2016 Predictions (recap)

Tuesday 01/03/17

It has become a tradition for me to try to make predictions/guesses about the upcoming year and review my predictions from the previous year. This week I will be reviewing my previous guesses and see where I was right and where I was wrong. You can review my 2016 guesses here.

Unemployment, Wages and inflation

My guess from last year was that wages and inflation would pick up and that unemployment would initially fall, but rise over 5% by the end of the year. Unemployment rose in the first part of the year but has fallen dramatically in the last couple months so unless there is a big change in December we can safely say that I was wrong. On the other hand, inflation and wages have both picked up so I’ll give myself a gold star for that one.

Stocks

My prediction for stocks was that they would continue to struggle. This was true for most of the year until a major rally after the election. I also predicted a wave of bankruptcies and mergers in oil, gas, coal etc. This came true, but wasn’t really that hard of a prediction since it seemed pretty apparent at the beginning of the year. I also predicted that Silicon Valley companies would lead a selloff. They were the notable underperformers this year while small cap and value stocks led the year-end rally.

Currencies

I predicted that emerging market currencies would be weak again and they were. I also predicted that the ruble and the Canadian dollar would strengthen in the beginning of the year, but weaken over the rest of the year. While they both strengthened in the early part of the year, both currencies ended the year higher against the dollar. The ruble especially benefited from Trump’s election, while the Canadian dollar has been trending lower. I predicted that the euro would reach parity with the U.S. dollar. I was really close on that guess, I missed it by just 4 cents. I predicted another one-time devaluation of the yuan. That didn’t happen, but it did weaken significantly against the dollar over the year. I also saw this as the trigger for a selloff in stocks that didn’t happen.

Bonds

I saw a flattening yield curve this last year that would be caused by a yuan devaluation. Since that didn’t happen I was wrong there again. I saw rising defaults in junk bonds in 2016 which was correct.

Commodities

I predicted that commodities would bottom and rally in 2016, which they did, but I also predicted that gold would break $1000/ounce before that happened, which it didn’t.

Conclusion

A lot of my 2016 predictions were predicated on a yuan devaluation that didn’t happen. I was pretty clear in stating that most of my predictions were dependent on that. I still think that is a possibility in 2017, but it appears that the PBOC (People’s Bank of China) is pursuing a more gradual policy of devaluation to avoid disrupting the markets. Next week I will offer up a new set of predictions for 2017.