2017 Forecast: Skeptically Optimistic

Help from Washington?

“Quantity is being confused with abundance and wealth with happiness.”

– Tom Waits

“The shift from sailing ships to telegraph was far more radical than that from telephone to email.”

– Noam Chomsky

One might think that all our newfangled technology would make forecasting the future a little easier. I read just last week that scientists have devised electrical wires only three atoms thick. Imagine how powerful a computer chip made with that wiring will be. Yet all our computing horsepower still can’t predict worth a darn what Washington or Wall Street will do to us this year. In fact, there is convincing evidence is that every model that forecasters us is really bad at forecasting, beyond giving us a vague sense of direction.

This is a bigger problem than simply not knowing which way to go. In that situation, you can at least stop and consult your map. Today’s reality is you don’t have a map, and you can’t stop because you are on one of those airport-style moving sidewalks. Unlike the one at the airport, this one has no breaks. You will go all the way to wherever it takes you. Going backwards is not an option, either.

Projecting 2017 is a bit like that. As we’ll see, a great deal will happen in the first third of the year that could (and likely will) radically change the course of events in the last two-thirds. Furthermore, the possible outcomes are in the hands of inherently unpredictable individual humans otherwise known as politicians (and not just in the US, thank you very much!) instead of dispassionate market forces. Fancy quantitative models will be of little help.

Now, don’t take this to mean that I’m pessimistic. I’m not. I ran into Steve Forbes in New York last month, and he asked how I felt about the economy now. I thought for a moment and said, “I’m skeptically optimistic.” He laughed and said that was the perfect answer.

Maybe that’s just another way of repeating the forecast I’ve given you for the last seven years running: My base case is that we will Muddle Through one more year, but with the potential for hitting some serious speed bumps as we round the turn. This is a year to proceed with caution.

Please notice that I’m not saying run for the shelters. I am saying proceed. With caution.

While my answer to Steve may have been perfect at the moment, it omits a lot of detail. So today’s letter will allow me to finish that thought. I’ll tell you both why I’m optimistic and why I’m skeptical.

First, an important announcement. We’ve just opened the registration page for the 14th annual Strategic Investment Conference, which takes place May 22–25 in sunny Orlando. You can save $800 off the walkup rate by registering before Sunday, January 15. But there are only a few of these early-bird tickets. Click here for details.

Our theme this year: “Paradigm Shift: A Deglobalizing World.” Never before have global events weighed so heavily on your investments. That’s why geopolitics will be a focal point on the opening day of SIC 2017. It’s going to be the most exciting SIC yet, and in my humble opinion it will be the single best investment conference of the coming year. To convince you that I’m not just talking the talk, let me walk you through the outstanding lineup of speakers that we have already confirmed.

We have Mark Yusko, the brilliant and witty mind behind Morgan Creek Capital; Gavekal’s Louis Gave, the man you need to listen to on Asian economies and markets; and Dr. Harald Malmgren, whose experience under various US presidents means you’ll definitely want his take on President Trump.

Then there are heavy hitters George Friedman, Ian Bremmer, Raoul Pal, Dr. Pippa Malmgren, Grant Williams, David Zervos, not to mention yours truly, as well as my A-Team, the Mauldin Economics analysts.

Really, we’re only just out of the starting gate. There are many speakers more in the works… including a couple of names I never thought we’d be lucky enough to get. Every speaker at the SIC would headline another conference any day of the week. And because all the speakers know the quality of the lineup, they bring their A games. It’s a race to the top.

My big-picture goal for SIC has always been to create a conference I want to attend. For the last 13 years, that strategy has worked spectacularly. Every year, SIC sells out. And every year, my team gets emails from disappointed readers who didn’t think it would sell out. So there’s my warning, as plain as I can make it. Space is limited. The opportunity to get a ticket at $800 off the walkup rate is even more limited.

I really hope to see you at SIC 2017. Click here to get one of the few remaining early-bird tickets.

I’ll organize this letter around four key themes that I think we will discuss frequently in the next 12 months: US politics, energy, China, and Europe. Then I’ll wrap up with an overarching problem that’s also an opportunity – if we treat it as one.

Help from Washington?

Let’s begin with good thoughts. Markets have rallied since November on the expectation that Trump and the Republicans will quickly enact a growth-oriented economic agenda, including tax cuts, regulatory relief, and targeted economic stimulus projects. As I talk to people involved in the transition, I am gaining more confidence that a good part of that agenda will actually be realized. It’s clear to me that the right people want it to happen, at least. Whether they will get what they want is a slightly different question.

One reason I’m encouraged is that the Republican majority doesn’t have to start over. They already did some of the heavy lifting in the bills that passed Congress for the last two years, only to see them vetoed by President Obama, and in bills that never got that far because a veto was assured. The Republicans know who does and who doesn’t support these bills. With some minor updating, they can quickly pass the bills again, with a better White House reception this time.

The GOP is also intent on hacking back some of the regulatory tentacles that have impeded progress (and especially job growth) in some industries. They intend to employ a rarely used law called the Congressional Review Act to reverse some of the Obama administration’s regulations. They are also considering legislation that would require federal courts to stop accepting federal agencies’ statutory interpretations and defer to Congress instead.