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Michael Maduell – Bold Year-End Predictions from Mid-Year 2016

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I was so busy in the month of December, I did not have time to write my Bold Prediction’s column. That being said, a lot can happen in the next six months. Here are my thoughts on what we’ll end up seeing. Dominating the headlines from a macro prospective include the following trends: low oil prices, Gulf nation reforms, U.S. presidential elections, awaiting the Federal Reserve to pull the trigger and extensive business restructuring in the asset manager space. I was 6 for 6 in my last Bold Predictions at the start of 2015. Let’s see how accurate I will be this time. Here are the bold predictions that I make from mid-year 2016 that I believe will occur before the start of 2017.

The Rate Hike is Delayed, Possibly Fall
The U.S. Federal Reserve will probably not raise interest rates in June, but possibly in the fall. The generally cryptic Federal Reserve has recently (directly) spoken about a possible interest rate hike in June. This information was obtained through minutes of the board’s April 26-27 policy meeting. Real estate markets, consumer loans and other lending institutions are used to low or zero interest rates. The Federal Reserve will most likely continue their conservative play raising rates, or else face a calamitous effect in asset prices.

U.K. Will Avoid a Brexit
The United Kingdom is holding a referendum on June 23, 2016 to decide if it will stay in or leave the European Union (EU). Polls suggest that the U.K. population is nearly perfectly divided on a decision. The idea of the U.K. leaving the EU has exacerbated the fears of the financial elite and large multinational corporations. However, history tells us that countries outside economic and social pacts have survived and done quite well. Norway, which has a massive sovereign fund, and Switzerland have prospered being outside of EU controls. Remember the Scotland vote.

Trump Edges Clinton
Centrism and moderates are on their way out, as voters, consciously or not, become impatient with the status quo. I predict the presumptive U.S. Republican nominee Donald Trump will barely edge out Hillary Clinton in the U.S. election in a game of electoral chess. Trump has already edged out 15+ Republican primary opponents, while Clinton struggles to defeat Bernie Sanders, an avowed socialist, and may have a party fiasco at the Democratic convention in Philadelphia. In polling data, both candidates have high negatives; however, populism is on the rise as many Americans feel disenfranchised.

Revolutions and Turmoil in South America and Hope
Brazil’s President Dilma Rousseff is undergoing an impeachment process. Former presidential chief of staff Jose Dirceu was sentenced to 23 years in prison for corruption, money-laundering and conspiracy related to the Petrobras oil scandal. The policies of Chavez and Maduro have dismantled the golden unicorn of Venezuela – toilet paper is now an expensive commodity. On the bright side, Argentina voted in a reformer and the City of Buenos Aires is raising debt in public markets. This period will be considered the nadir for the South American country.

Saudi Arabian Revelations on Mega Sovereign Wealth Fund
I believe Saudi Arabia will be revealing more updates regarding its plan on its proposed mega sovereign fund. The ambitious Saudi Deputy Crown Prince Mohammed bin Salman is keen on making his country more resilient and diversified. Saudi Arabia is on track to have its mega sovereign wealth fund from the existing Public Investment Fund (PIF). It will be a combination of Temasek and partially a pool of cash from partially-privatized state-owned companies and assets. All this hinges on the proposed successful IPO of Saudi Aramco, which is linked to future crude oil prices.

Oil Levels Out at $50 per Barrel by 2016 End
As more less-capitalized U.S. energy companies go bankrupt, the opportunity for higher oil prices increases. Debt-laden energy producers are shutting down wells. U.S. crude stockpiles must decrease for oil to surpass US$ 60 per barrel by the end of 2016. Short-term outages in Canada or Africa are not enough.

NOTE: These were my internal notes, that never made it to be officially published. I was wrong on some predictions.

The views in this article are expressed by Michael Maduell.
Michael Maduell is President of the SWFI.
www.swfinstitute.org

RDIF and Aggreko Reveal Strategic Partnership on Microgrids

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The Russian Direct Investment Fund (RDIF) and Glasgow-based Aggreko plc, a listed company that provides power, heating and cooling, signed a deal to cooperate on the development of microgrids. The parties plan to invest in the construction of facilities that will provide uninterrupted power supply and temperature control to industrial enterprises and utilities in the Russian regions. Aggreko operates one of its 6 global hubs in Tyumen, Western Siberia, through an entity called Aggreko Evraziya, OOO. In 2017, Aggreko plc acquired Younicos, a company specialized in the development of modular batteries and Microgrids control solutions.

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China and Russia Buy Up More Physical Gold

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The worst fears of the Federal Reserve may be coming true. The barbarous relic is once again offering some resistance to Fed policy as it maintains its uptrend from mid-November, and is being snapped up from central banks worldwide. Former Fed chairman Paul Volcker shared the central bank view that “Gold was the enemy.” If so, the enemy is gaining ground. China’s gold reserves quietly grew from December 2018 to February 2019. The People’s Bank of China disclosed in February 2019 that it increased its gold reserves by 10 tonnes that month, following purchases of 11.8 tonnes in January 2019, and 9.95 tonnes in December 2018. Goldman Sachs has listed central bank purchasing as the reason for the uptrend. Goldman Sachs expects to see gold at US$ 1,400 over the next six months, which would lift it well above its long-held resistance at US$ 1,350. China’s gold holdings are now US$ 79.5 billion. China, which is emphasizing diversification from the U.S. dollar, has been a fan of precious metals for years, and it has been encouraging its citizens to purchase gold and silver for a decade, when previous controls on precious metals were done away with. Now anyone in China can trade gold internationally with the swipe of a card.

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AP1 Selects Approved Managers for Emerging Market Equities Mandate

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Sweden’s AP1 chose 14 external fund managers for its 45.3 billion SEK allocation to emerging market equities. These are approved managers for AP1, but not all of them will manage money for this mandate.

The managers selected are:
Aberdeen Standard Investments
BlackRock
First State Investments
Fisher Asset Management (Fisher Investments)
GMO
GQG Partners
JP Morgan Asset Management
KBI Global Investors
Legal & General Investment Management
RBC Global Asset Management (part of Royal Bank of Canada)
Robeco
TOBAM
UBS Asset Management
Wellington Management

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