Street Cred: Repeatedly warned of a housing bubble as early as mid-2006. Called stock market crash in November, 2007. Issued short call on China April, 2015. Barron's analysis of geopolitical risk and markets, December 26, 2015. Frequent CNBC contributor.
12-Month Outlook: Global stock markets, oil prices flat to down. Bond yields remain at historic lows. Probability of slow GDP growth or recession very high.
The Economic Chessboard: The global economy is suffering from a chronic structural disequilibrium driven by widespread currency misalignments. China's two biggest customers for its export-led economy - the US and Europe - are growing at GDP rates well below historical norms and are no longer able to provide China with the aggregate demand it needs to maintain its own historic double-digit GDP growth rates. The resultant downshift in the Chinese economy is rippling across the globe to the "commodity nations" that feed China's factory floor, e.g., Australia, Brazil, Chile, Canada, Indonesia, Russia.
US Recessions Fears Grow: While the US economy has been resilient, these external forces are now buffeting US shores. The manufacturing sector is in a sustained downtrend and economic indicators point to a possible investment-led recession. The strengthening US dollar is sapping exports and draining as much as a full percent of GDP growth off an already falling GDP growth rate. Low oil prices that act as at "tax cut" for consumers are helping to partially offset these recessionary forces but are also causing severe regional effects in oil and shale-producing states, e.g., North Dakota and Texas. Against this backdrop, it is likely the Fed will abandon its quest for additional rate hikes in 2016.
The Geopolitical Chessboard: Geopolitical risks are rising to levels not seen since the height of the Cold War. China, Iran, ISIS, North Korea, Russia, Syria, the Ukraine, and terrorism all pose unique challenges and threats to the global order and global supply chain. With the US military constrained by budget shortfalls, a shrinking naval fleet, and a war-weary public, these challenges and threats are not being met in a way to insure peace and stability. Possible events like the fall of the House of Saud or a toppling of the Chinese or Russian presidents are of low probability but must remain on the radar screen because of far-reaching implications.
The Political Chessboard: The US election will likely feature a Clinton-Trump slugfest. Both candidates suffer from "high negatives" so the campaign will likely be negative rather than policy-oriented. Trump wins if he is able to successfully woo "Reagan democrats" - disaffected, white, blue collar male workers - away from the Democratic base, rally independents, and hang on to the Republican base. Clinton wins if blacks and Hispanics vote Democratic as a unified block, women across party lines rally to Clinton, and the base holds.
Vice President Choice Critical: Trump will look to a VP that can erode Clinton's lock on Hispanics and/or appeal to women voters. Of the other candidates, Rubio stands out because of his pro-immigration stance and standing in Florida, which must go Republican for any victory; but Trump may go outside the Republican box.
Desperately Seeking Joe Biden Clone: To win, Clinton must find a lunch pail and very likeable "Joe Biden" clone to keep Reagan Democrats in the base and to offset a deep-seated distrust within a significant fraction of the electorate, including many women. A Clinton White House will likely continue America's drift begun during the Obama Administration to a welfare, neo-isolationist state. A Trump presidency may look a lot like the Reagan years (though louder), with tax cuts, rollbacks in regulation, and a tough trade and foreign policy.
Advantage: Trump