2016:
Surprises & Scenarios
By John Mauldin
“The
expected rarely occurs and never in the expected manner.”
–
Vernon A. Walters
“The
fundamental nature of exploration is that we don't know what’s there. We can
guess and hope and aim to find out certain things, but we have to expect
surprises.”
–
Charles H. Townes
I see
it every December and January: in the flurry of economic and political
forecasts, someone says we ought to “expect a surprise.”
Phrases
like this drive the writer part of me crazy. A surprise, by definition, is
something you don’t expect, so telling us to expect one makes no sense. They
might as well say, “Expect the warm water to be cold.” The words don’t go
together that way.
The
analyst part of me, though, knows what they really mean: not that we should
expect a particular unforeseeable event, but that we should recognize the probability that we will be
surprised in some way, at some point.
In
fact, that prediction is almost always realized. I can guarantee you’ll get
surprised this year. I can’t guarantee what specific events will surprise you,
but I can make some educated guesses, as I did last week in “Economicus
Terra Incognita.” Today we’ll go a step further and look at some of the “surprises”
others are seeing in their crystal balls.
We can
acknowledge the difficulty of making forecasts while also learning from
informed speculation. How to do this? Pay attention to people who know their limitations.
The most useful forecasts come from well-informed analysts who understand the
very real boundaries that guide speculation about the future. One of my
favorite Clint Eastwood lines, which I often quote to my children and friends,
is the familiar, “A
man has to know his limitations.”
Last
week we discussed the limitations of forecasting. Condensed into one paragraph,
my forecast said that world GDP will continue to decline, while the US will
have slow growth – closer to 1% than 2% – but we shouldn’t plunge into
recession without a shot across the bow to the US economic system from
overseas. I speculated that such a shock might come from the collapse of
Europe, a true crisis in China (beyond falling to 3–4% growth), or an
uncharacteristically severe bear market in stocks. In the past, bear markets
have not caused recessions – the causality is the other way around. But in the
past, the US economy was not sputtering along at stall speed, so I don’t think
we can rule out causation running the other way. All my other forecasts follow
from those basic thoughts, which you can read
if you like.
So
today we’ll look at 2016 forecasts from some professionals I trust. I know most
of them personally and have been friends with some of them for years. I know
they aren’t just “talking their book.” They may turn out to be wrong, but if
so, it will be for the right reasons. After we review the forecasts, we’ll look
at some common threads among them, as well as important differences.
I
should also note that some of the following material isn’t normally available
to the public. My friends either sell it at very high prices or share it only
with their well-heeled clients. They let me publish it for two reasons.
First,
they know I will present their opinions fairly and respectfully, even if I
disagree.
Second,
they know my readers are intelligent folks with whom they might form fruitful
business relationships. So if you see promising connections, I urge you to
contact them and explore the potential. Now, on with the show.
BCA: Stuck in a
Rut
The
venerable Bank Credit Analyst
traditionally begins each year by transcribing a conversation with longtime
(and possibly mythical) subscriber, “Mr. X,” who shows up in their offices very
concerned and full of questions. Strangely, Mr. X always seems to reflect my
own concerns, so I look forward eagerly to the BCA new year’s issue. Former
editor and now chief economist Martin Barnes and his team endeavor to lay Mr.
X’s concerns to rest. I have been reading the Bank Credit Analyst for 25 years.
Much
of what I learned early on about the markets I gleaned by reading and talking
with Martin Barnes. The ring of authority and certainty in his deep Scottish
brogue weaves a spell, making you want to believe that the world is as Martin
sees it. That things often turn out the way Martin expects comes as no
surprise. Some of my favorite personal moments have come sipping scotch with
Martin late at night at Leen’s Lodge, Grand Lake Stream, Maine, gazing at the
stars as we vigorously contend over the minutiae of economics. And if I ever
become particularly confused, I have the privilege of being able to pick up the
phone and call Martin, who will at least talk me off the ledge. However, I
digress.
On
this year’s visit, Mr. X is mightily concerned that extreme central bank
monetary policies are creating major economic and financial distortions. He
sees a risk-filled environment and wonders if he should cut his equity
exposure. (Note: BCA’s letter was published in December, before this year’s
market fall.)
This
year, BCA says Mr. X is right to be concerned. The team believes the sluggish
economic recovery stems from structural rather than cyclical factors. In BCA’s
view, the “debt supercycle” (a concept they developed multiple decades ago) is
now ending in a very slow turn that could take another decade or more to
complete. We are not dealing with a normal balance-sheet recession and
recovery. Modest income growth is constraining demand, which in turn constrains
debt reduction.
All
kinds of interesting consequences spring from this view. BCA openly wonders if
we may have reached “Peak Globalization.” This is a rather un-BCA type of thing
for BCA to worry about – which makes me pay all the more attention. It is now
on the list of things I must ponder. World trade volumes are no longer growing
faster than world GDP. At the same time, technologies like 3-D printing and
robotics are making it possible to produce goods closer to consumers. Thus, in
order to compete, companies must set up factories closer to their final markets
rather than building in their home countries and exporting. Calls for tighter
immigration controls are really a form of trade tariff. They impede an
important good – labor – from reaching its optimal position.
Like
Ian Bremmer (below), BCA believes China will avoid a hard landing, but they do
foresee lower Chinese growth in the future. Emerging markets in general face
tough times, especially those with excessive debt. BCA is mildly bearish on
oil, gold, and other commodities and thinks the US dollar is likely to gain
further against emerging and commodity-oriented currencies.
A few
quotes are in order:
The
current global economic malaise of slow growth and deflationary pressures
reflects more than just a temporary hangover from the 2007–09 balance sheet
recession. Powerful structural forces are at work, the effects of which will
linger for a long time. These include an ongoing overhang of debt, the peak in
globalization, adverse demographics in most major economies, monetary policy
exhaustion, and low financial asset returns. Investor expectations have yet to
adjust to the fact that sub-par growth and low inflation are likely to persist
for many years….
The
Fed will raise interest rates by less than implied by their current
projections. And the European Central Bank and Bank of Japan may expand their
QE programs. Yet, monetary policy has become ineffective in boosting growth.
Fiscal policy needs to play a bigger role, but it will require another
recession to force a shift in political attitudes toward more stimulus….
The
Fed will raise interest rates by less than implied by their current
projections. And the European Central Bank and Bank of Japan may expand their
QE programs. Yet, monetary policy has become ineffective in boosting growth.
Fiscal policy needs to play a bigger role, but it will require another
recession to force a shift in political attitudes toward more stimulus….
The
fundamental backdrop to corporate and EM bonds remain bearish and spreads have
not yet reached a level that discounts all of the risks. A buying opportunity
in high-yield securities could emerge in the coming year but, for the moment,
stay underweight spread product….
The
dollar is likely to gain further against emerging and commodity oriented
currencies. But the upside against the euro and the yen will be limited given
the potential for disappointments about the US economy….
Friedman:
Italian Debt Crumbles
Now
let’s turn to geopolitical concerns for a moment. All my readers have had a
chance to look at George Friedman’s 2016 forecast. New readers can access a
summary for free here
and find a link to the full version. I can’t tell you how thrilled I am that
George has partnered with Mauldin Economics. He brings so much to our table
with his insights. Rather than go over what you have hopefully already read
(and if you haven’t, you should), let me highlight one position he has
clarified further since he wrote that forecast.
In a
note entitled “The Precarious State of Italian Banks,” George and his team gave
us an update on the serious financial problems facing Italy. You can find good
news, but the bad news overwhelms the good. Nonperforming loans have now
reached $216 billion, which is about 17% of Italian GDP. We have already seen
some Italian banks fail rather spectacularly, and we are going to see that
number increase. There is never just one cockroach. And while depositors are
covered up to €100,000, that doesn’t do much good for businesses and wealthier
households.
Italian
bank debt is now very suspect. As it happens, Italians, rather than depositing
their money in the bank at very little or no interest, buy bank bonds to get at
least some return. In the recent spate of bank closings, 130,000 shareholders
lost €790 million. The four small banks that failed represented just 1% of
total Italian bank deposits. The total amount of bank debt held by Italian
households is €237.5 billion. That’s billion with a B. Think of it as high-yield debt on steroids –
except that it is generally very low-yield.
It’s
not clear whether the Italian insurance deposit scheme has the money to cover
even a fraction of the bigger potential losses. The ratio of assets to deposits
covered is about 250 to 1. Now, the US FDIC’s required ratio is about 100 to 1,
but US banks don’t have nonperforming loans of 17.9%, either.
There’s
a lot more to this story than my brief summary can detail, but the point is
that the problems in Europe don’t stop with the immigration crisis. The credit
crisis of a few years ago has not gone away. Italy’s debt-to-GDP is growing
every year, and it was already at a critical level five years ago – before the
ECB took rates into negative territory and bought massive quantities of Italian
bonds. They can continue to do that, but can they buy Italian deposits and
defaulted bank debt? That’s rather doubtful. This is a story we will be
watching closely as it unfolds this year.
You
can sign up for George’s free “This Week in Geopolitics” letter here,
or enjoy his team’s writings on a more or less daily basis for a phenomenally
low introductory price by going here.
Best deal in town.
Bremmer:
Transatlantic Breakdown
Staying
with the geopolitical theme, my friend and geopolitical expert Ian Bremmer of
Eurasia Group isn’t one to jump at shadows. He very often shows how scary
headlines really aren’t so scary. He’s usually right, too.
However,
Ian and his Eurasia Group colleagues just published a detailed 2016
geopolitical risk analysis in which they foresee a “dramatically more
fragmented” world in the year ahead. Political divisions are breaking down the
existing order all over the globe. Unity is in short supply everywhere.
Nowhere
is this lack of unity more potentially harmful than in the US–European
alliance. That relationship has been the cornerstone of the international
architecture since the close of World War II. The NATO military alliance is
only one facet. There is also the Bretton Woods currency regime, the United
Nations, the World Trade Organization, the International Monetary Fund, and the
World Bank. All are weaker and less relevant now than they have ever been.
Why is
the framework falling apart? Ian points to three reasons.
First,
China’s ascent, along with that of other emerging markets, added a new dimension
to a previously bilateral world order. No longer can we reduce every conflict
to “East vs. West.” Now both East and West contain several distinct power
centers, each of which has its own unique interests and priorities.
Second,
Ian says, unilateral moves by both the George W. Bush and Obama administrations
have displeased our allies. He cites both the electronic surveillance that
Edward Snowden revealed and the growing “weaponization” of finance as forms of
coercive diplomacy.
Third,
European leaders have their hands so full with internal political and economic
challenges that they now pay less attention to global strategic issues.
The
result is that we have a bunch of powerful governments all going their own way.
That’s why international bodies like the UN and IMF appear so paralyzed. To
various degrees, they are
paralyzed. Without their coordinating role, all kinds of conflicts will be more
problematic than they were in the past.
This
is only the first item on Ian’s list, by the way. He has nine more of varying
severity. On the bright side, his report debunks two well-known threats as “red
herrings.” Despite Donald Trump’s sound and fury, even if he reaches the White
House, Congress and the courts will stop Trump from implementing most of his
more radical ideas. The election will be much noise but little substance. (The
president has less real power than you might imagine, an original design
feature from our founding fathers.)
Ian’s
second red herring is China. He thinks the Xi Jinping government can continue
to manage its economic transition and maintain social order. China has its
challenges, but the much-feared “hard landing” will not happen – at least not
in 2016 – says Ian.
Lewitt:
The Great Unwinding
Michael
Lewitt’s newsletter, The
Credit Strategist, is consistently on my “must-read” list. It is
one of the better-written and more thought-provoking sources I follow.
Unfortunately, his current outlook is not at all encouraging. He thinks we are
in the early stages of unwinding the largest credit bubble in history. Things
are going to get much worse before they get better.
In his
Jan. 11 issue, Michael points out that most of the S&P 500 stocks are
already in bear territory, down 20% or more from their 52-week highs. He thinks
the bullish narrative is flat-out wrong. Then he unloads this broadside, which
I cannot possibly summarize and so will quote in full:
Investors
need to learn to ignore what they are told by the establishment and think for
themselves.
The
same government that wants to deny that radical Islamic terrorists seek to
destroy us is telling people that the U.S. economy is strong.
The
same Chinese government that backs Iran and actively undermines American
interests around the world claims its economy is growing at high single digit
rates while electricity production, commodity prices and other data tell a much
darker story.
And
a Federal Reserve that creates bubble after bubble while issuing forecasts that
make weathermen look like Nostradamus tells us the economy is so strong that it
plans to raise interest rates four more times in 2016 while commodity prices
plunge, 96 million people can’t find work, and it could barely bring itself to
squeeze a 25-basis-point hike out of its tightly clenched loins after seven
years.
Anyone
who believes a word that any of these people say is, not to put too fine a
point on it, a fool.
Ouch.
I assume he is not speaking of the Motley Fool kind. On the other hand, it is
hard to argue with him. Positive spin from the US government, the Chinese
government, and the Federal Reserve often fails to match reality.
I
think we can strike a middle road, however. Yes, take everything they tell us
with lots of salt. It is not necessarily in their perceived interests to give
us the complete, unvarnished truth. Occasionally, though, they slip up and give
it to us straight. We should watch for those occasions and pay attention to
them.
Michael
thinks the Fed will soon retract its December rate hike and launch another
round of quantitative easing. More QE won’t help, but it is all they know how
to do. In that scenario, Lewitt’s prescription is simple: sell all your stocks,
buy gold, and ride out the storm.
Kass: No-Growth
Stagflation
My old
friend Doug Kass heads Seabreeze Partners Management and writes for RealMoney
Pro. His custom is to identify 15 potential surprises that each new year could
bring. You can read the full list here.
Here are some I think are noteworthy.
Surprise No. 1: Terrorism Dismantles an Already Fragile
Global Recovery
I fear we'll see attacks that demonstrate how terrorism
incidents are systemic and not simply isolated. It could become apparent that
we face a broad, aggressive wave of terrorism aimed (as expressed by ISIS) at
defeating the West's world domination.
Acceptance of this notion would cause significant
disruption in global markets and the world's economies. Shares in airlines,
hotels, entertainment companies (especially theme-park related) might suffer
the most throughout the year.
This
may well happen, but I’ll say this: if we let terrorist threats disrupt our
economies, it will likely be because we let fear take control.
Surprise No. 5: America Falls into Recession and Stocks
Tank
Too much debt, too little growth, fiscal-policy paralysis,
a "spent" Federal Reserve and limited capital spending (which
adversely impacts productivity) weigh down stocks in 2016. So do crony
capitalism, geopolitical instability a further narrowing of market leadership
and a further technical breakdown.
This
one would not much surprise me, for exactly the reasons Doug states. We are
overdue for a recession. I think it will more likely strike in 2017, but I
would admit that the probability of a recession this year is not low. I think a
painful stock correction is likely even if we avoid slipping into outright
recession. It may have already started, in fact.
Surprise No. 6: Stagflation
I think stagflation could join "screwflation" as
a concern for 2016. Wages could rise and non-energy commodities (particularly
agricultural) could pass the Federal Reserve's inflation target despite
disappointing US growth.
Although we could see slowing and recession-like growth in
2016's third and fourth quarters, the yield curve won't invert. But oil and a
drought that causes higher agricultural prices could raise headline inflation
to well above the Fed's target.
Our
traditional inflation measures are less and less useful in reflecting everyday
life. They overstate the benefits of lower oil and understate rising healthcare
costs. The Fed hiked rates because it thinks inflation is approaching the
target range, but wage growth is still mild or neutral. None of this makes
sense.
Under
“stagflation” we could see flat wages, lower fuel costs. and higher food
prices. The result would be net negative for most people, but it won’t show up
in CPI or PCE that way.
Surprise No. 9: The European Union Begins to Unravel
German Chancellor Angela Merkel's open-door immigration
policy backfires and causes her to resign, while Britain leaves the EU (a
"Brexit") under the assault of Euro-skepticism.
Separatist initiatives in Scotland and other countries
advance and France's National Front party rises to new heights in the face of
immigration fears. Support to Greece and other EU peripheral countries
diminishes, causing another emerging-market crisis. European borders are
shuttered and trade comes to a halt.
This
one could easily happen. This week we posted a short video
with George Friedman. He is very concerned about Germany, for reasons you will
see in the video; and Germany is Europe’s core. I’ve learned not to
underestimate the EU’s ability to postpone the inevitable, but I don’t see how
their union can last much longer, at least as currently structured.
Zervos: Spoos & Blues
David
Zervos is the chief strategist at Jefferies & Company. He made a good call
a year ago to raise European and Japanese stock exposure. Both outperformed US
equities in 2015. Now he is losing confidence in that trade. He said this in a
Dec. 22 year-end update.
I
am ending 2015 much less confident in both the European and Japanese QE-led
reflation trades. Mario [Draghi] seems to have rolled over to a strengthening
anti-QE German-led contingent. And Haruhiko [Kuroda] cannot seem to overcome
the politically charged distributional asymmetries in stimulus that arise from
a weaker yen. I certainly remain hopefully that they both can push ahead, but
hope is no foundation for a high-quality trading theme. Instead, I’m pivoting
back towards my old flame – Janet!!
Thank
you, David, for coining the phrase “politically charged distributional
asymmetries.” It rolls right off the tongue.
David
goes on to say how impressed he is with his old flame Janet Yellen’s skillful
management of the Fed’s lift-off from zero rates. He thinks reflationary
momentum will intensify as the year goes on. To take advantage, he suggests
what he calls the “spoos & blues” trade. Spoos are the S&P 500 stock
index and blues are US Treasury bonds. One or the other should do well in 2016,
he thinks. He does not think the US can go into recession until we get an
inverted yield curve, and we are a long way from an inverted yield curve.
Jensen:
Liquidity Crisis Ahead
Neils
Jensen at London-based Absolute Return Partners is one of the most thoughtful
analysts I know. Like me, he thinks long-term and rarely attaches a time frame
to his forecasts. Jensen thinks the big story of 2016 may be a “third leg” of
the global financial crisis.
The
first leg, of course, was the US subprime mortgage debacle and related
breakdowns in 2007–2008. The second leg was the European sovereign debt crisis,
which first blew up in 2010 and is still in progress, particularly in Greece.
What
could be the next leg? One possibility he mentions is a widening
emerging-market crisis as commodity prices fall further or remain weak. If the
Fed follows through on its rate hike plans (far from certain), the dollar will
strengthen further. This will make it harder for non-US borrowers to pay
dollar-denominated debts.
That
is a toxic combination for commodity-exporting companies and nations. Not only
is their income plummeting due to low resource prices, but their debt servicing
costs are increasing as the dollar moves higher. The potential for major
implosions is significant.
I
think this fear probably explains IMF chief Christine Lagarde’s open pleas for
the Federal Reserve to consider the impact on emerging-market nations as it
tightens policy. There is little sign the Fed intends to do so. I would argue
that Yellen is right to ignore Lagarde. The Fed’s mandate is to maintain
maximum employment and price stability in the US, not to bail out other
countries. Nevertheless, the Fed could well spark an EM crisis that will spiral
out of control and hurt everyone.
Jensen’s
other “third-leg” candidate is a bond market liquidity crisis. New capital
regulations discourage banks from holding non-sovereign bonds in inventory. The
problem with this arrangement is that banks have long used their own
inventories for market-making. They are the reason it is (or was) easy to move
in and out of corporate and high-yield bonds with minimal slippage or delay.
Liquidity
is shrinking even as the amount of money in bond ETFs and mutual funds is
growing. These products promise their shareholders daily liquidity. See the
problem? Last
month’s collapse of Third Avenue Focused Credit Fund may turn out to be the
dress rehearsal for more such failures.
Jensen
sees a high probability for both scenarios (EM crisis and bond liquidity
crisis) to happen in 2016. Neither will be good, but the second one will have
much greater impact on other asset classes like stocks, if it happens. And it
would certainly not be good for world GDP growth.
Weldon:
Currency Wars
My
book Code Red,
written some 2½ years ago, laid out the rationale for why I and co-author
Jonathan Tepper believed that the last half of this decade would see an
intensifying currency war. Indeed, we made the point that Japan, under the
guise of quantitative easing, had fired the first shot. Greg Weldon’s forecast
for the next year is that the intensity of the initial currency skirmishes (my
term) will increase this year.
In his 2016 forecast he lists 20 countries that
have seen the US dollar appreciate by 50% over the last five years,
representing a total population of 2.2 billion people. He also notes the
interesting fact (one that I missed – he is so good at finding these little
details) that Zimbabwe is planning to use the Chinese currency in order to cement
ties with China.
I will
offer one of Greg’s scores of charts. It shows that the oil-based economies –
Mexico, Norway, Russia – have seen their currencies fall along with the price
of oil.
The exception – the flat line in the graph – is the Saudi riyal, which
is dollar-pegged.
This peg can’t last, and the other currencies in the Middle
East that are pegged to the riyal are also going to come under pressure. (I
note that Saudi Arabia is selling oil into Europe at $26, clearly intent upon
maintaining market share!)
Greg
and I have been talking about these currency phenomena for a very long time.
I’m not sure how far back we go. He is an old-school commodity trader and
writer, and his rapid-fire PowerPoints and voice webcasts cover almost
everything that can be traded. He is bullish the gold mining companies, with
the caveat that, if the FOMC proves to be as hawkish as some of its members
sound (i.e., for more interest-rate increases this year), then the dollar will
get stronger and gold will come under intense pressure, possibly making new
lows.
I
agree. If you can tell me what the Fed will do, I will tell you, with 90%
certainty, what gold will do. The problem is, since I am reasonably sure that the
Fed doesn’t even know what it’s going to do, it is very likely you don’t know
what it is going to do, either. We are all guessing. And guessing makes for a
very fraught trading environment. You can see the first part of Greg’s “2016
Outlook” here.
A Few Final Thoughts
Everywhere
you look in the macro world, major and minor events reveal stress cracks at the
edges. The Bank of Japan is now buying corporate bonds at negative interest
rates in the open market. How in the Wide, Wide World of Sports can you have a
functioning corporate bond market when somebody is buying at negative rates?
“The
market had looked at the 0.1 percent level as the floor for corporate bonds,
but if investors can be confident that they can sell the debt to the BOJ at
negative levels, that level may come down,” said Takayuki Atake, an analyst in
Tokyo at SMBC Nikko Securities Inc., a unit of Sumitomo Mitsui Financial Group
Inc. “It’s a landmark that we’ve reached negative yields for corporate bonds.”
(Bloomberg)
The
VIX is back above its 400-day moving average, which is historically a good
buying opportunity. While the absolute nominal index number has been higher,
getting above the 400-day moving average is not the norm.
Long-term
debt for oil exploration and production companies exploded by 70% since 2010 to
$353 billion this last year, fueled by the low-interest-rate environment of the
Federal Reserve. While the bonds are not selling well in the open market, the
defaults are yet to come. Oil plunged below $30 this week, and there is a real
possibility of its going much lower, given that Iran is, as of yesterday, free
and clear to go into the markets with its production.
I
could list multiple dozens of odd and troubling facts, but the upshot is that
the world has given us a difficult trading environment. Stick with me this year
as I peer through the fog to find a few opportunities here and there.
And
let me end on a positive note. Even with all our economic and geopolitical
troubles, the progress of humanity in overcoming many persistent problems has
been persistent and impressive. Technology and social understanding are
advancing on dozens of different fronts.
Let me
suggest you watch this short YouTube
video. It shows Elon Musk’s Falcon 9 rocket landing on its pad. This rocket
will cut the cost of space launches by 90% and perhaps eventually by 99% from
today’s cost. If you can watch this video without your emotions jumping, if you
can see the young men and women screaming in joy over their success and not
want to join them in shouting as you watch the rocket deploy its fins at the
last moment and touch down ever so gently, then you are probably an NSA spy cam
linked to a computer and not
a human being.
How
can you not be an optimist? Really? How can you not be?
Hollywood
(Florida), Cayman Islands, and Surprises
I fly
next Sunday to Hollywood, Florida, where I will be at the ETF.com conference
with some 2000 people, talking about all things ETF. I will be giving the
keynote address at the Tuesday lunch, doing interviews, holding meetings, and
of course doing the rounds of dinners and gatherings every evening. I expect to
learn a lot.
The
following week I will go to the Cayman Islands to speak at the Cayman
Alternative Investment Summit, one of the biggest hedge fund and
alternative investment gatherings outside of the US. They have an impressive
lineup of speakers, and I note that this year the celebrity guest speaker is
Jay Leno. That should be fun. I just looked through the speaker list and
noticed that Pippa Malmgren, who will also be at my SIC conference (see below),
is speaking, and it will be fun to catch up with her again. I will be on a
panel (moderated by KPMG chief Economist Constance Hunter) with old and
brilliant friends Nouriel Roubini and Raoul Pal. At least I know that with
those two guys there is no need to wear a tie.
And
that is pretty much it as far as the scheduled trips. I know I still have to
get to New York and a half-dozen other places for short trips, and will let you
know if I’m in your area. But we are really trying to limit the travel as the
work on my book grows more intense. “Oh deadline, where is thy sting?” is the
refrain that echoes in my mind. If you are trying to write a book on what the
next 20 years will look like, you can’t take 20 years to write it.
Let me
remind readers that my Strategic
Investment Conference will be held in Dallas, May 24–27. We are finalizing
the speaker list, which you can see at the website, and have just confirmed
Niall Ferguson. I should note that both George Friedman and David Zervos, whose
2016 forecasts we just sampled, are among our all-star lineup. I am excited
that on Thursday night we will be going to the biggest C & W bar in Dallas
(Gilley’s, for you locals) and taking over the entire place; in addition to
longnecks, Mexican food, and barbecue, we will enjoy a conversational shoot-out
featuring Michael Barone, Steve Moore, and Juan Williams, with a focus on the
upcoming elections. Who knows – maybe we’ll be talking about Biden versus …???
And maybe even a brokered Republican convention.
You
can’t even imagine what chaos a brokered convention would be. I have been a
delegate to national conventions, where I have been intimately involved with
and have led multiple floor fights on the state level at the largest state
convention in the country. We haven’t seen an open floor fight at the national
level since 1948, and back then we had powerbrokers. Today there are no powerbrokers
of any real consequence. And you may think that this or that candidate will
walk in with a certain percentage of delegates that are “his” or “hers.” That’s
not how it works. After the first vote, where you are committed, you are no
longer legally bound. You simply have no idea what chaos could ensue. Maybe I
should write about that story. The Rules Committee for the national convention,
whose work is normally both arcane and mundane, is already engaged in serious
discussions. And if things haven’t changed by the time the gavel falls to open
the convention, the convention gets to adopt its own rules. Normally, the rules
suggested by the Rules Committee go uncontested. (I think maybe in ’76 the
Reagan delegates kicked up a little fuss.) Adding to the fun, the current Rules
Committee members generally have to be reelected before the next convention. I
can guarantee you, last year no one thought the most interesting committee
assignment would be on the Rules Committee. And maybe it won’t be.
The
flipside of a brewing floor fight is that the media would be focusing on the
convention for months in advance and would go to 24-hour coverage during the
convention. It would be the ultimate reality TV show. Who gets voted off the
island? Who gets fired? You couldn’t buy that kind of TV time.
It is
time to hit the send button. I think I am going to see Leonardo DiCaprio in The Revenant. My “Sunday
off” will be spent reading Matt Ridley’s new book, The Evolution of Everything. A relaxing way to
do research for my own book. Cool techie hint: if you read a book in the Kindle
app (as I do on my iPad), you can highlight and make notes and then go to them
on your personal Amazon Kindle page at some later date. You’re actually allowed
to cut and paste from there. I fantasize about having my highlighted sections
and notes from every book I’ve read for the last 50 years somewhere in the
cloud. Dear gods, I would be dangerous.
Your
rationally optimistic analyst,
John Mauldin
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