Looking back on the past year, you might feel like Billy Joel realising the fire was always burning. Photo / Dean Purcell
Merry Christmas and welcome to my 2017 year in review. Or my preview of 2018.
I haven't decided yet.
I just know I've been dreading writing this. As usual I've been so overwhelmed by the volume of events that I can't bear to look back. When I do, it always ends up in the tune of Billy Joel's We Didn't Start the Fire.
"US turmoil, a2 Milk, MMP, Fletcher tumbles, Bitcoin bubble, new PM, Xero exits, market grumbles."
Horrible. Sorry if you have that stuck in your head now.
Just be thankful I didn't follow up my original idea of summarising Treasury forecasts to the tune of Snoopy's Christmas.
Okay, that's it for 2017. I'm looking forward.
Quantum physicist Niels Bohr said: "Predictions are difficult, especially about the future."
I agree. Successful predictions are usually so obvious they are pointless or so specific they are bound to be wrong - unless you make hundreds of them and then ignore the failures.
• I predict Donald Trump will tweet something stupid about North Korea in 2018.
• I predict bitcoin will crash.
• I predict the share market will hit new highs.
• I predict the housing market will keep drifting down but will not crash.
Don't ask for your money back. I don't know anything for sure.
I'm not a fan of predictions but I don't mind forecasts.
Like meteorologists, economists keep their forecasts live and constantly open to revision.
They usually offer up three scenarios - best case, worst case and a middling case.
In other words they hedge their bets, playing the optimist, pessimist and realist.
So, let's look at those predictions again. I hope the bitcoin bubble bursts sooner rather than later.
If it keeps growing at the rate it has in the past year it will get big enough to take the rest of the market down.
The digital currency rose almost 2000 per cent this year to give it a market capitalisation of nearly US$300 billion.
That's too small to worry the global economy. But if it repeats the performance next year it would have a market capitalisation of almost US$6 trillion. That can't happen. Surely.
The risk is that the longer it runs the more it draws in the real economy through leveraged investors and secondary markets.
In places like South Korea and Japan, it's really gone mainstream. A crash that rattled those economies could be enough to send economic shockwaves our way.
A more boring but preferable scenario is that it suffers a correction and the investment hype is diffused to the myriad rival digital currencies. Then the whole blockchain thing just simmers away threatening to change the world of finance but not doing a whole lot in the real world for the next year or so.
I'm more optimistic about the sharemarket. I think it could crash but I think it's more likely it won't.
Historically we're due a crash as we head into the ninth year of a bull run that began in 2009 after the GFC.
Fund managers are pinching themselves and struggling to see how they can repeat the kind of returns we've seen for the past few years.
But there are mitigating factors.
The US economy is still ramping up. It has taken a lot longer to get going than anyone expected and interest rates have stayed much lower.
This is also the case for Europe, Japan and Australia.
There are risks. The two big ones are Donald Trump and inflation.
Trump is not that unpredictable. He's going to keep sowing political chaos. Unless he actually starts a war he won't sink markets.
In fact he's taking credit for Wall Street records and is more likely to aim policy at pumping markets ever higher. That creates the risk of a more devastating crash at some point but probably not next year.
Inflation is the real key. It determines the value of things and dictates whether central banks will tighten or loosen the supply of money.
We know inflation has been missing in action since the GFC. Consumer goods get cheaper. Unemployment is under control but wages don't rise.
All the great economists of our age have turned their minds to the issue.
Is it gone for good? Have technology and new employment patterns changed the standard economic model?
Or is this just a long cycle? Will inflation roar back in 2018 as the global economy starts humming, sending interest rates soaring and knocking equity markets for six?
I don't know. I hope we see a steady return of wage inflation (economist speak for: I hope I get a pay rise).
Inflation will also determine the fate of the housing market.
While interest rates are low and the economy stable, the market won't crash.
That said, we did see house prices peak in 2017 and with immigration falling and building ramping up, they seem likely to drift back gently.
I think 2018 might be alright.
I predict that we'll still be waiting for robots to take our jobs this time next year. And as long as Trump doesn't nuke anything, the world will muddle through.
It's not certainly not worth worrying too much.
The future always looks better in hindsight. Do you remember all those scary outlook articles from years gone by?
No? Me neither.
"When it doesn’t perform, everybody notices. When it does perform, nobody notices.”