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.
On December 14, 2018, Pakistan received its second installment of the US$ 3 billion in aid promised from Saudi Arabia on October 23, 2018. The US$ 1 billion given on December 14th boosted the foreign reserves of the State Bank of Pakistan, which went from US$ 7.2 billion to US$ 8.2 billion. The first installment was given on November 23, 2018. The last installment is expected to occur in January 2019.
The White House announced Heath P. Tarbert will be nominated to serve as Commissioner and Chairman of the Commodity Futures Trading Commission (CFTC). Tarbert currently serves as Assistant Secretary for International Markets at the U.S. Treasury Department. Before joining the U.S. Treasury, Tarbert was a Partner at law firm Allen & Overy. Tarbert was confirmed by the U.S. Senate for his current Treasury post at 87 (yes) to 8 (no).
Upon Senate confirmation, Tarbert’s CFTC term would start on April 14, 2019 and last for five years. Tarbert is taking over from J. Christopher Giancarlo whose term ends in April 2019. Tarbert will need a U.S. Senate confirmation to take the head CFTC post.
The Kuwait Investment Authority (KIA), through its unit Wren House Investment Management, is nearing a deal to sell a 40% stake in its North Sea energy business to JPMorgan Asset Management. In July 2018, KIA closed on a deal to acquire oil and gas pipeline firm North Sea Midstream Partners from ArcLight Capital.
More details to follow –
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