The most interesting area of the economy at present is commodity prices.
Only the "futures" market got anywhere near to predicting the price of oil last year (solid red line in graph above). The futures market is now betting on around $40 a barrel for Brent crude next year.
At the end of 2014 there was a lack of demand for oil but the OPEC countries have reacted to this fall in demand by oversupply.
This table, gleaned from Tyler Durden's article at zerohedge.com explains the supply-demand position:
The countries that are heavily over-producing are Iran and Iraq. Expect Libya to join the over-production in 2016. The reason for over-supply is almost certainly the precarious political and military position in the Middle East.
Demand is virtually flat (1% increase being within random fluctuations).
My prediction for oil prices is that they are not going to rise. They will probably fall further. The consequence of this should be a devaluation of Oil Company shares or even the collapse of weaker companies. At present investors have been hanging on in the hope of a return to higher oil prices, as in previous oil price falls, but another year of low prices may lead to disinvestment.
Commodities in general have been falling on the back of lower energy costs:
This is bad news for raw materials producers. Brazil, Russia, South Africa, and Australia will have a hard time over the coming year. Primary producers in the Developing World will have problems. Energy costs will be less for primary producers but the wealth of nations also depends on the volume and velocity of money so less money churning around equals lower GDP.
In principle these falls in commodity prices should provide a golden opportunity for the developed world to increase production. However, all predictions for developed world growth are low with GDP growth scarcely breaking 2% anywhere. Some of this problem is due to demographics:
The proportion of the population that is of working age is falling rapidly in all Western countries (and in China). Old people don't need as much stuff. Greedy business people, venal politicians and the mentally challenged would invoke large scale migration as the "solution" to this problem but the problem is intractable. In wealthy countries people have less than two children and live for a long time. Importing millions of fast breeding people will provide a temporary fix but then their children do not breed as quickly and their children's children breed slowly, at a wealthy country rate. All that is achieved by importing millions of people is to create a larger problem that is shifted onto our children and grandchildren. In the long run society will need to be content with sharing money more widely or having a lot of very poor old folk.
Importing millions of people is the demographic equivalent of taking out huge national debts that must be repaid later. (It also wrecks the countryside etc. etc.). The nasty British Establishment have chosen the importing of people as a way of making themselves look good for a few years. In the process they will inflict a version of this demographic change on the countries that supply young workers by removing the young and highly skilled and will do no good for anyone but themselves. (This isn't about Syria - UK imports 4000 Syrians in a total immigration of 600,000 people a year).
The net effect of the demographics is that about 0.5% of GDP is likely to be lost per annum in many countries (perhaps more, given the reduced need to purchase goods amongst the elderly and the diversion of effort to care of the elderly). The political effect is likely to be widespread support for migration in an attempt to pass the parcel of the demographic time bomb onto future generations. Politicians are lucky that the younger voters can be hoodwinked by offering them a moral high-ground today.
Barring a major political upset I would expect high migration to continue in 2016. The GDP growth of the developed world will continue to flatline and the less developed world will fall deeper into recession.
It is possible that raw materials stocks will be re-valued downwards during the year. This may become certain if oil falls to $20 a barrel. Such a re-valuation may cause a run on stock exchanges. However, as for last year, the risk is 50-50.
Political Changes
Last year's predictions were largely fulfilled in 2015 except that there was no coalition government for the UK. The predictions for the Middle East were largely correct. I would expect more of the same this year with Libya and Afghanistan becoming the focus of attention. ISIS will grow further but probably not in Syria. There is a substantial risk this year of Western intervention in Libya against ISIS.
Anyone who thinks that Islamic extremism will be defeated this year or even in 5 years has lost touch with reality.
Iran is a cause for concern. As part of the recent nuclear non-proliferation deal it exchanged 25,000 pounds of low enriched uranium for 300,000 pounds of Russian yellowcake uranium which would provide only about 15,000 pounds of low enriched uranium for weapons if enriched. This would seem to suggest that Iran is abiding by the deal. However, it recently engaged in two ballistic missile tests that violate UN Resolutions and the nuclear deal. Iran is a Russian ally so the lodging of enriched uranium in Russia may not be permanent. Iran also has troops fighting on the ground in Syria and Iraq. The defeat of the rebels in Syria and Iraq would provide Iran with two useful satellite states and Shiite domination of the region.
The immediate response to Iranian and Russian intervention has been a Turkish movement of troops into northern Iraq though how far the Turks will go is anyone's guess.
Ukraine is in economic collapse which suggests that it will be unable to recapture the Russian sector in 2016.
As can be seen from the map, the breakaway zone is not large. Crimea will never be relinquished by the Russians and Ukraine will be tempted to simply let the small eastern enclave secede as the war goes on.
Domestic Politics
I would only bet 50-50 on an EU Referendum in 2016. The Government will be looking for the most auspicious moment to hold the vote and the next few months do not look auspicious. The referendum campaigns will settle into massed propaganda by the pro-EU lobby in the Establishment media and a vigorous online and grass roots campaign by the People. At present most of the UK population believes it is still in the EEC and this impression will be fostered by the media (ie: "the EU is harmless and has no effect"). If there is a referendum it will be very close indeed. Young voters have been heavily indoctrinated since 1997 by their government controlled teachers and older voters just know in their bones that it is a mistake to give up sovereignty.
Terrorist incidents may be the deciding factor in the EU Referendum despite the fact that the Referendum has little to do with terrorism.
Corbyn, the Labour Leader, will make ever more political errors but will not be replaced.
Only the "futures" market got anywhere near to predicting the price of oil last year (solid red line in graph above). The futures market is now betting on around $40 a barrel for Brent crude next year.
At the end of 2014 there was a lack of demand for oil but the OPEC countries have reacted to this fall in demand by oversupply.
This table, gleaned from Tyler Durden's article at zerohedge.com explains the supply-demand position:
The countries that are heavily over-producing are Iran and Iraq. Expect Libya to join the over-production in 2016. The reason for over-supply is almost certainly the precarious political and military position in the Middle East.
Demand is virtually flat (1% increase being within random fluctuations).
My prediction for oil prices is that they are not going to rise. They will probably fall further. The consequence of this should be a devaluation of Oil Company shares or even the collapse of weaker companies. At present investors have been hanging on in the hope of a return to higher oil prices, as in previous oil price falls, but another year of low prices may lead to disinvestment.
Commodities in general have been falling on the back of lower energy costs:
In principle these falls in commodity prices should provide a golden opportunity for the developed world to increase production. However, all predictions for developed world growth are low with GDP growth scarcely breaking 2% anywhere. Some of this problem is due to demographics:
 |
| Percent of population that is of working age |
Importing millions of people is the demographic equivalent of taking out huge national debts that must be repaid later. (It also wrecks the countryside etc. etc.). The nasty British Establishment have chosen the importing of people as a way of making themselves look good for a few years. In the process they will inflict a version of this demographic change on the countries that supply young workers by removing the young and highly skilled and will do no good for anyone but themselves. (This isn't about Syria - UK imports 4000 Syrians in a total immigration of 600,000 people a year).
The net effect of the demographics is that about 0.5% of GDP is likely to be lost per annum in many countries (perhaps more, given the reduced need to purchase goods amongst the elderly and the diversion of effort to care of the elderly). The political effect is likely to be widespread support for migration in an attempt to pass the parcel of the demographic time bomb onto future generations. Politicians are lucky that the younger voters can be hoodwinked by offering them a moral high-ground today.
Barring a major political upset I would expect high migration to continue in 2016. The GDP growth of the developed world will continue to flatline and the less developed world will fall deeper into recession.
It is possible that raw materials stocks will be re-valued downwards during the year. This may become certain if oil falls to $20 a barrel. Such a re-valuation may cause a run on stock exchanges. However, as for last year, the risk is 50-50.
Political Changes
Last year's predictions were largely fulfilled in 2015 except that there was no coalition government for the UK. The predictions for the Middle East were largely correct. I would expect more of the same this year with Libya and Afghanistan becoming the focus of attention. ISIS will grow further but probably not in Syria. There is a substantial risk this year of Western intervention in Libya against ISIS.
 |
| Large scale activity by Islamic Extremists |
Iran is a cause for concern. As part of the recent nuclear non-proliferation deal it exchanged 25,000 pounds of low enriched uranium for 300,000 pounds of Russian yellowcake uranium which would provide only about 15,000 pounds of low enriched uranium for weapons if enriched. This would seem to suggest that Iran is abiding by the deal. However, it recently engaged in two ballistic missile tests that violate UN Resolutions and the nuclear deal. Iran is a Russian ally so the lodging of enriched uranium in Russia may not be permanent. Iran also has troops fighting on the ground in Syria and Iraq. The defeat of the rebels in Syria and Iraq would provide Iran with two useful satellite states and Shiite domination of the region.
The immediate response to Iranian and Russian intervention has been a Turkish movement of troops into northern Iraq though how far the Turks will go is anyone's guess.
Ukraine is in economic collapse which suggests that it will be unable to recapture the Russian sector in 2016.
Domestic Politics
I would only bet 50-50 on an EU Referendum in 2016. The Government will be looking for the most auspicious moment to hold the vote and the next few months do not look auspicious. The referendum campaigns will settle into massed propaganda by the pro-EU lobby in the Establishment media and a vigorous online and grass roots campaign by the People. At present most of the UK population believes it is still in the EEC and this impression will be fostered by the media (ie: "the EU is harmless and has no effect"). If there is a referendum it will be very close indeed. Young voters have been heavily indoctrinated since 1997 by their government controlled teachers and older voters just know in their bones that it is a mistake to give up sovereignty.
Terrorist incidents may be the deciding factor in the EU Referendum despite the fact that the Referendum has little to do with terrorism.
Corbyn, the Labour Leader, will make ever more political errors but will not be replaced.
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