It’s fashionable to be gloomy – from the opinion pages of The Economist, to the major newspapers that endorsed brexit and are now acting salty about its consequences, to my own dear friends and co-conspirators on twitter, everyone agrees that 2016 was awful and 2017 is likely to be too. As ever – I want to strike a more optimistic tone. I not only agree with Chris Dillow that the long term consequences of the supposedly awful things that happened in 2016 (Trump, Brexit) will be less severe than people imagine – I believe there are sensible reasons for optimism.
Firstly, if we’ve spent the past years complaining about the economy ruining, stultifying effects of ever more “creative” monetary policy – we have to be optimistic that this influence is now waning. QE seems unlikely to be extended in the UK. In the US, we are informed that rates will rise several times. In Europe, QE is being tapered and for various wonkish reasons I suspect will be so again sooner than expected. Japan may be the fly in the ointment here – as higher global rates increase pressure in the BoJ to buy bonds to maintain it’s 0% peg on 10y yields, but it’s reasonable to expect that rather than sitting idly by – policy would change if needed. Capital markets less dominated by central bankers are a source for optimism. There are some substantive misallocations of capital going on in the world – with “safe assets” seemingly attracting an endless bid whilst countries where productivity growth is high struggle to attract it. In this vein, emerging market central banks feeling able to cut rates is a good sign.
Secondly, if you are a believer in democracy, 2016 may have seemed tough but the schedule for 2017 looks good. French elections should see a comfortable rebuke to fascism. German Federal elections in october are a long way away and hard to call, but in spite of hysterical media reportnig around the world, opinion polls indicate no material increase in support for far right parties either. This should give leftists and liberals some breathing room. Trump will take many objectionable executive actions simply by dint of his erratic nature – but the actual workings of the presidency are complex – and he is both stupid and sorrounded by stupid people – so I’m cautiously optimistic that his presidency will turn increasingly farcical as time goes on. I guess as someone who beleives that Americas democratic institutions are thoroughly captured by elite interests anyway, i don’t see all that much harm in having him in charge. Granted, he will definitely use his power to try and enrich himself, possibly to gargantuan extents – but in the grand scheme of that the US government can afford to make him richer than any man has ever been and still function ok. Then specifically in the UK – Labour are making a sensible move by making Jeremy Corbyn’s genuine anti establishment credentials part of their core strategy rather than trying dress mutton as lamb and trying to make a normal politician out of him. This is a welcome step towards a coherent message. Media scorn and derision is inevitable and not neccesarily a bad thing.
Thirdly and much more specifically to the UK, we won’t know the shape of Brexit now for over a year. In no EU negotiation on anything has there ever been a situation where their position is clear – and in advance of German Federal elections it’s unlikely to be clarified until 2018 in any case. That gives us a year of relative political stability. UK data is extremely encouraging – and whatever you believe about the merits or otherwise of brexit – that situation ought to carry on for at least the next 12 months whilst it takes form.
Since the dawn of time – commentators have argued that the world is getting more complex and harder to predict. In my world of financial markets, I have never once heard anyone say that it is a good environment for trading. The environment is always “challenging” – the outlook is always “uncertain”. Anyone who opens a new year griping along such lines should be ignored. I say get stuck in and be hopeful.