Ad Hoc Commentary – 2015 Outlook: destroying Europe and another bank bailout?

Our outlook for 2014 can be found here:

As expected, equities did well, commodities did badly, and USD did well. However, bonds did not sell off as much as yours truly expected it to.

In 2015, yours truly expect the world economy to continue to do badly.


  1. taxes will continue to increase (wealth tax, exit tax, stricter enforcements, traffic fines),
  2. unemployment will continue to increase in the broader sense,
  3. wages, pensions and benefits will continue to stagnate or decline for the majority, and
  4. living standards will be lower for most.

The main driving forces are still the sovereign debt crisis in the developed world, with the underlying problem of compound interest. Austerity will continue to breed class warfare as the majority continues to blame the minority rich for all their troubles. The end of QE in America will also put us in a position of global shortage of US dollars that will:

  1. lead to further US dollar strength
  2. lead to bad loans in US dollar denominated debt especially for countries and corporates that depend on high commodity prices
  3. lead to even stronger gains in our favorite S&P500

Countries that has oil rents as a % of GDP above 5% will likely suffer:

Russia and Middle East are the most important to watch because their pain will turn into geopolitical events. Of particular concern is Russia as yours truly believes Putin is unlikely to be de-throned. Submarines and missiles will pour out their wrath before the Master Strategist concedes defeat.

Given this geopolitical uncertainty, 2015 is likely to see:

  1. The Russians at war if oil stays below the 200-month-moving-average of 60 dollars (it likely will)
  2. Europe meltdown as capital runs out of Europe for safety from war and austerity
  3. Emerging markets will suffer selective contagion just as Russia suffered contagion from the Asian Financial crisis in 1998.

2015 will likely be a repeat of 1997/1998 in the sense that capital is flighting a region: in 1997 Asia, in 2015 Europe. The strong US dollar will cause bankruptcies around the world and we will have the banking system probably in need of another bailout. Banking is supposed to be boring again after the 2007 crisis with Volcker and Dodd-Frank reforms. However, no thanks to bank lobbyist, the smartest guys in the room will still be holding on to massive amount of risks when the next crisis hits:

The ultimate winner of the bill to fund the US government till Sep 2015 is said to be Jamie Dimon:

Even though proprietary trading is banned, banks can still play heads-bank-win-tails-taxpayers-lose through funds since the Volcker rule is postponed:

Closer to Singapore, yours truly expect 2015 to be a very difficult one for Malaysia. Oil prices should stay low. The 1MDB quasi-sovereign wealth fund seems to be shrouded in secrecy and could very well turn into a real crisis both in politics and USDMYR.

Good luck in the markets.