EDITOR'S LETTERJohn Stepek
I was in the pub with a financial adviser friend earlier this year, not long after the Brexit vote. Being based in Scotland, he’d already seen his business disrupted by the independence referendum in 2014, and now, post-Brexit, he was worrying about the prospect of a re-run. “I’ve been in this business for 30 years,” he told me. “But I’ve never spent as much time thinking about politics as I have this year.”
I know what he means. There was a time, before the financial crisis, when markets would cheerfully shrug off political leadership. The blissful assumption was that most nations were heading in the same direction. An embrace of shareholder capitalism, free trade, “independent” central banking, and minimal interference in markets was inevitable. Politicians didn’t matter, because they all basically believed in the same thing. Left-wing or right-wing, they would all largely get out of the way of business and it was only a matter of time before even the most obscure emerging markets joined the party.
Not any more. This year has been the final nail in the coffin for the idea of any sort of global consensus, with voters rebelling against the values of “Davos man”, as Charles Gave of Gavekal has put it. This is not a bad thing in itself – a revolt was inevitable, given the apparent failure of the establishment to learn very much, if anything, from the crash of 2008. Unfortunately though, the return of politics to markets means that we can’t assume that any particular economic or investing argument is “settled”.
That’s one of the first things we noticed here at MoneyWeek when we pulled out our crystal balls to outline the themes we think will shape 2017. It’d be nice to ignore politicians, but the simple fact is that you can’t. Over in the US, we’ve got a president-elect who makes policy by Twitter – this week he dented the share price of both Boeing (by haggling over the new presidential jet) and the entire biotech sector (by suggesting he – just like Hillary Clinton – thinks drug prices are too high), not to mention his minor diplomatic spat over Taiwan. But Trump is in some ways the least of our worries. Next year elections are happening across the eurozone and any of them could be the straw that breaks the camel’s back. A messy break-up of the euro would put a dent in all but the most apocalypse-primed portfolios.
Now, there are good reasons to believe the euro will survive 2017, and possibly even surprise on the upside. But given its built-in contradictions, it’s only a matter of time before it breaks up. That’s fitting, since the euro was launched in 1999, when faith in globalisation was at its peak. It should be no surprise that the ultimate convergence trade is crumbling now that divergence is the order of the day. We look at what this shift means and how to protect your wealth and profit from it throughout this special forecasts issue. I hope you enjoy it – as always, send us your views and comments to the email address below.