Loading ...the ongoing debt crisis in Greece seems to be a never-ending source of hysterics. [ Zero Hedge!!-]
History shows that pundits who make bold, aggressive calls are frequently proven dead wrong, but there are a few scenarios that I think are highly likely in the second half of 2015. And that could create windfall profits for investors on the right side of the trade.
So at the risk of creating yet another public record of my inaccuracies, here are five predictions of what I expect to transpire from now until the end of December.
Europe will be fine, with or without Greece
We’ll start here, because the ongoing debt crisis in Greece seems to be a never-ending source of hysterics.
In a nutshell: Just because people who haven’t been paying attention to the eurozone for five years are freaking out doesn’t mean you have to.
For the record, a “Grexit” is not a foregone conclusion — heck, the people haven’t even voted on bailout terms yet, and even when they do the nation is prepared to block expulsion from the eurozone via court action. But even if Greece eventually returns to the drachma, the contagion risks we’ve heard so much of lately should be taken with a grain of salt.
Politicians have been preparing for this — and more importantly, so have investors.
After all, it was over four years ago that Fortune ran an article with the headline, “End of the line: What a Greek default means,” with a subhead warning: “Its impact on European banks could trigger a liquidity crisis felt around the globe.”
If you are just hearing about Greece’s debt problems and default risk for the first time, then you simply haven’t been paying attention.
Besides, even if some yutzes are unprepared, Greece’s economy isn’t even in the top 40, according to IMF data, making it smaller than the Philippines or Chile. Heck, Argentina’s economy is roughly twice the size of Greece’s, and its debt default didn’t cause the end of Western civilization.
I won’t pretend this will be easy, particularly for frustrated Greek people who have suffered through a steady economic decline since 2008.
But as financial pundit extraordinaire Jeff Macke put it on Twitter: “The problem with betting on the end of the world is there’s no where to collect if you’re right.”
There may be plenty of volatility in the days ahead, but I still will be making my regular investment in the Vanguard Total International Stock ETF VXUS, +0.24% as I do every month.
Europe has survived worse than this, and it will survive this too. Long-term investors should not abandon exposure to the region, particularly in 401(k) or IRA accounts where they will be “averaging in” across the coming months and years.
U.S. growth will be even stronger
The year got off to a bumpy start after a GDP contraction in the first quarter. As a result, the bears came out in full force with their recession calls.
But if the first half was characterized by disappointment, the second half of 2015 will be marked by acceleration as the U.S. economy gets its groove back.
For starters, some of the details from those early months hint at delayed economic activity — not lost activity. Consider the slow inventory build in the first quarter as a perfect example. We’ve seen this movie before, including an initial 2.9% rate of decline a year earlier — the most in five years — that sparked similar doomsday calls. But that was eventually revised to just a 2.1% decline and was followed by a brisk 4.6% pace in the second quarter.
But don’t just take my word for it. Goldman Sachs recently revised its full-year GDP target higher and is expecting a 3% pace of growth in the second half. Also, Merrill Lynch just revised up its 2015 forecast to 2.9% from 2.3% growth. And while the World Bank wasn’t quite so hot, recently revising down its forecast of U.S. growth, the agency still is plotting a 2.7% growth rate for 2015 even after a weak start to the year.
Just consider the jobs numbers as proof of how durable the recovery is. More than 2.95 million jobs were created last year, making 2014 the best jobs year since 1999. And while some folks were mighty scared after a slow start to 2015, May’s jobs report blew the doors off with 280,000 jobs created and increased participation and wages.
In short, expect a powerful finish to the year despite a slow start to 2015. The story of this frustratingly slow recovery from the financial crisis has been one of fits and starts, but it is indeed a story of recovery. I expect the data to continue to point higher in the second half of the year and reinforce a narrative of growth, not one of a slowdown.
Interest rates aren’t going anywhere
Back in April, I said the 10-year Treasury wouldn’t top 2.5%, and I guess, technically, I was proven wrong on June 10 when it hit exactly that mark.
But I remain convinced that low rates are here to stay, and that any brief pop to 2.5% or slightly higher won’t last long.