Financial Issues – Introduction
I have been a long advocate for reflection. Taking time to think about past events can help you determine how the future will be. In this article, I will look at the major events that happened and how we can learn from them. The focus will mainly be in the financial issues that we witnessed during the year.
#1 – Do We Have Experts?
One theme that will last for a long time is on the importance or role of experts in politics, social, and economics. Experts have been proven wrong during the year. To look at this, we need to look at a few scenarios. First, experts had forecasted that crude oil price would go to below $20 a barrel. Some experts were so ambitious. They forecasted that crude oil would settle at more than $80. This did not happen. Then came Brexit. All experts and opinion polls found out that the United Kingdom’s residents would not accept to leave the common market. They were wrong. They also predicted that Hillary Clinton would win the election by a large margin. They were wrong. They also claimed that the stock market would tank if Trump won. Again, they were wrong. The stock market has reached an all-time high. Some forecasted that dollar-euro parity would happen during the year. They were wrong. Last but not least, experts forecasted that there would be four rate hikes during the year. It did not happen. Therefore, from these examples, it is clear that the so-called experts are not always right.
#2 – Crude Oil
The year started on a bearish tone for the oil market. OPEC members had weeks before refused to accept reducing their output. There was pessimism about the entry of Iran to the oil market. There were also concerns about the deterioration of the Chinese economy. All these factors led many to believe that crude oil would go down. Some experts also believed that it would fall below $9. These fears were amplified when crude oil fell below $26. Later in the year, crude oil price nearly doubled from the lowest levels witnessed. Many now believe that it could rise to more than $70 in 2017 because of the looming OPEC and non-OPEC member’s cuts.
#3 – Hedge Funds
Many institutions and high net-worth investors are a worried lot. They pay billions of dollars per year in fees to hedge fund managers. Unfortunately, hedge fund managers have had a bad year in all measures. The market has outperformed the high-profile managers. A recent report in Bloomberg found out that many large hedge funds had returns of about 1%. Dow on the other hand gained by more than 14%. Large hedge funds like Bridge Water Associates (the largest hedge fund in the world) had very modest gains. These results were expected because most hedge funds started the year with bearish calls. It is also worth to point out that small hedge funds outperformed the large funds.
#4 – Technology
Technology has led to massive growths during this year. First, robo investing, where funds use algorithms to allocate capital. During the year, a number of firms involved in this investing have accelerated growth. These firms include Betterment, Wealthfront, and FutureAdvisor among others. This has also been the year for high frequency trading. Bloomberg reported that HFT has grown in the last year by more than 40%. In future, most trades will be done by algorithms. In fact, the biggest hedge fund is currently developing algorithms to manage their funds. Other themes that have emerged during the year is that stocks have continued to go higher. This is as a result a number of events that have happened during the year. They include: the Trump’s win, resilience of the Chinese economy, stabilization of commodity market, and the new normal in Europe.