Odd Lots - 61: Here's What's Going to Happen in 2017

Episode Date: January 6, 2017

Welcome to the start of the new year! 2016 defied almost everyone's expectations, but that won't stop us from making predictions for 2017. On this episode of Odd Lots, we're joined by our Bloomberg News colleagues as we look ahead and forecast what will transpire in markets, politics, finance, economics and deals. Featuring: Max Abelson, Ed Hammond, Dan Moss, Megan Murphy and Mike Regan.See omnystudio.com/listener for privacy information.

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slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing Corporation Distributor. Hello and welcome to another episode of the Oddlot podcast, the first for 2017. I'm Joe Wisenthal. And I'm Tracy Allaway. So Tracy, I'm really excited about our episode today because, of course, in the last episode, we did The Look Back for 2016, where we had some of our colleagues tell us their favorite stories of the year. But it's always fun and challenging to make predictions to look forward. The future is pretty difficult to figure out. 2016 was, of course, a very tough year to have called correctly in many ways. And I think it's a good mental exercise to try. You know, it's always sort of foolish.

But I'm a strong believer that people should make an attempt to say what the future holds. Right. So this is the tough episode, right? This is where people have to exercise their mental muscles. They have to think rationally and all for the purposes of being exposed to ridicule and shame when we're inevitably wrong 12 months from now. Yeah, exactly. And, you know, there's a lot of journalists are sort of anti-predictions. They think it's a foolish thing. They think that it's always going to be wrong. But I just, I think that's missing the point.

I think it's a good mental exercise and it's sort of what you predict. is an insight into how you've digested what you've seen so far. And it's just fun to say things that could be proven right or wrong. Okay. Well, in the spirit of fun, let's go to our panelists. With us for the second episode in a row, we heard them tell their favorite stories of 2016. Now we're forcing them to go out and tell us, look at their crystal balls, what exactly is going to happen in 2017. Joining us this week, we have Ed Hammond, who covers deals for Bloomberg News. Hey, Joe.

Welcome, Ed. Thank you for coming back. Mike Regan, who covers markets for Bloomberg News. He has launched a new Markets Live blog venture for terminal users. Happy New Year. Thank you. Max Abelson, our Wall Street expert, Wall Street Whisperer, as I think I described them. Thank you for coming back.

I can't wait to hear your call for the year. Thanks, Joe. Megan Murphy, who covered politics for Bloomberg all year and now has taken on a new mission as editor of Business Week. Thank you for coming on. Can't wait to get your prediction. Excited about it. See if 2017 will be as crazy as it was for politics or whatever as 2016 was. And Dan Moss, who has a great track record of predictions.

Thanks for coming back again. Great to be here. And Ed, why don't you tell us about your prediction for 2017? Crystal Ball. What's going to be this year's spray-a-thon? Yeah, well, I think last year I just went with the kind of stock M&A bank nonsense of, you know, we're going to see more deals in 2016. And we didn't see more deals in 2016.

We did see lots of 2015 deals get blown up, which was quite interesting. I think almost 600 billion of deals that were struck in 2015. 15 were sort of torpedoed in in 2016. What's my prediction for this year? I think, I think Nigel Farage, the sort of populist, slightly right-wing political figure in the UK, is going to end up in a... Slightly. Well, I mean, slightly by, I suppose, by global standards,

by UK standards, I would say, extremely. I think he's going to end up in a celebrity-based reality TV competition. Get me out of the jungle? Or strictly can't be dancing? I was actually thinking celebrity a... because it would fit well with his sort of Trump-loving persona. So that's my prediction. I think he is going to finally bow out from politics for a career in reality television.

That's a good one. Did you vote in the referendum? Yes, I did. I went home to vote in a referendum. That's how serious I took it. It was quite depressing. Being in London, the day afterwards, like the world had ended because obviously London was desperately against this.

And not only that, they had had their recently departed mayor be the sort of flag bear of for the for the for the for the for the braced is and that was I think very very depressing obviously for all concerned all right well I love that prediction because it's concrete and at the end of the year we can actually test very clearly whether it happened or not max abelson what is your prediction for 2017 well Joe because I'm a complicated man I've got some complicated predictions for 2017 let's talk about New York City I've got a prediction for New York City when When Jesse and Zach Miter and I wrote our story on Trump Tower, which you may remember a couple months ago. Great story. Everybody should go look it up.

Thank you, Joe. Thank you, Joe. One of Donald Trump's friends, an Italian man, a man who says he's a count, actually, although we couldn't confirm that independently. He's a friend of Trump's. He lives in the building. He's in the far right, he's affiliated with far right Italian politics. He predicted to us, he said, if Donald Trump wins the election, I believe. he's not going to be able to leave Trump Tower because he loves it so much. So I'm stealing his prediction. Of course, that was before the election. I'm stealing it to turn into a post-election prediction that after Donald Trump becomes president,

sure, he'll be in the White House, but I predict he is going to spend a ton of time here in New York City on Fifth Avenue. All right. We need to say an exact number of nights that he spend so that we could see if he gets a right. So over what's the line? All right. Well, let's say there are 52 weeks. Yeah. Friday and Saturday, you know, that's 100, just over 100.

Could you imagine if you spent more than 100 nights in New York City? That would be one year. Okay, let's say four years, 100 nights in New York. Wait, so just 25 nights a year? That's a lot. Okay. All right, all right. It seems like you're sitting to borrow a little low to claim victory in the prediction.

No, it's got to be higher because just vacations alone and stuff like that. Good point. Let's go for the first year. Okay. Okay, this is an eccentric. More or less than 50? More. Okay, so this is we're going to test.

At the end of 2017, Max Abelson will have been right if Trump spent more than 50 nights at Trump Tower. It's a bold prediction, but we're bold, bold people here. No, I really like it. And given the issues that will cause in New York in terms of security and traffic and everything, it took prediction that has ramifications. Did you see that Tiffany and co-branded? branded the police barricades. Brilliant. And, you know, analysts have come out and warned that because that Tiffany store,

which is right there, Trump Tower, right next to it, is their flagship store. It could materially hit earnings due to the proximity next to Trump. It's not clear that that's actually developing, but that is a concern of analysts. Capitalism is amazing. Only in New York City would you have that baby blue Tiffany on the police barricades. All right. Max Avelson, great prediction. and looking forward to seeing if it turns out right or wrong. All right, Mike Regan, what is your prediction for 2017? You're our markets maven on the panel.

What are we going to be? What's the story going to be? Well, I'm going to make a very cliche prediction. Oh, I know, I know. And I also say I'm not 100% confident in this, but you do say go out on the limb. I do think we will finally see, if not a bare market in stocks,

a very sharp correction. And I'll tell you why. Everybody and their brother has become so optimistic about the Trump administration. It's interesting to me, here's a guy that from day one as a politician was underestimated, you know, he's not going to win a single state in the primaries. He's not going to take the primaries. Oh, he'll never win the election. And the sort of intersection of politics and markets this year has been very fascinating. and both saw basically the death of conventional wisdom.

You know, all the poll numbers in Brexit, you know, turned out to be wrong. Not all of them, but the, you know, the consensus, Trump, you know, no one really thought he would win. That turned out to be wrong. Now I just feel like everyone's gone to the opposite side of the boat. They're way too optimistic. You know, I keep hearing the phrase animal spirits. Ray Dalio used it recently to describe this exhumored. over his policies.

And I just think, you know, we've had this huge rally at the end of the year now. I went from flat stock market, top 10%. Lazo Barini, who's a money manager, an analyst who, you know, I have a lot of interest in, very smart guy, describes the phases of a bull market. And that exuberance phase where you have this really last giant rally at the end is often the sign of the end of the bull market. And when I say a possible bear market, I don't think, I'm not even sure the market will, well, if we talk about the market next December, it'll be down that much on the year.

But during the year, I just feel like there's bound to be some disappointment that will cause maybe a 10 to 20% drop in the market. Can I just jump in on there? Please, I was just going to say, as someone who was on the Trump beat all year, I feel like you'd be out perfect. I think that Mike is exactly right in that the biggest phenomenon in the sort of arc of storytelling of 2016, both in terms of Brexit and in terms of the U.S. election, is just the inability of people to correctly price what was actually going on in terms of how this

would turn out. And I think the one thing that I think you have never underestimate his ability to seemingly unbelievably against sort of all expectations of normalcy, normal discourse, normal policy decision making, to sort of bump along in a sort of vaguely positive way. and I think the biggest risk to the market is going to be big political risk. You know, we look at the drone that happened or some type of incident in the Middle East or ISIS. But I think that when you look at his policy and what he's been able to do in the first sort of, you know, six months, nine months, if we do see the Affordable Care Act getting scale back, if we do see a comprehensive tax reform package getting put through, if we do see an infrastructure. That actually, you know, for me, when I look at it, I can't decide whether the risk is to the upside or the downside, you know, in terms of domestic policy. I see the market to the upside, and I see corporates really seeing, you know, repatriation, investment, and sort of sentiment being buoyed.

But then this really incalculable political foreign policy disaster possibility that the market really does not seem to be pricing in right now. And I see that as a huge downside risk that no one's quite grappling with. Right. Absolutely. Even if it just ends up being China stops buying treasuries, for example, you know, as a sort of protest measure, But, you know, to me, even from the policy standpoint, I mean, it's hard for me to believe that this is a Trump Congress. It's still a Republican-controlled Congress. And it's hard for me to believe that all these Republicans are going to turn into Keynesians all of a sudden and agree to blow out the deficit after shutting the government down because of the deficit, you know, in this last term. Well, they turned into Keynesians under George W. Bush, who inherited a surplus from Bill Clinton and a situation. where the US was actually talking about buying back debt.

Right, right. So they can get religion, and that's not a reflection of their increasingly South base. They can get religion, no pun intended, quite quickly. But, Megan, to your point, I wonder whether we in the media, let's acknowledge that, and financial markets have had difficulty pricing risk because we are concentrated in the northeast and the West Coast, and in the UK concentrated in the London area. So to an extent we were talking among ourselves, there aren't that many financial heavyweight

Wall Street prognosticators based in Appalachia, and there aren't that many based in Stoke-on-Trent. To our detriment it. Is that part of what's happened here? Absolutely. I mean, I think we have to be completely candid about that. I think we have to be completely candid about how this dynamic is completely upended the Convention of Reporting. And frankly, some people just cannot accept that. They cannot accept. What they fail to accept is that people who live in different parts of the country are frankly

less progressive, not just on a sort of social moors, things like abortion or LGBT rights. They're just less progressive in terms of believing in a vision of the country that is very different than the Obama vision, than the Tony Blair vision of this country happened. And I think that is what the election really reawakened is that guess what what you think in new york is very different than what people think in not just appalachia but the suburbs of Milwaukee the sub of some of the northern suburbs philadelphia so there hasn't been that great let's call it the great rotation in media we'll have to see if disruptive forces really upend this landscape going forward how many americans have passports i'm googling it as we steal it's cheating um wait wait let's get our let's get our

i'm going there the joke passport guess is in what percentage 40%. I'm going to go 25%. And I'm going there, Megan, because of that group you described that you categorized as less progressive than people on the northeast or people on the west coast. Do they also care less about the world and have less interest in its complexity and its rich tapestry? That's why I asked the passport question. It's 36% according to the 2013 statistic. Oh, Joe wins.

But I think that, you know, this is why I've always strongly resisted the sort of move to characterize this as ignorant or less worldly. It isn't. It's just that people are familiar with what they're familiar in. A lot of people who voted for Trump live in less diverse communities. That's just a fact. That's not a negative or a positive. And the attempt to sort of put some normative stance on this that there's somehow less or, you know, that there's a good or a bad. think that's sort of the trap the media falls into. And I don't think they're less interested.

I think they're just, they have less experience with the rich tapestry, as you so eloquently put it, Dan, the rich tapestry of the world. But that doesn't make it a good thing or a bad thing. Megan, can we get your prediction for 2017? Yeah, unsurprisingly, it's going to keep a little bit into politics. But I think that we will see, again, a mispricing of political risk in 2012. 2017, particularly in Europe. I was actually going through Goldman's predictions this morning, and we have Theresa May speaking right now. And I think there's a real chance of an outlier event in Germany, France, or the UK. I think in France, yes, of course, Phelon, we assume, we'll win in a second round against Marine Le Penh. And in Germany, this expectation of a grand

coalition, I think Merkel is going to face real challenges. I think that people are a little bit too sanguine about that. But I think the UK is a real, going to be really. really one to watch this year. I think when, you know, Theresa May is vulnerable in terms of where the UK economy is going to directionally trend. And I think that that is still a story that's going to play out. And I think we're going to see some real, real convulsions in Europe politically, not just because of populism, but because of just simple, really, really bad politics. What would a tail risk in the UK look like? Because already people assume that there's going to be Article 50 is triggered sometime in the early part of the year, and then there's going to be a very

tough negotiation. What would be a scenario that people aren't thinking could happen? Well, I think that we've been so buffeted by, you know, booming retail sales, by, you know, sort of consumer confidence by people actually not yet understanding what Brexit. I think once we get a few announcements such as, you know, big corporates leaving, big banks taking out, they know that's going to happen. But I think the reality of that happening and the reality of sort of, you know, an ability to forge a new manufacturing community in the north, you know, or all this sort of a technological investment in making Britain a hub of entrepreneurship and, you know, tech innovation. That's not going to happen. So people that and that's, and that's the realism

of it sinking in over time. And I think that Britain's, I think, you know, obviously, as Dan knows and everyone who's, as Tracy knows, house price is such a bedrock of, you know, the British economy. We see further declines in that, particularly in the higher end market, which essentially supports a large degree of London. We have to remember, you know, financial services GDP in London alone is still hovers at something like 40% across the country. It's 11% still. You know, a real erosion in that market is over, and I think over the next 12 months we will see that is going to be, causes a severe, severe disruptive element. How do you think Theresa May is doing, Megan? The government seems to tilt one way one week

on Brexit, but on other issues as well, then tilt the other way the next week. It's probably fair to say she didn't begin this year anticipating she would be number 10 at Christmas. How is she doing? I mean, I think when you talk to people, I mean, I don't want to give my own verdict, but I think when you talk to people, when you talk to sort of, you know, other senior, very senior politicians, her peers or senior corporate leaders in Britain or corporate leaders in America, they are stunned by the seemingly lack of ability to stick to a single point. by the sort of Article 50 heartline to a softening once you see, you know, sort of by-election

results and the conservatives, you know, sort of responding on a dime to how the sentiment is. She does seem to be policy by a central underlying moral compass that the Brexit vote was, you know, a vote to leave, that there's no going back for that. I think they weren't a real risk of that, that as the economy, I don't want to say weakens, but in certain sections deteriorates as, you know, Sterling continues, you know, to remain where at that, you know, you cannot take a single event, even as an event as, you know, cataclysmic as Brexit was, and ignore the reality, the economic reality facing your country and your people in trying to re-forge an independent Britain. That will increasingly weigh on her and she's

going to have to have smarter people around her and she's going to have to make much smarter decisions. Is she getting a pass on this because Labor is so weak? Week is not even to begin to describe it in terms of formulating a credible, and I'm not talking in terms of party because party membership is up, but in terms of forming a credible policy counterpoint to her, yes, she's getting a pass because, you know, that party is so splintered, particularly among the elite of the Labor Party not being able to weigh in and be effectual. But I think the UK, again, just continues to be one to watch. Just more, it's just a fascinating political journey right now. All right. I like this call. So another year. of political risk this time in Europe. Dan Moss, you have a little bit of pressure on you with your 2017 prediction because your 2016 prediction

ended up being really, really good. So you've set the bar high for yourself. What is it? I'm going to go out in a limb and say that Donald Trump will reappoint Janet Yellen as Fed Chair. Wow. Now, technically speaking,

Janet Yellen's term does not expire to January 31, 2018. However, typically by the end of the year before the president of the day has made his choice known. And I'm shaped somewhat by history here and somewhat by what we can ascertain so far from what the president-elect has been saying and doing. First, the history, presidents, regardless of what is said on a campaign trail, tend to love low interest rates when there in office. There is also a track record in recent decades of reappointing chairs appointed by your predecessor. 1983, Ronald Reagan was under some pressure to replace Paul Volker. Jim Baker, looking at the election, climate thought, no, let's keep Volker. The last thing we want is a market

upset as we're getting ready to run for re-election. It was thought that Bill Clinton at some point might appoint a Democrat. Instead, he reappointed Greenspan, not once, but twice. Barack Obama reappointed Ben Bernanke. And Ben Ben Ben Ben Ben Ben Anke wasn't interested in the second term, so that gave Obama the opening to appoint his own Fed Chair. So I'm somewhat informed by history here. The other thing is, look, it's probably fair to say,

and Megan can guide me here. consistency has not necessarily been a hallmark of this political season. Not of this political season, but interestingly, of Donald Trump since his election. One of the things I've been most fascinated by is people saying, oh my God, I can't believe we have all these generals and Wall Street people and corporate leaders to support to the cabinet. It's like that's what he said he was going to do. He was going to go to the military.

He believed in a different approach and getting corporate leaders. He is actually executed completely consistently. He's tweeting, policy by tweet, this sort of. crazy sort of early morning. That's what he's been doing all along. I think more people now are just waking him and seeing it. So I think you're completely right in that consistency hasn't been a hallmark of the season writ large. But of the approach he's taken, this is who he is. And I definitely don't expect him to change for four more years. I'm glad you mentioned tweeting. There was a lot of speculation before December's FOMC meeting where they finally raised

interest rates that the president-elect would start tweeting about the Fed. Didn't happen. Silence from Blackberry. Megan, can we infer anything in that? I think that you can infer nothing from his tweet policy. I think it's more if he's paying attention and what the New York Post has said or what he's agitated about. He tweets mostly over agitation. So we'll have to see. I think that I think nothing is safe, nothing is safe and nothing is not safe from this. And I, you know, I think only in 20 years time where we'll be able to look back and sort of really evaluate how the political landscape has been transformed by people talking about. about sort of China and drones or literally in the only medium being Twitter.

Dan, I really, I think there's a great call because, again, another one of these calls will be able to say this either happened or didn't happen, and it's definitely counterintuitive. I've been in the camp that there's a big clash that will inevitably see between the Fed and the administration this year, but I like your contrarian take. And just in case people don't realize what Dan's call was for 2016, exactly. year ago, Brazil was in all sorts of economic and political turmoil. And he said that Brazil would recover. And I'm looking at WCRS right now on the terminal, which is the world currency ranking function. And the Brazilian rail is the second best of the major currents of all countries

in the entire world for 2016. Only the Russian ruble did better this year. So hats off to you. Great call. And that's why we saved the best for last. Well, here comes, Mike, get out. close. Oh, no. Don't do it. Don't ruin it. Don't ruin it. Don't. No caveats. No caveats. All right. Well, thanks, everyone. Great, great stories and great predictions. And we'll be back here next year to see who is right and who is wrong. Ed Hammond, thank you. Thank you. Mike Regan, appreciate you. Thank you. Oh, thanks. And you don't have to score my prediction. No, he definitely will. Max Abelson. Thanks a lot. My pleasure. Megan Murphy, Business Week, editor. Thank you.

Thank you. And Dan Moss, our top eco person who nailed your 2016 call. We'll see if you could repeat it in 2017. He's hoping. Okay, Joe, I've been taking notes. I've got these all written down so that we can come back in 12 months and see whether or not they were correct. I know that's not necessarily in the spirit of things, but I can't hold back my journalistic impulses to hold everyone to account. No, we absolutely have to hold everyone to account. And we have to publicly shame the people who got them wrong. And the people who got them right, we want to loudly trumpet their brilliance so that for the rest of their lives, they could say I was the person on the Adlaughts podcast who got 2017 exactly right.

That's true. That should be on their business cards. I really liked some of the specificity of the calls that, you know, Janet Yellen, will she be reappointed or. or not, I mean, that's like a very black or white question. Or will Nigel Farage appear on a reality show like Dancing with the Stars or something? It'll be very easy in 2017 to look back and say this was either correct or not. Nigel Farage on Dancing with the Stars, yeah. You can totally see it, can. Yeah. Oh, I totally can. It's a good one. You know, the one that I liked quite a lot was Mike Regan's call on a stock market correction because, you know, you can. You can't. You can see it sort of coming towards the end of 2016. The fact that people were getting so enthused

about all these Trump-related things that were yet to happen, you know, publishing their outlooks, talking about massive fiscal stimulus, everyone really hanging on to that new market narrative, the one we discussed with Mark Cudmore a little bit before then. It just astounded me how quickly everything changed. Absolutely. And I really liked the way Mike brought in Laszlo Barini's framework of the various stages of a bull market. And this idea that what we're seeing now is a finally exuberance because we've had an incredible bull market for almost seven years now. No, more than seven years now. And it has a reputation of being a hated bull market because people missed it. The most hated bull market. And it feels like perhaps with the latest

leg up that finally some of the haters are coming over into the lover's category and that after all these gains, suddenly now they feel reasons to get bullish and that the animal spirits are awake, which is kind of hilarious. Like maybe you should have had that view seven years ago. But Joe, as you like to point out, like capitulation is usually the final thing that happens right before it all falls apart. So if everyone begins to feel optimistic, if the bears really start to go into hibernation, that's probably when we need to be careful. Well, on that sort of cautious, slightly gloomy note, welcome to 2017, everyone. Thank you for listening. And we'll be back next week with another episode of the Oddlot podcast.

I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. And I'm Tracy Allaway. I'm on Twitter at Tracy Allaway. See you soon. June Grasso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world.

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