Are We Tired of 2018 Predictions Yet?

I get tired of reading predictions that are really disguised as either self promotion or demonstrate a fundamental lack of understanding of how things really work.  No one is held accountable by them, most so-called “experts” aren’t driving the change, but observing it (which is fine, but always prefer those in the trenches than those commenting about those in the trenches).  Which is normally why I dont write about the trends impacting working capital and finance.

Sure there are the usual suspects:

  • Machine learning's impact on invoice finance and generally expanding use of data and advanced analytics
  • Distributed Ledger Technology (DLT) continued efforts to inject liquidity in the supply chain
  • How digitization will impact back office, credit risk assessment, digital lending, etc. especially in light of new regulations such as the arrival of Open APIs under the Payment Services Directive 2 (PSD2).

Or my favorite one, banks building FinTech partnerships (wow, whoppty doo). Great insights there. But of course nothing can beat the prediction of yet another chaotic year for cryptocurrencies.  I mean where were all these gurus in Jan 2017 when no one heard of ICOs and no one talked about Bitcoin or other cryptos?

Please just stop. 

But since I am on the subject, I would like to briefly mention two things that deeply concern me and can impact the credit, banking, and financial markets in 2018 beyond how tech is changing the world.  They are:

  • The Sovereign Debt Crisis
  • Central Bank’s trillions in accumulated assets

Both the governments around the world and Central banks have been playing a giant game of poker.  Central Bankers have a made a big bet: they have basically bailed-out the banks to prevent massive losses in the financial sector, inflated the stock market so that the household sector feels wealthier, and priced money so cheaply for the corporate and government sectors to borrow.  How?  Specifically, the Big 4 central banks — the Fed, the ECB, the BOJ, and the PBOC have purchased $20 TRILLION worth of financial assets.



This of course inflates other assets.  As the well-respected Ben Hunt says over in Epsilon Theory , “this basically means quality has been a useless guide to picking stocks.  Over the past eight and a half years, Quality has been absolutely useless as an investment derivative. You’ve made a grand total of not quite 3% on your investment, while the S&P 500 is up almost 300%.”

And what about Sovereign debt?  According to Epsilon’s note, the ECB announced its intentions to prop up the European sovereign debt market directly in 2012. Since that announcement — even though both Portugal and Italy have higher debt-to-GDP ratios today than in 2012— the spread versus U.S. interest rates has done nothing but decline.

So the above two items to me are much more alarming and something to watch then all these predictions on how machine learning will change invoice finance, or artificial intelligence (which few really understand) will change underwriting, etc.  That’s not to undermine all the changes going on brought on by data, digitization, new regulations, etc. but just that the two things above can hit markets very fast, very hard, and without warning.

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