On the last business day of 2016, I couldn't help looking toward the strangest new year ahead of any in memory, every day marking some new and lurching change in outlook. So, instead of an attempt to forecast outcomes, assess the priorities of forces acting on markets. Looking outward First, despite the arrival of the most unusual administration in U.S. history, look outward. Conditions in Europe, Japan and China and at their central banks have been the primary force holding down U.S. interest rates. And holding down inflation, and holding the Fed at bay. Thanks, guys! There is no change for the better in any of those economies. In an offhand way, Xi said last week that it’s okay with him if China’s growth slows below its mythic 6.5 percent, if slower would be more stable. China is stuck in stability whack-a-mole, one top-down effort to control everything after another has failed. The best measure of its instability is the frantic effort of citizens to get their money ...
- Conditions in Europe, Japan and China and at their central banks have been the primary force holding down U.S. interest rates.
- Overseas conditions will hold back the Fed. The widening dollar-to-others spread is already distorting economies.
- The single most dangerous thing in any year are national leaderships hungry for land and power and who think their adversaries will not resist, or can be fooled.
- Markets have had the great luxury of 70 years’ stability brought by strong alliances and cautious behavior, even among adversaries.
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