Monday, 29 December 2014

15 macro thoughts for 2015

After reviewing my 2014 macro prediction scorecard here just over a week ago now it is time for the 2015 macro predictions.  So what are my 15 macro thoughts for 2015 which I believe will influence my own trading and investment thinking over the next 12 months?

In no particular order of course (and - as always - these are just my own thoughts so please do your own work)...

Currency angst increases (including the US$ NOT being as rampant as everyone thinks)
Of course I could use the 'C....... W...' moniker but this is something a little more subtle as it is not immediately front page grabbing.



You see it is easier to name the currencies that have gone up against the US dollar recently than those that have not...


(h/t @jsblokland)

Here's the core problem: most countries in the world want a weaker currency and the Fed is already worrying about the impacts of a stronger currency.  That equates to a problem.  Don't expect an akin further US dollar bounce akin to the early '80s or late '90s.  

More currency angst is pro-volatility, a theme that will be picked up later. 

The Greek anti-austerity/anti-euro party helps form a government...& it doesn't lead to a crisis
So, at the time of writing, it seems likely that a Greek General Election will occur on 1 February and with the anti-austerity/anti-euro Syriza party riding high in the polls it seems highly likely that they will at least help form the next government.  

So cue a crisis for the eurozone?  Not at all.  Syriza will not govern alone and their fervour for change is more likely practically satisfied by some kind of further debt rescheduling agreement (as the chart below shows hardly unknown to the Greeks) with the troika than exiting the euro.  If you want a negative eurozone story then worry about stalling in the necessary wave of economic liberalism/supply side reform required as well as QE (which I think happens although after another round of wailing/gnashing of teeth).  


You will make more stock picking than buying passive equity indices
No surprises that the average end-2015 forecast for the closing value of the fifteen important equity indices below is 11.8%.  Invariably it is either side of 10%...but as we are coming off a generally bullish last few years for 2015 it is above 10%.  Here's what I think: if we end up a few percentage points up in the below collection of indices than we will have done ok.  


So I am a bear then?  Actually...not.  Look you cannot argue that markets are cheap...
  

...but there are plenty of opportunities out there but to really access them you are going to have to be something few believe in at the moment: a stock picker.  


What's the Japanese for crisis?  Abenomics will be perceived as a clear failure by end 2015
Oh Japan.  With its 25 year anniversary of the 1989 market peak occurring today you would have thought some new thinking would have started to kick in.  Whilst the re-election of Mr Abe...


...the scrapping of the second sales tax increase and a further hike in QE looks radical...the reality is it is not as it is not really working as noted below.  


Now what Japan really needs is radical supply side reform encompassing enhanced flexibility, looser regulation and enhanced female labour force participation and probably greater immigration.  What it will get is a much lower yen.  Remember that currency angst theme above?


The obligatory oil call 
The finance story of the last few months of 2014...so there needs to be some view I guess.  Well it is easy to be worried about the oil given technical channels...

...the longevity of bear markets...


...and even relative value in (say) natural gas

So no grand and huge bounce back in the oil price, rather my call is that it goes off the front pages which allows the next macro theme to occur...

Commodities can make you money...if you focus on the right stocks 
Yes, you heard me right.  But first another chart to show just how bad commodities generally were in 2014: there were some big losers in the metals and bulk commodity world during the year as shown below:


Here is the key point however.  With fund managers in full panic mode the opportunities for stock pickers are good.  So whilst I am no huge bull of commodity prices in the energy/metals space I do like growing, competitive, well-managed companies in these parts of the market.  Resources names will be overweighted in tomorrow's '15 global stocks for 2015'.  


China - don't worry about economic growth, worry about Xi the princeling
China is slowing from a statistical economic growth perspective BUT that is not what you should worry about in 2015, not even with an unsustainably rampant Chinese bourse.  No, the curveball in China is the growing power concentration dressed up as an anti-corruption drive by President Xi.  As always you are either one side or the other. The Mainland will all fall in line - frankly it is largely there already - but Hong Kong is an interesting case study.  Expect more 'lobbying', periodic crackdowns and protests.  Not good for confidence in expensive assets despite the big picture regional structural growth positives.  China is another stock picking market for 2015.  


Expect four bouts of volatility in 2015
If we learnt anything over the last six months it should be that markets come back to bite you when you least expect it.  Most investors are still not convinced by the need to monitor or trade volatility - but they should be. Four significant bouts of volatility in 2015 seems about right to me...  


...one of which I believe will see a S&P 500 correction of greater than 10%.  


Precious pays off in 2015
So gold was not too disastrous even in 'hard' US dollars during 2014...but it lagged many asset class alternatives which feels surprising given continued global money supply expansion. What I find interesting is that the emerging world continues to accumulate gold... 


...and as for silver well all you can say is that the bear market is very, very historically deep.  


Augmenting the pro resources stock call above is a specific one in favour of precious metal focused stocks.  

Lower for longer wins again... but that doesn't mean bonds are great 
I think the Fed and the Bank of England - as supposedly the two Central Banks closest to a rate hike - will again largely pass on rate rises.  We may get a nominal 0.1% here or there but no gut-wrenching reversion to a 'normal' cycle.  I think the biggest influences on this will be the above-mentioned volatile backdrop compared with a more doveish FOMC post reshuffle.  

Don't make me laugh though re any thoughts of value in the bond market.  Unless Europe wants the downward movement replication of the Japanese market it should not aspire to having bond yields that ape it.  Collect your coupons sovereign bond investors: in the developed world that generally is going to be the biggest source of your returns.  


Bonds #2 - trade those junk bonds
High-yield used to be called 'junk bonds'.  The big rally post 2011 has evolved a few investor thoughts but as the chart below shows the backing up of the high-yield junk bond market in the latter half of 2014 the original name should start to stick again...


...especially with all that oil sector related paper: 
As with stocks you are going to have to trade the volatility to make the most of the junk bond world in 2015...otherwise I would look elsewhere. 

Russia - bottom fishing 
A bad year for the ex-Superpower...and judging by the Central Bank of Russia's forecasts 2015-16 are not going to be easy.  

So what can we say?  Well Vlad is certainly going to get a year older, the oil price is probably going to struggle to beat his age but the RUB/USD exchange rate...well I think this one ends the year the 'lowest' of the three.  If this is right bottom fishing in Russian equities will be sensible in 2015.  I see scope for some ok gains. 


Real wages grow
The average household really has not had a good last ten years versus the broader economy (and by definition the 'top 10%') as shown in the graphic below.  Still helped by lower oil prices and the fact companies are another year away from the 2007-9 period real wages will rise in both the US and Europe. I am not sure how much difference it is really going to make however.  Still not a shocker for the much-maligned consumer sector.  


The information revolution rolls on apace
The internet, information and mobility theme will be even bigger in 2015 which is why it is totally appropriate that it will be well-represented in my list of '15 global stocks for 2015' out tomorrow...


And finally...emerging markets will outperform developed markets
Add a twist of resources stocks doing better, an element of the US dollar not being rampant and - as shown below - general value and EM > DM at the biggest picture level will be true in 2015 in both equities...


...and despite high issuance in debt too:

So there we have it: 15 macro thoughts for 2015.  Of course you could easily think of another 15...but that is not the point.  These are the 15 ones that are buzzing around my head currently and which are influencing tomorrow's list of 15 Global Stocks for 2015.  

2 comments:

  1. I love the oil industry stocks down here!

    ReplyDelete
  2. There may be at least one in the 15 top global stocks for '15 out later today!!

    ReplyDelete