As I sit by the fire on the first cold, New England, winter day of the new year, I thought I would expound on how I see the financial world developing over the next twelve months. So, here are some 2016 financial And geopolitical Predictions.
- Oil will halve again and drop below $20 a barrel. Markets usually want to test the bottom during a sell off and it’s usually farther down below than anyone can imagine. I don’t think we are there yet. People are not panicking enough. We need to have the final washout, the final crescendo of selling, the capitulation. It just doesn’t feel like the mid-thirties is the bottom. In addition, we have Iran coming on board with more production in a big way. More countries, and regimes, than ever are blatantly dependent on hydrocarbon production for their existence. That is not going to change anytime soon; so, they will keep pumping.
- This drop in oil prices will cause global instability and possible even more conflict than we have now. Russia for instance, is very dependent on oil and if we have a further collapse in the price of crude, their economy will suffer in ways that no one wants to admit at the Kremlin. This could cause even more adventurism by Russian President Vladimir Putin. Would Russia want to annex oil fields in the Middle East in order to inject instability into the financial markets (higher oil prices) and to capture further production for themselves? This could possibly be done under the guise of a Syrian operation, but backed by Russia. Or, Russia, Syria, and Iran could further cement their axis and dominate Middle Eastern oil production outside the Gulf states.
- The U.S. Dollar will spike even higher as oil weakens. This will cause America’s economy to drift back into recession. The removal of monetary accommodation will accelerate this process. The weak economy will ripple into the 2016 presidential election and cause the election of an unexpected candidate. The geopolitical landscape will add to this pressure for a new and different type of leadership for America. It will be a national security and economic election.
- There will be a huge terrorist attack somewhere in the West. This is unfortunate to predict but, also unfortunately, it is almost a certainty. This incident will rock the financial markets in ways we can’t foresee yet. The attack will also impact the U.S. presidential election.
I don’t like to be so pessimistic but I am. Investors will have to be extremely careful this year as we will see more and more volatility as the removal of QE brings us back to some sense of normalcy in the financial markets. This, of course, will also present opportunities for the savvy to take advantage of.
Happy New Year!
L. Todd Wood is a former emerging market debt trader with 18 years of Wall Street and international experience. He is also an author of historical fiction thriller novels. His first of several books, Currency, deals with the consequences of overwhelming sovereign debt. He is a contributor to many media outlets and is a foreign correspondent for Newsmax TV. LToddWood.com