Cover of MoneyWeek magazine issue no 826, Friday 6 January 2017

The end of the cult of the central banker

4 January 2017 / Issue 825

Could 2017 finally see the collapse of Europe? Or have we already passed peak-populism? Could we see a war between the US and China? John Stepek chairs our Roundtable discussion. Read this week’s cover story here.

PLUS:
• Why Russia is the best emerging market bet for 2017
• George Michael: pop star and secret philanthropist
• Scarves, suits and shoes for a smart start to the new year


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Excerpt

Merryn Somerset WebbEDITOR'S LETTER

Merryn Somerset Webb

Worried about 2017? You aren’t alone. Look at any of the lists of newspaper predictions for the year and you will see little but misery. There will be a trade war between the US and China. There will be a real war between the US (or Trump at least) and China, or Russia, or maybe North Korea. The eurozone will implode, prompting both a financial and a political crisis. Brenaissance (aka Brexit) will backfire at huge cost to the UK economy. Inflation will surge. Overpriced markets will crash.

It’s all awful. Unless you ignore the papers and look to the stockmarkets. There nothing particularly awful is happening, or expected to happen, at all. Last year ended just fine for most major markets (the FTSE 100 was up over 14%) and 2017 seems to be starting just fine too: the Nikkei closed up 2.5% in its first day of trading this year, for example.

As John Stepek points out on page 10, good investing is all about preparing for things you can’t know about rather than just getting ready for things that most people expect to happen. So it is worth looking at the behaviour of the markets after all the events that the commentators announced to be the worst things ever last year (mostly up) and asking yourself this question: what if, instead of being a bloody awful year, 2017 is a bloody brilliant one?

What if Donald Trump can really do some of the things he says he can do? What if once in office he can reduce tax rates while “eliminating the exemptions and deductions that make the tax code a slush fund for lobbyists and their patrons”? What if he really does reset the American relationship with Russia?

And what if he has a proper bonfire of pointless bureaucracy and regulation? If his fiscal plans can heal some of the wounds of quantitative easing and drive the kind of growth that might spill over to the rest of the world? And what if all that brings us higher real wages as well as higher corporate profits? The UK could also be pushed into a hard Brexit that turns out to work for us (clearing up uncertainty fast and driving our corporations to innovate) and the eurozone could even hang on for another few years (helped by a whopping monetary stimulus – see page 20).

All these things are possible and you will need to be as ready for them as you are for disaster (if in doubt, remember that betting against Donald Trump has been a bad idea so far). So hold some gold just in case. But also hold Japan, hold Russia, hold small caps and don’t discount Europe’s companies either. Its politics are a mess but – as I saw on a recent trip to visit companies in Italy – really good firms aren’t affected by politics. They just keep trading, exporting and making profits regardless of the nitwittery of their national leaders. A very Happy New Year to all our readers.