Time for a surreality check. Somehow, I don’t think I’m alone in waking up on certain mornings wondering into what parallel universe I’ve been transported. The daily surreality show I’m referring to includes, but is not limited to, watching what are decidedly unpresidential press conferences by our new president—not to mention an endless stream (of consciousness) tweets—and shockingly public feuds with the US intelligence community. These recurring events have caused global uncertainty surveys to go postal.
In the world of inflation, expectations are important. If you ask most people in the US what they believe inflation is expected to be, they are likely to say around 2-3%…why? Because that is what they have experienced over the past 5-10 years.
It is odd how a single event can cause some notable leopards to change their spots. In this case, the election of Donald Trump has caused reverberations throughout the financial world, and some apparent self-reflection by several of the world’s leading thinkers.
The investment landscape and headlines of today would be unrecognizable to someone who fell asleep six months ago and suddenly snapped awake. Financial markets have undergone a tectonic shift that few saw coming. Back in the summer of 2016, the prevailing belief was that central banks were all-powerful and would forever push rates lower in a continuation of policies followed since the crash of 2008. In a show of force, the Bank of England announced a fresh cut to their interest rate to fend off an economic seizure in the face of the Brexit decision, the European Central Bank re-upped quantitative easing, and the Fed was maintaining overnight rates at just above zero.
Evergreen initiated a slightly modified version of its annual forecast EVA just over a year ago. We shifted from specific predictions to attempting to identify developments that could catch the investment community off-guard. As we noted at the time, this was an unabashed imitation of what Blackstone’s Byron Wien has done for years (including when he was Chief US Investment Strategist for Morgan Stanley). However, we also did this because it is the most unanticipated events that have the greatest market impact.