(With apologies to Ernest Lawrence Thayer)
The outlook isn’t brilliant for investors or their stocks
As all their hopes are pinned upon the tale of Goldilocks
While growth has been quite solid and in line to further soar
Inflation’s playing possum, sitting right outside the door
And as this year progresses what I sense we will observe
Is prices rising faster and a steepening yield curve
The impact on the dollar will be gradual but clear
With buyers more than sellers driving values for this year.
So let us take a look into my handy crystal ball
And see how things unfold throughout the winter, summer, fall.
The most important data point is now Core PCE
Which as of late December stood at one point five, you see
Way back in Twenty Twelve the Fed explained that in their view
The best inflation rate would be a simple rate of Two
The thing is since that time, and actually from well before,
That rate of two percent has been a ceiling, not a floor
But ask yourself this question, does, to you, it really feel
Like prices aren’t rising? If you ask me, that’s surreal.
The thing is Janet Yellen has been adamant it’s true
Inflation that she’s watching isn’t anywhere near two.
My forecast is that sometime ere the summer does arrive
Those readings will be rising up quite near to two point five
And if I’m right the new Fed Chair, Jay Powell, will be forced
To increase rates much faster than he’s currently endorsed
But this, my friends, is not something for which stocks are prepared
Which helps explain my vision of investors running scared
Consider, if you will, that if the ten-year reaches four
Most traders will have never seen a rate like that before
The impact on the markets will be sharp and likely swift
As traders view portfolios, and stocks given short shrift
Meanwhile those higher interest rates, investors will attract
Thus dollar buying will increase, with very real impact.
And there is one more benefit the dollar will receive
The tax treatment of earnings will for companies relieve
The problem of retaining foreign earnings far offshore
Instead expect that money to come rushing through the door
And while much of this cash has been converted in the past
There’s still a tidy sum in local currencies amassed
Thus when that gets converted many dollars will be bought
For dollar bears, I’m confident this ought be food for thought.
Now let’s take a world tour so we can get a better sense
Of what some FX rates will be, come Christmas twelve months hence.
In Europe we’ve been promised that at least until September
The ECB will buy more bonds ere QE they dismember
But lo, the current narrative has Draghi soon compelled
To stop the buying earlier, a view he has dispelled
While growth across the Continent has recently improved
His history as President implies that he’s unmoved
So I expect the ECB will buy and buy and buy
More bonds, insuring interest rates don’t ever get too high
And so the idea that the euro ought to really thrive
Is errant, but instead will trade year-end at one oh five.
In England as they grapple with the impact Brexit caused
Sir Carney, in his rate hiking, has evidently paused
And though inflation there already threatens to explode
Uncertainty from Brexit will cause growth there to be slowed
And so while Chairman Powell will, more rate hikes, oversee
Mark Carney will do nothing about rates, I guaranty
And thus the pound will suffer all year long and slowly slide
Toward one point one as time goes by and next comes yuletide.
We detour next to Asia where Mt Fuji overlooks
The nation that for years has had deflation on its books
The question is, has twenty years of QE done the trick?
And fin’lly helped Kuroda-san to cause a price uptick?
The good news, I believe, is prices there are no more sinking
But two percent, their target, is still naught but wishful thinking
And so as prices round the world accelerate this year
The yen will find it has become particularly dear
The combination of inflation and increasing risk
Will drive the yen toward par, though movement won’t be very brisk.
The other Asian nation that we care so much about
Is China, where the President, his foes, has now thinned out
Thus Xi has turned his focus to the leverage that exists
In housing and in Wealth Products where danger still persists
Inflation there is edging up alongside interest rates
But most of China’s banks will suffer lest this risk abates
These problems call for answers that are opposite in nature
And well beyond the skill set of the Chinese legislature
The upshot is the yuan is where the pressure will be felt
Come Christmas next expect that seven fifty will be dealt.
Closer to home its time to talk ‘bout things north of the border
Where housing prices bubbled up and may cause more disorder
The BOC has raised rates twice though recently they’ve stopped
But soon some tighter policies they will need to adopt
However, they will trail the Fed as housing there is shaken
And so the Loonie, as its wont, will find itself forsaken
When winter’s clutches have embraced us all twelve months from now
On screens near you expect a rate of one forty, oh wow!
South of the border I expect the story is akin
To Canada, thus pesos ought to take it on the chin
While Carstens has done yeoman’s work and helped his nation grow
His rate path vs. the Fed is likely to be somewhat slow
The other thing we can’t forget is NAFTA’s likely doomed
So growth in trade there, like the past, just cannot be assumed
Comparing notes in Mexico when all is said and done
Look for the peso this year to end up at Twenty-One
There is one other thing that I will forecast, though insane
That’s Bitcoin, which has lately shown it’s anything but plain
The thing is classic markets have both buyers and their sort
While sellers naturally rise up and some even sell short
But Bitcoin’s truly different because half this group’s deficient
Since Miners hoard all that they mine, thus buyers are sufficient
To drive the price much higher than where value seems to be
Especially since value is where both sides disagree
It may be true the future of this ‘asset’ will be grand
But then again it may be that it won’t work out as planned
Last year it multiplied some fifteen times, who would have thought?
But this year I’d be wary if you have already bought
I fear that governments around the world will soon decide
That competition for their money they cannot abide
Look for restrictions to increase, exchanges to be closed
And many obstacles emplaced than currently supposed
All this will weigh quite heavily on Bitcoin’s market price
So I suggest a rout will come and happen in a trice
Experience explains to me this bubble will be shunned
If Bitcoin’s still a thousand bucks next winter I’d be stunned.
And so a recap now is due, the year ahead ought see
Most interest rates increasing, also volatility
While looking back I want to thank my readers one and all
And please remember that these thoughts are just one pundit’s call.
Good luck and have a happy, healthy and prosperous new year