I continue to believe that 2016 will be a year of surprises and drama -- politically, economically and market-wise:
- Politics. This year began with one of the most "probable improbables" -- controversial, outspoken Republican Donald Trump leading the pack of GOP presidential contenders. (Sarah Palin even reappeared to endorse him.) And last night, we saw a shocking development in the Democratic presidential contest as non-Democrat Bernie Sanders wound up in a dead heat at the Iowa caucuses with leading contender Hillary Clinton. On the Republican side, one-time GOP heir apparent Jeb Bush spent $4,000 for each vote he got in Iowa. You can't make this stuff up.
- Economics. The inability of zero interest rates, $30-a-barrel oil and injections of liquidity to catalyze global economic growth has led to negative interest rates in some regions and countries. After the Bank of Japan cut its benchmark rate below zero last week, yields on more than $7.1 trillion of government debt have turned negative. Meanwhile, yields on U.S. investment-grade and junk bonds are rising to their highest levels in four years.
- Markets. Short-term moves are often exaggerated in our current backdrop of machine-dominated markets. They're full of sound and fury, but provide an uncertain setting for the buy-and-hold crowd and arguably diminish some of charting's value. But they provide a wonderful opening for opportunistic traders willing to buy or short the market's extremes. Importantly, the "contrary" -- an up move in the last 10 days within the context of a down market -- recently prevailed as the market put what the benefit of hindsight shows was probably a massive short term bottom in the markets; I do believe however we will see extreme volatility over the short term so it's difficult to forecast intermediate term market moves (I'm just trying to wait for the best opportunity to buy mutual funds when the markets are down big or buy individual stocks when they offer substantial value and a risk/reward that is favorable for a longer term investment horizon).
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
-- Winston Churchill
The markets are so wild we have gone from being down over 10% through the first 3 weeks of January (the 20th), to seeing the markets move back up over 6% since then...(they are down 1.5% so far today)..