Jobs up, economy better, which reinforces Fed tightening ahead, but mortgage rates went down this week. The world today is one huge furball of disconnections like this, and the mission below is to unravel the tangle into understandable threads.
Today, the first business day of 2016, five events have conspired to bring chaos to interest-rate assumptions: China’s manufacturing PMI fell for the tenth-straight month, to 48.2; authorities shut China’s stock markets before the scheduled close after a 7 percent crash; conflict between Saudi Arabia and Iran has escalated; and the US ISM (Institute for Supply Management) manufacturing index unexpectedly tanked to 48.2.
I am always reluctant to offer predictions for the year ahead because of the arrogance involved. But, shoot, as in the gallows humor of the Eighth Air Force, “No guts, no Air Medals.” Begin with reviewing successes and embarrassments one year ago. Two mistakes: I thought the US economy would accelerate to 3 percent growth, and saw Czar Vladimir as more dangerous than he has been. Got right: The US federal government has been inert in 2015, Europe and Japan are still no-growth messes, China did slow down, the Fed did lift off from zero, but mortgage rates ended where they began.
I can’t do New Year’s predictions. It takes enough arrogance to write about markets and economics, but predict the future? In the words of Peter Drucker, America’s best-ever business thinker: “Nobody can predict the future — the idea is a firm grasp of the present.” That said, it is possible to evaluate probabilities.