Surprises are not predictions, as Morgan Creek Capital CEO Mark Yusko told attendees at the Investments & Wealth Institute's annual Investment Advisor meeting in New York City yesterday. "Only half" of 10 surprises he outlined to attendees are likely to come true, but the list, whose genesis Yusko credited to Byron Wien, provide a lens for market participants to question the pervasive conventional wisdom of the day.
That said here, in order, are Yusko's top 10 surprises, with a Bitcoin bonus.
1. Interest rates will fall in 2018, if for no other reason than everyone expects them to rise. Central bank jawboning has failed to deliver the goods, Yusko noted. The Fed spent the last five years acting like they were still in the 2008 financial crisis in hopes of stimulating escape velocity from secular stagnation and rekindling inflation. How did that turn out? Yusko asked.
Bond bears who keep looking for a sign of reversal may need to keep looking. The U.S. savings rate is sinking and Yusko submitted that could signal lower, not higher, GDP growth.
What about those tax cuts? All that will do is make CEOs wealthier as they buy back more stock to juice their stock options and other compensation incentives, Yusko declared. Apparently, all those raises and bonuses companies are distributing to rank-and-file following the tax cuts will have little impact, in his view.
2. The bears are back in town. U.S. markets will correct back to fair value, which is "way lower," Yusko said.
It's true 2017 was a good year, but the last time a year ending in 7 was a positive one occurred in 1927. The U.S. credit markets as a percentage of GDP are at record levels. Wealth inequality just passed 1929 levels.
Stocks may be cheap in terms of gold, but Yusko didn't think that mattered. The last time equities beat bonds seven years in a row was 1928.
3. The VIX isn't dead; it's resting. Yusko saluted the Target manager who quit his job in 2017, took $500,000 and turned it into $12 million shorting the VIX.
But this period of non-existent volatility is an anomaly. "Forget crashes, corrections have been outlawed," Yusko told attendees.