossil fuels fails. Tensions in the region rise, and the economy takes a hit.

 

Trump doesn't even need to start an economic war I reckon. As it is, China has no choice but to sell their holdings of US treasuries in an attempt to shore up the yuan which has been on a steady decline to USD, exacerbated by capital outflows, which indirectly pushes up rates in US. This in turn makes holding E.M. currencies less attractive and causes more capital flight back to the USA resulting in a downward spiral for most of Asia.

Yuan is now already down to RMB6.94 : USD1 (it was 6.5:1 at the start of 2016)
Once panic takes hold, not only the people but businesses will be dumping the yuan enmasse. Despite their massive economy, much of it has been explosive unsustainable growth fueled by excessive credit, I think anyone holding or doing business in Yuan would be pretty jittery holding it. Some businesses are already starting their own interventions...
At 7-Eleven, One Yuan Buys You One Hong Kong Dollar

I am calling a lucky number of RMB8 : USD1 before year end 2017.

I don't see how China can survive next year unscathed. Especially with their primitive unregulated financial markets. The recent rout in their bond markets is likely a preview of things to come and a good example of how bad things are being run over there, though its no surprise. I reckon " fake doc " is even worse than "low doc" loans/bonds
China Bank Says Bond Guarantee Forged as Market Mood Worsens

I actually think we might be looking at another financial crisis similar to the one that happened in Asia in 1997, only this time China leading the way rather than Thailand. But that's just me ;P

 

Just read James Rickards book "A Road to Ruin" to I may have a level of bias.

We statically are due a market correction, and these are generally triggered by an event such as the GFC, Asian Financial, etc

Trump policies are protectionist and may trigger trade wars, as well as countries like China selling off US assets. At this stage I'm planning to sit on my hands in 2017.

 

This is was Goldman Sachs has to say under Trump administration

Economic growth......above trend growth
Tax reforms

posted this link on your 2016 thread

Goldman Sachs | 2017 Macroeconomic Outlook

I like what's happening in US with regards to property

Here are some stats (US Census Bureau)

Home sales surge
New homes sold in the U.S. rose by 14.6% in 2015 to about 501,000 units, according to the US Census Bureau - the highest number of new housing units sold since 2008. In Q1 2016 there were 132,000 homes sold - up by 17.9% y-o-y.


The South accounted for 61% of new home sales transactions in Q1 2016, the West for 23%, Midwest for 11%, and Northeast for 5%.

"There cannot be too much wrong with the economy if consumers keep buying new homes. It shows confidence," said Chris Rupkey, chief economist at MUFG Union Bank in New York.

 

Haven't read that book but we are definitely due another correction at some stage.

The last one during the GFC was actually a good chance for USA to "reset" and reform their economy. Unfortunately they chose quantitative easing instead which propped up assets and liquidity but don't benefit productivity much. The global economy has since "limped along" for quite some time now. even Euro/Japan/USA/China central bank easings in addition to low oil prices(which really are a sort of stimulus) have not really done much to boost GDP growth the past couple years.

So now we have crazy gov debt levels in USA and China. USA might still have a chance to do well under trump, but China will probably go the way of Japan with excessive debt and aging population.

Another couple weeks and we will get a clearer indication of what amazing things Trump will do. Really want to see if he is able to lower the US debt levels or continue to spend away like Obama did. He might just go hunting with Putin and leave Pence to run the place.

 

Saxo Bank has also made its Outrageous Predictions for 2017. These are:

China's GDP grows by 8%

China's growth surprises on the upside, and the SHCOMP hits 5,000. There's a suggestion this could be decoupled from commodities though, and that would be a negative for Australia.

Federal Reserve fixes 10 year bonds at 1.5%

The yields on US Treasuries rose to 3% during the 2013 "Taper Tantrum", and a rerun of this due to Trump's economic policies could prick a number of bubbles. So the Federal Reserve effectively embarks on QE4 to keep yields down.

High-yield bonds default at 25%

Risky assets have a failure rate of around 4%, but as as ZIRP and QE is mismanaged, this rises to 25%. This would damage a number of corporations, but would also allow for a period of "creative destruction" to rebalance the economy more healthily.

Bremain

The British decide that Brexit is a bad idea, and remain in the EU after all. There was some chatter in The Guardian that a compromise is necessary, and it might end with the UK being less out than the extremists want.

Copper corrects

The price of copper drops to $1.25 / pound, because Trump. A huge amount of the metal has been used as a store of value, and the basis of financial products, in China, and as this floods the markets, it further depresses prices.

Huge gains for Bitcoin

Trump's spending spree raises inflation, and hence interest rates. This forces the US Dollar higher, meaning that cryptocurrencies become an alternative for emerging markets, with Bitcoin rising to around $2,000. Bitcoin hit $1,000 for the first time in three years this week, so maybe the rally will continue.

US healthcare reforms trigger panic in the sector

Reforms in the US actually reduce healthcare costs, causing share prices for associated companies to fall. A lot.

Mexican Peso soars

The market has overestimated Trump's ability to crack down on trade with Mexico, and the Peso soars when it realises this. A knock-on effect is that the Canadian Dollar slumps, and their housing market becomes a problem for the economy.

Italian banks are the best performing equity asset

European-wide support for the financial sector, aimed at helping the too-big-to-fail institutions, gives Italian banks a boost.

Mutual Euro Bonds

A massive Keynesian stimulus is delivered as a response to the rise in populism in Europe, as a way of reviving the flagging EU economy. This is funded through issuance of mutual Euro bonds, and boosts confidence in the European project.

Incidentally, Saxo's outrageous predictions for last year failed completely, so don't hold your breath for any of the above.