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  1. Teaser Paragraph:

    “Cheers to a new year and another chance for us to get it right.” Oprah Winfrey

    It’s December already and the year seems to have gone by in a flash. It doesn’t seem that long ago that excessively bullish sentiment was front and center of our minds, even if a US recovery was still uncertain and the noises out of Europe were worrying. How quickly we move on.

    Investors will be catching their breath after another uncertain year and the “will they, won’t they?” Fed deliberations. In September the VIX Index partied like it was 2011 all over again, the last time the volatility measure rose above the 40 level. That time we had the European sovereign debt crisis, this time we had China. We live in an interconnected world.

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    “We really can't forecast all that well, and yet we pretend that we can, but we really can't.” Alan Greenspan, former Chairman of the Federal Reserve Bank.

    It wasn’t meant to be like that. A new year and a fresh new start was supposed to be the narrative. The Fed starts its rate rising cycle into an unassuming, benign environment. Well, it seems stock markets around the world simply haven’t been listening.

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    Another year approaches. Speculation about the state of the U.S. and even the Global Economy in 2013 brings far more questions than answers. Another election has now been decided and so the policies of the past four years will continue. Entitlements are the name of the game, with larger government and the majority of Americans looking to the Executive Branch for answers. Jobless numbers are hanging around 7.9 percent with signs of mediocre strength and not much prospect for College Graduates to attain employment in their chosen professions. I personally know of more than a dozen graduates who have resorted to working for half what their chosen field would have offered just five years ago. So what do I foresee as we step into 2013?

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    "You can't go anywhere without hearing people talk about "the real estate bubble." Such talk drives me to distraction, and I'll tell you why. It's because there is no real estate bubble. Bubbles are for bathtubs." Real estate ‘guru’ Kendra Todd, 2006

    Ok, maybe we’re working with 20-20 hindsight now but we all know how things turned out in the real estate market. The trouble is it’s not always easy to spot and time investment bubbles. If it was we’d all simply ride the momentum all the way up, before shorting the asset class just before it popped. Unfortunately, it doesn’t work that way. Not even for the pros.

    Yes, then-Federal Reserve chairman Alan Greenspan was right on the money in highlighting “irrational exuberance” in equity markets back in late 1996. But he was also 3 years and a hell of a lot of market upside too early. As we’ve seen in the past, asset classes can remain mispriced for long periods, and you’re looking at career suicide for a fund manager to exit a momentum trade like that too soon. So obvious tipping points are in short supply.

    But if you’re looking for some areas to be keeping an eye on, here are a few to think about:

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    'All animals are equal, but some animals are more equal than others.' George Orwell, Animal Farm

    A lot of us tend to treat Wall Street stock recommendations as if they are essentially the 'truth', as opposed to simply guesstimates based on a number of assumptions. Part of the problem with that is that different analysts use different assumptions to come up with their conclusions. And even if we do trust an analyst and follow his "Buy" recommendations, do we actually know what we are buying into?

    It's worth realizing that not all Buy ratings are going to be valid for you.

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    You’re really on a bit of a hiding to nothing if you think you can really guess how the smartphone world will look in 10 years time. Blackberry and Nokia thought they had sussed mobile telephony but obviously they got it badly wrong. And who would ever have imagined that a young upstart like Google would buy up the mobile business of the former industry titan Motorola?

    The world changes rapidly. Technology obsoletes. Tastes evolve. So at the risk of being very wrong with a few predictions, here are some ideas that may morph into investment themes over time.

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    “I never buy at the bottom and I always sell too soon. Baron Nathan Rothchild’s success formula.

    It may well be too early to call time on the great equity bull run we’ve been having. As we’ve seen in the past irrational exuberance can become even more irrational, even more exuberant. But one thing we have to accept is that it will end. And that it may end messily.

    Market overvaluation has in the past often been a good warning signal for trouble ahead, even if it can’t tell us when that trouble will actually arrive. Still, there are a couple of questions worth asking: “Are US stocks expensive?” The answer is probably yes, and possibly no. And: "Does it matter if they are?" The answer is probably.

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    Giving up smoking is the easiest thing in the world. I know because I've done it thousands of times. Mark Twain

    China’s great modernization exercise continues. The country has a ticking time bomb and the powers that be have decided to do something about it. Tentatively.

    In early June the authorities set out to ban smoking in all public spaces in Beijing. That’s one city in a nation of 1.4 billion people.

    This may not sound like a major story, given the piecemeal start and the fact that the anti-smoking movement has resulted in similar bans around the world over the last decade. But this could be one of the biggest challenges for Premier Xi with huge implications for foreign tobacco companies.

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    "There are lies, damned lies and statistics." Mark Twain

    We’re in the middle of a US quarterly reporting season once again. For many, the company releases are just noise – the headlines make sense but the rest of the information doesn’t mean a great deal.

    For others, the season provides a decent insight into corporate America, providing a good basis (or not) to invest in the market. To get the most out of the season, it makes a lot of sense to understand some of the dynamics within the quarterly releases. Here are a few tips on what to look out for.

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    Well, we’ve had a few more fun and games coming out of China of late. So what’s the big deal with the Chinese currency devaluations anyway?

    It’s something that has to be put into the context of what else has been going on in the country. Essentially, it’s all about growth. A slower global and local growth story has meant less demand for Chinese products, which has led to a collapse in commodity prices. Not entirely unconnected has been the crashing Chinese stock market and the fear that the public will stop spending domestically and perpetuate the growth slide. In very basic terms the currency depreciation was to counter all of this, as well as maybe an attempt at getting ahead of the expected rate hike in the US.

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    So last week's sell-off wasn't just a simple one-time blip.

    Yesterday the Dow Jones Industrial closed down 3.57% or 588 points. It could have been worse, having opened down 1,089 points. Across the world it felt like 2008 all over again. And it doesn't make good viewing against most technical analysis readings either, given the decisiveness with which the indices fell through their 200-day moving averages. Fear is back on.

    The "Great Fall of China" was one newspaper headline, essentially highlighting that this story is very much about events in Asia rather than thoughts of a Fed rate hike.

    Should this be a surprise? Not entirely. As highlighted in a number of pieces on this site (see: Don’t Ignore the China Market, Looking For the Next Investment Bubble, China’s Bubble Increasingly a Worry), China for some time has looked a concern. Even before the recent devaluations and even before the big Shanghai market sell-offs a few weeks ago, we had a collapsing housing market, investors overly stretched on credit, an equity market overly stretched on valuation, and major concerns about just how fast China is really growing. And as much as China is trying to manage the shape of its economic growth and the social evolution of its people, managing capital markets is proving to be a different kind of beast.

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    “China is a sleeping giant. Let her sleep, for when she wakes she will move the world.” Napoleon Bonaparte

    The thing is China isn't the only sleeping giant. It may be the biggest and most impressive story but there's a whole lot more. Part of the fallout of the ongoing FOMC deliberations about interest rates and recent events in China has been to bring emerging markets in general back into the spotlight. Ultimately, the whole space has a story worth hearing.

    In terms of where we are now, the fear is that slowing growth in developed markets and an appreciating US dollar may pull down emerging markets. Emerging markets are hoping the Fed will postpone rate hikes for as long as possible, mitigating the threat of a massive exodus.

    For a rate hike to have a positive impact on emerging market fund flows, the Fed would need to state clearly that it plans to proceed very slowly with raising its base rate going forward. But we can expect more volatility as a result of central bank policy actions and global growth concerns.

    With volatility comes a lower risk appetite and an outflow of cash from riskier assets. But while we still hang onto every word out of a Fed governor and consider every economic data release emanating from China, it’s worth getting some perspective on what all this means for emerging markets.

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  13. Teaser Paragraph:

    “History doesn't repeat itself, but it does rhyme.” Mark Twain

    It’s pretty clear that a rising interest rate cycle will kick back into gear again soon. Rates may not move that far or that fast any time soon, but directionally the only way is up.

    So how will it pan out for investors? It’s difficult to tell. Things really are different this time.

    The US economic expansion has already lasted well beyond the postwar average of just under five years. As a result, we’re in pretty unchartered territory this time around, even if the scale of the recovery has been one of the weakest in that period (annual growth has been averaging 2.2% versus the 3.6% of 1991-2001).

    This is also a monetary policy cycle shaped by QE, significant economic dislocation and a change in Federal Reserve leadership.

    That’s one reason why investors have to tread carefully. It’s really not clear as to what impact interest rate rises will have - psychologically or otherwise - on a public still unconvinced that the recession is actually over and on an economy that hasn’t managed to stoke inflation in this recovery.

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      USD/ EURO
      http://www.marketwatch.com/story/the-dollar-is-closing-in-on-parity-with-the-euroat-long-last-2016-12-15
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