What’s in my crystal ball
There is a clear consensus opinion in the market this year. Pretty much everyone thinks inflation will collapse to near zero; that global stockmarkets will struggle; and that any compensating growth will come from China.
We can rarely see a consensus without coming over all contrarian. I feel more positive about developed equity markets this year than I have for a while. That isn’t saying much, but it does at least mark something of a change. James Ferguson makes the case for Europe well and I tend to agree with him (for once). I remain positive on Japan on valuation grounds. We are also warming to the US, particularly now that US retail investors appear to have given up on it (they pulled a total of $135bn out of the market last year).
On the economic side, employment may have begun to bottom (see my blog). There has been a parade of positive indicators as the effects of quantitative easing feed through, and there is some evidence that house prices have stopped falling. America might get back on track faster than you think. Economics aren’t particularly relevant to markets (valuations and money flows are), but there are definitely reasons to buy selectively – not least the fact that with record levels of cash on their balance sheets, big companies are bound to be tempted to keep going with stock buy backs.
• Read the full editor’s letter here: What’s in my crystal ball.