Greece

With markets wrapped up for 2015 now, reviewing the performance of asset classes last year shows that it was one where negative asset class returns were aplenty, while those finishing in positive territory were few and far between. Indeed, of the 42 assets we monitor in Figure 5, just 9 finished with a positive return in Dollar-adjusted terms over the full year.  At the other end of the scale there were some notable losers.

As Wilbur Ross so eloquently noted, for Puerto Rico "it's the end of the beginning... and the beginning of the end," as he explained "Puerto Rico is the US version of Greece." However, as JPMorgan explains, for some states the pain is really just beginning as Municipal bond risk will only become more important over time, as assets of some severely underfunded plans are gradually depleted.

The Central Bank of Portugal conveniently released their results between Christmas and New Year, when the trading desks in Europe are virtually empty...

As 2016 begins, there are clear signs of serious debt/default squalls on the horizon. We can already see the first white-capped waves.

The Muslim population of Britain surpassed 3.5 million in 2015 to become around 5.5% of the overall population of 64 million. In real terms, Britain has the third-largest Muslim population in the European Union, after France, then Germany. Islam and Islam-related issues were omnipresent in Britain during 2015, and can be categorized into five broad themes: 1) Islamic extremism and the security implications of British jihadists in Syria and Iraq; 2) the continuing spread of Islamic Sharia law in Britain; 3) the sexual exploitation of British children by Muslim gangs; 4) Muslim integration into British society; and 5) the failures of British multiculturalism.

America has never - ever - avoided a recession when Chicago's Business Barometer has collapsed to these levels. At 42.9, missing the expectations of 50.0 by the most ever, down from 48.7 in November, the final US economic data point of the year sums up perfectly what a disaster Yellen has hiked rates into.

The movement toward deeper European integration appears to have halted, and gone into reverse, as the EU seems to be unraveling along ideological, national, tribal and historic lines. If these trends continue, and they seem to have accelerated in 2015, the idea of a United States of Europe dies, and with it the EU. And this raises a question about the most successful economic and political union in history - the USA.

According to eKathimerini, Greek and Turkish jets just got into a dogfight over the Aegean Sea on Tuesday when Ankara's warplanes violated Greek airspace nine times. Two of the Turkish planes "were armed." 

My overriding theme and the central drama for the coming year is that unexpected events can take on greater importance as the Federal Reserve ends its near-decade-long Zero Interest Rate Policy. Consensus premises and forecasts will likely fall flat, in a rather spectacular manner. The low-conviction and directionless market that we saw in 2015 could become a no-conviction and very-much-directed market (i.e. one that's directed lower) in 2016. There will be no peace on earth in 2016, and our markets could lose a cushion of protection as valuations contract. (Just as "malinvestment" represented a key theme this year, we expect a compression of price-to-earnings ratios to serve as a big market driver in 2016.) In other words, we don't think 2016 will be fun.

"Security prices are not low. I wouldn’t say high, but full. So people are thinking cautiously but they’re acting bullish and they’re behaving in a pro-risk fashion. While investor behavior hasn’t sunk to the depths seen just before the crisis, in many ways I feel it has entered the zone of imprudence... The market is not an accommodating machine. It will not go where you want it to go just because you need it to go there."

We apologize, but 2015 had so many negatives that we’re having trouble seeing the positives. It’s like we’re on the Titanic, and it’s tilting at an 85-degree angle with its propellers way up in the air, and we’re dangling over the cold Atlantic trying to tell ourselves: “At least there’s no waiting for the shuffleboard courts!” Are we saying that 2015 was the worst year ever? Are we saying it was worse than, for example, 1347, the year when the Bubonic Plague killed a large part of humanity? Yes, we are saying that.

Here’s an early Christmas present. It’s nothing new. And we didn’t spend a lot of money on it. But it’s the thought that counts. Here goes... When you go to buy a stock, you might ask yourself: Is this stock likely to go up? But that’s the wrong question. You don’t know whether it will go up or not. No point pretending. The right question: Has this stock gone down enough?

On Monday, Zimbabwe announced that this small, economically devastated country would officially make the Chinese Yuan its legal tender as it seeks to increase trade with Beijing. In exchange for becoming not only a military but also financial colony of China, $40 million of its debts to Beijing would be canceled.  China was delighted it cost it only a $40 million debt write off to acquire its first official African colony.

• Oil up after U.S. crude stocks drop, still close to 11-year lows (Reuters)
• Global Stocks Rally; Mining, Metals Shares Lead Gains (WSJ)
• OPEC Sees Demand for Its Crude Oil Falling for Rest of Decade (BBG)
• The Trouble With Sovereign-Wealth Funds (WSJ)
• U.S. Calls for 256% Tariff on Imports of Steel From China (BBG)
• Iraqi troops expected to drive ISIS from Ramadi in days (Reuters)