Something new under the sun

HENRY MAXEY

Co-CIO

FORECASTING IS A THANKLESS ENDEAVOUR.

But it’s necessary – for investors and meteorologists alike.

Last year, preparing portfolios for something which would have subsequently been declared ‘out of the blue’ proved futile as markets were buoyed by free-flowing liquidity and stronger economic growth. So is it time to abandon the forecast?

Emphatically, no. Novelties have emerged in the financial system which heighten the risk of a crisis and could amplify market moves in the event. These emergent features – the new things under the sun – are yet to be tested. When they are, investors will once again blame it on the weatherman.

“EARLIER ON TODAY, APPARENTLY A WOMAN RANG THE BBC AND SAID SHE HEARD THAT THERE WAS A HURRICANE ON THE WAY. WELL, IF YOU’RE WATCHING, DON’T WORRY, THERE ISN’T.”

Those were the infamous words of British weather forecaster Michael Fish, a few hours before the Great Storm of 1987. In 2023, our forecast that slowing economic growth and a deterioration in liquidity conditions would lead to a hurricane in financial markets was an error in the opposite direction – a severe weather warning but no storm. Instead, we saw strong growth from a surprise positive fiscal impulse. And this was accompanied by improved liquidity because of how that fiscal expansion was funded.