What Surprises will 2017 hold in Store?
The short answer is: many!
In our line of business, it has become customary to make predictions as analysts have come to be seen as modern-day oracles. It is, however, clear to us in the profession that we are not oracles. We build our view of the future by analyzing companies and trying to determine if these companies are sound investments for the long-term or not. The rest is just noise which diverts our attention from the main objective. In making timely decisions, it has become more and more important to listen to the noise and to sometimes take into consideration.
What are the ‘known unknowns’?
Interest rates are on the rise, finally. The risk of deflation after the great financial crisis seems to have abated due to the massive injection of liquidity into the financial markets. Central banks, and here the Fed plays a leading role, are gradually tightening monetary supply. This interest rate cycle will be slow and we see US Treasury at max 3% yield. This is unlikely to upset the market but it is a welcome development for all savers, pensioners, bond investors and, of course, financial institutions, that will see their profitability increase.
Oil prices have come off their lows and so did commodity prices, in general. There is some more room to go. Oil majors are starting to announce re-investments which will take some time to complete but this is a sign of confidence in the future. On the other hand, oil prices approaching USD 60/Barrel will make fracking more attractive and will turn the US into a major oil exporting nation.
Mr. Trump’s economic agenda: he has announced reduced income taxes, the repatriation of off-shore profits at a beneficial tax rate and a USD 100 billion infrastructure investment program for the next 10 years in the US. These points have been welcomed by the market, fueling the ‘Trump-rally’ which has led to new record levels of all major indices. The main question is whether all these planks can be implemented and when. As the market has gotten ahead of itself, some disappointment is like to come through at some stage.
The expectation of business-friendly policies in the US has led the US currency to new strength. This strengthening is likely to continue and we could see USD 0.95 as the top point for the USD/EUR rally.
What are the ‘unknown unknowns?
We are likely to be surprised by the new US President announcing his intentions via a tweet. Seeing politics as mere deal-making may create havoc in the long-established relations among states.
We may see shorter economic boom-bust cycles after massive flooding of the financial markets by the central banks, possibly followed by yet another boom led by massive infrastructure investments, first in the US and possibly in other regions.
All these elements bode well for the stock market, at least for 2017. As we focus on single stocks and well-run businesses that we keep for several years to see grow and bear fruit, we should be well positioned for 2017 and beyond. Eventually, we will face a storm in the markets and if we are well positioned, we will be able to weather the tempest and quickly get ahead once it abates.
All the best for 2017, good luck and keep a steady hand.
If you any assistance on how, the team at Pomona Wealth will be happy to help!
Investment Ideas is the title for this ad hoc note, but this does not mean, or imply, there is any guarantee of positive performance.
We have based our analysis on information publicly available at the time of writing. We have taken all reasonable care to ensure that all statements of fact and opinion contained in this note are fair and accurate in all material aspects.
This report gives general advice only, and the investments mentioned may not necessarily be suitable for any individual. Please contact us and we will discuss with you based on your investor risk profile whether any of these investment ideas might be suitable for you and under what circumstances.
The value of all shares and the income from them can fall as well as rise, and you may not get back the amount originally invested.
Investment in the securities of smaller and/or medium-sized companies can involve greater risk than for larger, more established companies. Price movements may be more volatile, and they can react strongly to news or recommendations. You should always check the price before you deal. The market for smaller company shares may be less liquid, meaning they may be harder to trade.
You run an extra risk of losing money when you buy shares in certain smaller companies including “penny shares”.
There can be a big difference between the buying price and the selling price of these shares. If you have to sell them immediately, you may get back much less than you paid for them. The price may change quickly, and it may be difficult to sell or realize the investment.
You should not speculate using money you cannot afford to lose.
Investors should seek appropriate professional advice and we encourage you to discuss the contents of this note before you make any decision.
The report may recommend securities listed on overseas stock exchanges. You may incur extra charges when dealing in these securities and should check with your stockbroker before dealing.
Changes in exchange rates may have an adverse effect on the value of the value or price of these investments in your base currency