Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Market Insanity

Nine Off the Wall Economic and Financial Predictions for 2017

It is safe to assume that 2016 will be remembered as a year of shocking events; if Brexit and Trump were not enough, there was Indian Prime Minister Narenda Modi’s decision to wipe out the value of 86% of the cash in his country with demonetization. So what about 2017, will be it be just as crazy or crazier?

Unfortunately there are ways that 2017 might be just as disruptive as 2016 at least some from an economic standpoint. Several off the Wall economic predictions of events that might disrupt financial markets completely in 2017 include:

  1. The price of bitcoin might exceed the price of an ounce of gold for the first time. This prediction is not as crazy as you might think. On December 24, 2016, an ounce of gold was trading at $1,136.90 and a bitcoin was trading for $891.75. That means the price difference between Bitcoin and gold was just $245.14. Now consider the fact that Bitcoin doubled in value over the course of 2016, it was trading at $442.50 on December 20, 2015 and $891.75 on Christmas Eve 2016. Gold prices also increased from $1.083.50 on December 21, 2016, to $1,137.30 on December 24, 2016. If gold and bitcoin repeat their performance next year, bitcoin will be more valuable than gold.
A woman rides past the headquarters of the People’s Bank of China in Beijing, April 3, 2014. REUTERS/Petar Kujundzic
  1. More governments will try crazy monetary experiments. Perhaps the most important fiscal event of 2016, was India’s demonetization, but it was not the only such occurrence. Venezuelan President Nicholas Maduro triggered rioting by declaring the 100 bolivar note; and 76% of the cash in his nation, worthless and the €500 note is being phased out by the EU. Greater madness might be coming, Vladimir Putin might turn to demonetization in Russia, and President Trump might try to phase out the $100 bill to combat drug dealing. An even more radical experiment would be for a government to issue its own cryptocurrency; several central banks including the People’s Bank of China and the Bank of England are talking about doing just that.


  1. Banks will start issuing their own cryptocurrencies and start using currencies like bitcoin and Ethereum. UBS Group (NYSE: UBS), Banco Santander (NYSE: SAN) and Bank of New York Mellon (NYSE: BK) want to issue a cryptocurrency called USC. Citi Group (NYSE: C) and Goldman Sachs (NYSE: GS) have revealed cryptocurrency plans. America’s largest bank JPMorgan Chase (NYSE: JPM) is working on a derivatives and payments called Quorum that will operate on Ethereum, Forbes reported.

  1. A major online retailer like Walmart (NYSE: WMT), Alibaba (NYSE: BABA) or Amazon (NASDAQ: AMZN) will start accepting Ethereum or bitcoin payment. Since Walmart and Amazon already accept gift cards purchased with bitcoin this not as big a stretch as you think. already accepts PayPal (NASDAQ: PYPL), and similar solutions from Visa and MasterCard, so adding bitcoin would be matter of simple engineering. One reason why they will do this is to conduct more business in nations with unstable currencies like Venezuela. One strong possibility is that one of those giants will simply integrate cryptocurrency into its existing payment app. Walmart Pay is already integrated with Chase Pay and it can be used in every Walmart store in the United States.


  1. At least one major government will try to ban cryptocurrency and fail. This has already sort of happened in China, where the government is trying to enforce rigid currency controls. Expect similar efforts elsewhere; particularly in Europe and India, where governments are stepping up tax collection efforts.

  1. Expect to see major job losses in the financial and retail sectors in the United States. Particularly at large retailers such as Walmart as they try to control escalating costs.


  1. OPEC will not have any influence on oil prices. There is simply too much oil production outside the Organization of Petroleum Exporting Countries in the United States and Russia for it to control. An even greater problem is nations like Venezuela that sell or give oil away to pay the bills. One way Venezuela drives prices down is by trading oil to China for industrial goods and food stuffs. If Russia runs out of cash and starts doing the same thing, expect oil prices to fall to $30 or less a barrel.

  1. The price of gold will drop below $1,000. This can easily happen because an ounce of gold was trading at $1,137.30 on December 23, 2016. A little over a month earlier an ounce of gold was selling for $1,305 on November 1. Meaning the metal lost nearly 20% of its value in around 40 days. If such a drop were to occur again, gold might be trading at around $800 an ounce or lower than a bit coin. Two black swans that can sink the gold market would be a bankrupt Russia selling gold to pay the bills, and more chaos in India; the world’s largest gold market particularly if Indians no longer have cash for gold shopping.


  1. Russia might run out of money completely. The Russian Federation is literally running out of cash the nation’s Financial Ministry reported it had just $32.20 billion in its rainy day fund in September, CNN reported. That was expected to shrink to $15 billion by the end of the year. At that rate Russia would be out of money some time in February just in time to give President Trump his first big crisis. A fall out from this might be Russia selling off large amounts of oil or precious metals to raise cash. Other results might be the collapse of the Russian military or the end of Putin. What would Putin do if unpaid Russian soldiers in Syria mutinied? Experts believe all it would take is a few months of oil trading for under $43 a barrel for this to happen.

There’s no guarantee anything of these events would occur but if one or more does watch out. 2017 like 2016 will be a very interesting year and we will in for a very bumpy ride.