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18 years in Wall Street, left after finding out it was all horseshit. Founder/ Master and Commander: iBankCoin, finance news and commentary from the future.
Joined Nov 10, 2007
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Nomura’s Top 10 Potentionally Market Roiling Events for 2017

Predictions are always fun. Nomura has a top 10 list of ‘gray swan’ events that can roil markets in 2017.

Not to take away from their thunder, here are a few of my own.

Rates keep soaring, disabling Trump from any significant fiscal stimulus.
Yellen resigns.
Someone attempts to assasinate Trump.
December rate hike causes FX fuckery in Asia; panic ensues.
China devalues yuan.
We go to war with Iran.
Oil plunges; petrol credit crisis resumes.
Spiking mortgage rates causes another housing collapse.
Dollar strength fucks our exporters.
Trump starts trade wars with Mexico and China.
Italy and France move to leave EU.
The new AG prosecutes Hillary Clinton.

Source: Bloomberg

1. Russia on the warpath
A staple of gray swan lists since Vladimir Putin’s annexation of Crimea two years ago, Russian military aggression in eastern Europe remains one of the big risks for 2017. While an actual military invasion is unlikely, the foundations may be laid next year through anything from changes to U.S. foreign policy to the election of populist leaders in Europe, according to Nomura. Position for risk by going long credit-default swaps of any of the Baltic nations, shorting credit and trading Poland as a negative proxy.

2. A surge in U.S. productivity
As Fed officials make the case that the president-elect’s fiscal stimulus should be targeted at increasing productivity, Nomura says a pick-up in research and development investment could already be laying the groundwork. Like the tech boom of the 1990s it would catch forecasters unaware, but could have implications ranging from a faster series of rate hikes to a sustained boost to equities if it materializes.

3. China floats the yuan
As recent outflows suggest, a balance-of-payments shock could follow hasty moves to liberalize the currency regime of the world’s second-largest economy. The probability China gets to that goal in the next 12 months is “very low,” Nomura analysts assert, but prepare for yuan weakness if it happens.

4. An exit from Brexit
U.K. Prime Minister Theresa May said she’ll trigger the process of leaving by March of next year, and her favored “Brexit means Brexit” catchphrase makes it sound like she means it. But there are two big upsets that could appease the 48 percent: the case being heard by the U.K.’s Supreme Court might trigger a general election, were it to galvanize pro-EU sections of parliament, while — in an attempt to assuage further break-up — the EU could also grant the country face-saving concessions.

5. Capital controls in emerging markets
Emerging markets may face “pronounced outflows” in 2017 if Trump’s planned stimulus spending sends U.S. yields higher and further strengthens the dollar. That could prompt policy makers to take action, and they might even coordinate in a collective rebellion against the U.S. Countries most at risk are those with volatile currencies, low currency reserves and relatively low rates.

6. Japanese inflation jumps
What if the market is wrong to price in a moderate pick-up in Japanese inflation next year? A sharp rise — potentially triggered by the collision of higher oil prices and a weaker yen — could prompt the Bank of Japan to take action by lifting its 10-year yield target of zero percent. Such a shift could have a global impact because both inflation and global core bond yields are highly correlated.

7. A clearing house crisis
The systemic risks that stem from the clearing houses that were themselves introduced to contain systemic risks aren’t new to regulators: financial stability watchdogs are already taking measures to deal with any potential fallouts. “The interplay between struggling banks, collateral squeezes, sharp market moves in an overpriced market with central counterparties at the center” could potentially lead to a crisis, in Nomura’s worst-case scenario.

8. Trump takes fight to the Fed
The Fed chair has indicated that she’ll stay her term. Yet Janet Yellen was on the receiving end of some harsh invective during the future president’s campaign, and Nomura considers a change to the bank’s mandate to be among 2017’s outlying risks. More likely is that Trump could name sympathetic board members when present appointments expire. Higher policy rates could ensue.

9. Abenomics comes unstuck
The most likely outcome of a general election in Japan is that Prime Minister Abe’s support will be solidified. That means that anything fracturing this stability will come as a big shock to the market. A weakening of Abe’s hold on power could cause Abenomics trades to be unwound, with Japenese equities bearing the brunt of the pullback.

10. The end of cash
It seems inevitable that electronic payments will replace notes and coins at some point, but Nomura picks up on one reason why it might happen sooner rather than later: negative yields. Electronic money would prevent potential savers stashing money under their mattresses to avoid sub-zero interest rates. The risk to this scenario is of course that savers get hurt and consumers start inventing new hard currencies.

Feel free to drop a few of your own in the comments.

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18 comments

  1. john_galt

    “Russian military aggression in eastern Europe remains one of the big risks for 2017”
    I stopped reading there…

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  2. infinitezuul

    Military “accident” in South China Sea.

    USA Navy vs China

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  3. jts5362

    The US navy would wipe the fuck out of the China navy. The only reason it may last more than a month is because all our warships/aircraft carriers are spread all over the world

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    • infinitezuul

      Agree, which is why it wouldn’t be a war. It would be an “accident.” Something along the lines of Chinese “fishing” boats playing chicken with our navy and “accidentally” ramming into them. China has made it no secret that they want to own the South China Sea.

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  4. mx2101

    Hawaii gets a nuclear bomb explosion. Alaska becomes Russian occupied.

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  5. mushroomz

    Jill Stein walks into Whole Foods and plays 5d chess with her future self, and wins, destabilizing the space/time continuum.

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  6. infinitezuul

    Hillary streams self-immolation live on Facebook.

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  7. it is showtime

    The more wrong I seem, the more right I get

    I’ve been saying
    for a couple weeks
    they are just trying
    to jack up the indexes
    Today isn’t suspicious in any sense of the word

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  8. matt_bear

    they put out shit like this….but “fake news” is the problem? lol

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  9. soupbone

    Trump fails to conquer Washington, falls into line.

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  10. frog

    Fake news is indeed a problem. And the occasional flaws of mainstream media do not mean it is the same as fake news.

    Flawed news is not fake news
    http://theweek.com/articles/665884/flawed-news-not-fake-news

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    • soupbone

      News is biased always has been. It suckers people in which is unproductive. Bias is what we are used to, fake is another level that apparently we will have to deal with going forward. Interesting how the election brought the reality of this abhorent behaviour to the public eye. Before it was clandestine now they have blown their wad and will need to resort to other ways manipulate.

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    • infinitezuul

      lol how are you back literally the day after bannings were listed?

      no froggie baby, the problem is that the lying, narrative-driven mainstream media is conflating actual fake news with news they just don’t agree with. Groupthink at its finest, and you are a victim.

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  11. tradingnymph

    Liquidity out of EM dries up. The use of raising finance by using commodities has been shut down by the rise in the US Dollar. The Carry Trade is failing to work when the futures out price any sort of profit. India, Turkey, China can’t keep their currencies in their countries. The World wants Dollars and a Swiss Bank Account. Corporations can no longer sell bonds to buy back stocks or fund dividends.This stupid bubble should have popped two years ago. Kuroda and Draghi kept it going. Just go ahead and give me my Depression now.

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    • frog

      Haven’t you been depressed for a long time now? It’s not the country that’s depressed. It’s you. Why don’t you take some prozac or see a therapist?

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  12. boyaj

    The paradigm between the Euro and individual European country’s sovereign debt. I don’t know what the outcome of this will be (likely not positive though), but something has to give if all these European countries are on the Euro yet they still issue their own sovereign debt and their interest rates are individual country based. I’m of a strong belief that this will come to ahead one day, especially if Italy and France leave the EU. It’s not as big of a deal with Brexit, because they’re still on the pound.

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