President’s Letter

What can we say about 2016 so far?

First, where to make money? There seem to be too few options and we can’t blame it all on China. US equities have arguably peaked out. Emerging is a game of carefully reasoned stock selection. It’s hard to make any sense of what central bank policy can do anymore to stimulate economies, what with one rate raise in the US in the bag and negative interest rates popping up around the globe. We seem in some great pause, or perhaps it’s more like the world’s markets are holding their collective breath waiting to see. . .what? Godot?

We seem at a tipping point but to what I’m not sure. A fresh new asset class meltdown? That’s too pessimistic. There are too many brakes and shock absorbers and regulatory governors on every financial institution for another systemic meltdown to happen. Chances are what we’re in is a soft correction. We’ve seen it already in high yield. China, in a sense, is correcting. EM is correcting. US equities are correcting. After years of growth in valuations things are just settling in, and probably down to some degree, but I’m an optimist. And the optimist in me says there’s more growth to be had in the world. We are just too impatient to see it.

Which brings me to politics. If anything, this is where the most troublesome fault lines lay for 2016. A Brexit? Doubtful but it’s one more indication of political flashpoint with potentially enormous financial consequences. A Trump Administration in Washington DC? The demographic logic of American presidential elections would have to be turned on its head for that to happen. We could go around the world to find similar eruptions and potential seismic shifts. That’s what 2016 could be. The year of political surprises.

So my predictions for 2016: the smart and the quick who can innovate will make money in today’s markets; there will be no meltdown; Europe will stay, relatively, united; America will come to its senses and vote in a President who will unite and not divide; optimism will infect us all.

Montieth M. Illingworth
Montieth & Company
March 3, 2016