It’s time again to put on the fortune-teller costume (for the elderly, think Johnny Carson’s Carnac the Magnificent) and to hope that no one will remember these predictions.
May as well get on with the confession from last year, too. Then, the absolute lead-pipe cinch forecast: a 2017 fight between Trump and rate-hiking Janet Yellen.
Nope. He fought with everyone else on Earth, but not Janet.
(Sidebar for non-Okie city folk: a cinch is the belt that holds a saddle on a horse. Horses are not stupid, and know to distend their bellies to prevent tight cinching. A loose cinch can result in a humiliated cowboy. Thus the tightest-possible cinch is knotted lead pipe.)
This year’s sure thing (brace yourself): few of the forecasts you’ll hear at this New Year will matter. Very few. Just as last year we are likely to wander forward en masse: get up, go to work/school, make a buck, look after family.
Herewith the list of things which do and don’t matter:
The doesn’t-matter list-topper: politics. As much fun or agony as it may be, if politics in 2017 had no effect on markets, then politics won’t matter in 2018, either. From Tuesday forward, especially in Congress the November election will grow in importance every day. By spring the election will blot out the sun on Capitol Hill, and by summer... an election nearby acts on Congress like curare: your mind still works, but you can’t move, speak, or even wink. And no matter the outcome, what’s-his-name will still be in office.
Does matter: foreign central banks. If the global recovery emboldens Germany to force the European Central Bank to stop its bond-buying, or the Bank of Japan lets long-term rates to float above zero in yet another suicide attempt, then US long-term rates can go haywire along with other unintended consequences galore.
Ignore the Fed and its rate-nibbling. Also ignore the numbing attention paid to the narrowing spread between short-term rates and long-term ones. By 2019 these subjects may matter, but in the near term are self-correcting. If inflation says low and GDP calms to two-percent-something, as is likely, the Fed will back off it’s three-hike path. If wages and inflation do begin to grow toward the Fed’s 2% target, then the Fed will follow through with its hikes -- but markets will see that as appropriate pre-empting. Mortgage rates may at last rise to something shattering like 4.50%.
Do watch the stock market. You won’t learn anything useful about the economy (unless stocks crater), but it will keep your mind off politics.
Save yourself from the endless discussion about the tax bill. No matter what happens in next year’s election, or Mueller does to what’s-his-name, so long as Republicans control the White House the tax bill will remain law. Three years anyway. The bill will annoy more people every day as CPAs advise contents and consequences, but the economic effect is likely to be nil, and already built in to stock prices. Colorado is a low-tax state but we do have a state income tax, applied to Federal reported incomes. Our Department of Revenue forecasts an increase in personal tax payments as much as $310 million, only a 4.3% tax hike (a little more than our revenue from sales taxes on dope), but there will not be any consumer stimulus from this anti-cut. Nor from the corporate giveaway.
Set aside geopolitical worries. Yeah, I know that Europeans thought the same thing twice in the bloody 20th, that connections and commerce had made war impossible. But nukes really have reduced the risk of big war. Pax Nuclearis. When Xi Jinping says “War must not be allowed on the Korean peninsula,” take him at his word. Yes, the world will be more unstable as relative US power declines, and we pull back from 70-year-old commitments, but that’s not all bad. Responsibility for one’s own affairs clarifies the mind.
Do pay attention to the IT-remaking of global commerce, and the speed of the re-making far beyond the ability of our institutions and citizens to respond. Not the boogeymen, automation and AI. Nor the sillies, like crypto-currencies. Nor the dreams, like quickly replacing 263 million US registered passenger vehicles with electrics or automated ones. The important parts are the general and recurrent disruption of everyday working life, social interaction, and information.
IT stands for information technology. With thanks to Niall Ferguson’s posting this week... after the beginnings of the alphabet more than 5,000 years ago, the earliest revolution in information was the printing press, in 1439. Then it took 400 years until the next step, Mr. Morse and his telegraph. Then only 40 years to Mr. Bell, and another 23 to Mr. Marconi and his “wireless.” Radios became common in homes in another 20 years -- music, news, comedy, and propaganda, the “big lie” discovered. The highly distinctive, resonant and compelling voices of FDR, Mr. Churchill, and Mr. Hitler on radios had a lot to do with 20th Century events. Television followed common radio by 25 years. Today we are only 25 years with e-mail addresses, ten with smart phones, and today each day eight billion YouTube videos, four billion Google searches, and two billion Facebook users. We have no idea what we are doing, what we have done, let alone where we are going.
Above all think about the fantastic, high-speed change in American society partly driven by IT and partly by global commerce: the evacuation of the countryside, those who can headed fast for opportunity in cities. And the simultaneous stoppage of movement to anywhere by those left behind. Our Civil War, the opening of the West, the two World Wars and prosperity migration afterwards were great American unifiers, a true melding of culture via constant re-mixing and strangers becoming friends.
Isolate any species and get rapid differentiation. Isolate any group of homo sap and in just a few generations its culture will little resemble the source culture, and will be hostile to it. In the last twenty years we have self-isolated by information, residence, and opportunity as never before in our history.
The US 10-year T-note, looking back at 2017. Everyone expects an increase in their yields, and unanimity sometimes is correct. The ascending bottoms in trading since September are enough to make anyone nervous:
The 2-year T-note is unambiguous. The Fed is going up:
The Atlanta Fed’s last snapshot of Q4 GDP shows a little cooling, a good thing for everyone:
The ECRI confirms the cooling: