Some crystal ball gazing for 2018.
Yves here. While we don’t give financial advice, a forecast here and there gives readers something to debate. Prins gives a much wider ranging set of predictions than most commentators do. I’m not on board with all of her views (as you will see, she’s far more sanguine about Brexit than we are), but many of her points, particularly that central bank tightening will be mainly bark and hardly any bite, seem sound.
In last year’s roadmap, I forecast that 2017 would end with gold prices up and the dollar index down, both of which happened. I underestimated the number of Fed hikes by one hike, but globally, average short term rates have remained around zero. That will be a core pattern throughout 2018.
Central banks may tweak a few rates here and there, announce some tapering due to “economic growth”, or deflect attention to fiscal policy, but the entire financial and capital markets system rests on the strategies, co-dependencies and cheap money policies of central banks. The bond markets will feel the heat of any tightening shift or fears of one, while the stock market will continue to rush ahead on the reality of cheap money supply until debt problems tug at the equity markets and take them down.
Central bankers are well aware of this. They have no exit plan for their decade of collusion. But a weak hope that it’ll all work out. They have no dedicated agenda to remove themselves from their money supplier role, nor any desire to do so. Truth be told, they couldn’t map out an exit route from cheap money even if they wanted to.
The total books of global central banks (that hold the spoils of QE) have ballooned by $2 Trillion in assets (read: debt) over 2017. That brings the amount of global central banks holdings to more than $21.7 trillion in assets. And growing. Teasers about tapering have been released into the atmosphere, but numbers don’t lie.
That’s a hefty cushion for international speculation. Every bond a central bank buys or holds, gets a price-lift. Trillions of dollars of such buys have artificially lifted all bond prices, and stocks because of the secondary-lift effect and rapacious search for self-perpetuating returns. Financial bubbles pervade the world.
Central bank leaders may wax hawkish –manifested in strong words but tepid actions. Yet, overall, policies will remain consistent with those of the past decade to combat this looming crisis. US nationalistic trade policies will push other nations to embrace agreements with each other that exclude the US and shun the US dollar.
Meanwhile, here are some themes to watch for 2018:
1) Central Bank “Tightening” and “Tapering”: More Talk than Action
2) Rising Stock Markets for Now; But on Shakier Ground
3) Expanding Debt and Corporate Defaults
4) Weakening Dollar, Rising Gold and Silver Prices
5) Ongoing Economic Power Shift from the West to the East
6) Easy ECB policy / Sterling Rising into Brexit
7) Infrastructure Focus
8) Cryptomania Grips More Tightly
9) Going Digital and Green
10) Dangers of Trump’s Deregulation Entourage
https://www.nakedcapitalism.com/2018/01/nomi-prins-financial-road-map-2018.html
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