Monday 01/05/15    In honor of the new year I am going to write down my 2015
The unemployment rate which has come down the past few years will stall out. Lost jobs in oil and gas extraction and other commodities based jobs will be a drag on overall employment, but strength in other industries (healthcare, financial services, and transportation) and a decline in the participation rate will offset some of this.
GDP growth in the U.S. will also be impacted by lower energy prices, and there will be a negative surprise in Q1. However, US GDP will continue to be much stronger compared to other developed nations.
Small cap stocks Will be the outperformer this year compared to large and mid-cap asset classes. Chinese stocks will form a bubble, but will also reverse suddenly and spectacularly. The S&P 500 will bounce around inside the ascending channel shown in the picture on the right, but will end the year below it.
The dollar will continue to be the outperforming currency. Countries whose budgets depend on oil will be strained and some will experience revolutions as a result (Venezuela being a likely candidate). Australian and Canadian currencies will come under pressure and housing bubbles that have formed in Canada, Scandinavia and elsewhere will deflate. The yen will start the year off strong, but will weaken overall. The European Central Bank will underwhelm investors who were betting on a large-scale quantitative easing program, and the euro will rally at some point this year. The Russian ruble and Turkish lira will experience severe stress.
There will be an event similar to the taper tantrum where bond yields spike on concerns over rate hikes, but those hikes (if they happen) will be small and bond yields will slowly drift lower. Municipal bonds will be strong performers.
Commodities will remain weak for most of the year. There will be a wave of mergers and acquisitions in oil and gas companies. US oil production will continue to increase. Oil prices will fluctuate in a huge sideways range all year. Declining demand from China will continue to put downward pressure on commodity prices.
Well, those are my guesses. Please take them with a grain of salt, because I would be surprised if they all come true. In truth, I prefer to approach these issues one at a time as they develop. However, I find making these lists valuable because they can highlight my biases. I often find that my best predictions happen when I overcome a bias that I held and change my mind completely; if you aren’t willing to do that the market will most definitely find a way to humble you.