EDITOR'S LETTERMerryn Somerset Webb
A year of opportunities
I took part in a roundtable with a lot of important people (fund managers mostly) late last year. At one point I suggested that the US was just about due a recession. Nonsense, they all said. The US is on a roll – and just because it is due a recession time-wise (the current expansion has lasted 80 quarters) doesn’t mean it will get one.
I didn’t argue much. That would have been like trying to explain to Gordon Brown that he hadn’t abolished boom and bust, just before the market explained it to him rather better. But a look at one of the first numbers out for 2016 suggests that the idea that a US recession is not far off is not nonsense at all. The ISM manufacturing index in America has fallen to 48.2. That suggests, as Capital Economics puts it, that the “manufacturing sector is dangerously close to recession”. That matters – largely because of the implications it has for the ongoing global currency wars.
The strong dollar everyone expects to see in 2016 relies on America remaining strong enough for the Fed to maintain its programme of gradual interest-rate normalisation. If it has to re-enter the currency wars (loosening policy instead) just as China is trying to weaken the renminbi, and the European Central Bank tries to keep the euro weak, what happens? There’s more on this in the markets, and James Ferguson addresses it too (he’s a believer in dollar strength). But the key point is this: the global economy remains remarkably fragile, and hence unpleasantly unpredictable.
That makes investing look hard – particularly given how weak economies seem to send modern central bankers mad. But in truth, if you are investing for the long term, there is plenty out there in 2106.
Read the full editor’s letter here: A year of opportunities