'Tis the season for making forecasts. I will be sending my own five-year projections this weekend, but today for your Outside the Box reading pleasure we look at some similarly longer-term prognostications from the newest member of the Mauldin Economics writing team, Jawad Mian. Jawad writes a monthly global macro advisory publication called Stray Reflections, which is read by some of the world's largest hedge funds, family offices, and asset managers. I and my team have become fascinated with his work. Jawad is not, in my opinion, non-consensus or even contrarian, but seemingly comes at macroeconomic issues from right angles, offering a viewpoint far different from almost anything else I read.
Born and raised in the UAE, educated in Canada, and now based in Dubai, Jawad views the world differently from the vast majority of Western-born and -trained analysts. A thoughtful and clear communicator, he is a rising star in the macroeconomic space, and I am glad to have him with us at Mauldin Economics.
As Jawad himself said as we were comparing views on a phone call yesterday, “The beauty of Mauldin Economics is that none of our team is constrained to a “house view” but are encouraged to present independent insights. We are gathering a wide-ranging group of sophisticated thinkers so that we can cover all scenarios for our readers, based on our best judgment.
The truth of that statement will become clear as you read Jawad's forecast. Over the longer term, he and I are in general agreement, but we see definitely see the world developing differently over the next one to two years. It is decidedly helpful to pay attention to variant views, so that as time unfolds we don't find ourselves totally surprised if things don't happen to turn out quite the way our “most likely” scenarios suggest.
Let me share something that Jawad expressed as he and I were communicating about some of our similarities and differences:
My view about the US dollar is “different” from yours, John, in the following sense. There is zen-like certainty about a stronger dollar due to the Fed's hiking rates and US economic outperformance. I prove that Fed rate hiking has historically led to a weaker, not a stronger dollar and argue that the dollar rally is cyclical, not structural, and will soon end. Both conclusions are contrary to what the majority expects in 2015 and beyond. The consensus is misinformed of history in my view and is wrongly reading fundamentals and technicals. I expect the US dollar to be lower on a one- and three-year time frame versus most currencies, except against the yen. Relative to expectations and views held by the [rest of the] Mauldin team, I'm more optimistic about Europe, Japan, and China. I think both Japan and China are implementing the correct policy responses and are headed in the right direction, and that Europe is not facing a major deflationary bust, and all is not lost. The risk of EM contagion is also way over-hyped in my view, as are the implications of a reversal in cross-border flows. US stock outperformance versus the rest of the world should end sometime in 2015 and will coincide with the peak in the US dollar, which will ultimately result in higher gold and commodity prices and even inflation readings. Therefore I am bearish on the US dollar for at least the next two years.
I will present a considerably different view this weekend, while fully acknowledging that there are possible scenarios by which Jawad could prove to be the more on-target forecaster. Then in two weeks Jawad will join Jared Dillian (who hangs out in New York and South Carolina), Tony Sagami (who will fly in from Bangkok), Worth Wray (now based in Houston), and the rest of our team (scattered all over the US) here in Dallas for three days of what I think will be rather intense discussions. (Patrick Cox is in the final stages of writing a book, so he will miss this week, but we will be getting together when that is done!)
One of the items we will discuss is the rollout and further evolution of a new service called Mauldin PRO, which will be primarily for professional brokers and advisors who are responsible for portfolio management and asset allocation. If you're interested in finding out about the service, you can give us your email here and we will notify you prior to launch.
Now, I will let Jawad's writing speak for itself. We have elected to include his entire letter, which also offers some personal musings and the results of his meditation on the long-term outlook for the US dollar. So, omitting my usual personal comments, let's enjoy the latest edition of Stray Reflections.
Your enjoying being part of a team analyst,
John Mauldin, Editor
Outside the Box [email protected]
Stray Reflections
December 2014
Jawad S. Mian, CFA, CMT
Managing Editor
[email protected]
Awakenings
There is an old story about a beautiful peasant girl named Layla, who was passing through a farmland while going to another village. There was a man offering his prayers out in the open. The custom was that no one should cross in front of the place where anyone was praying. When the girl returned from the village, this man was still sitting there.
He voiced, “O girl, what terrible sin have you committed earlier!”
“What did I do?” she asked, puzzled.
“I was offering prayers here, and you passed over this place.”
“What do you mean by offering prayers?”
“Thinking of God,” he replied.
“Really? Were you thinking of God? I was thinking of my young man whom I was going to meet, and I did not see you. Then how did you see me while you were thinking of God?”
…
Over the summer, Science magazine published an instructive report that spoke to the challenges of the disengaged mind. We quote from the editor's summary:
Nowadays, we enjoy any number of inexpensive and readily accessible stimuli, be they books, videos, or social media. We need never be alone, with no one to talk to and nothing to do. Wilson et al. explored the state of being alone with one's thoughts and found that it appears to be an unpleasant experience. In eleven studies, they found that participants typically did not enjoy spending 6 to 15 minutes in a room by themselves with nothing to do but think, that they enjoyed doing mundane external activities much more, and that many preferred to administer electric shocks to themselves instead of being left alone with their thoughts. Most people seem to prefer to be doing something rather than nothing, even if that something is negative.
How strange. Perhaps the French philosopher Blaise Pascal was correct in observing that “Distraction is the only thing that consoles us for our miseries, and yet it is itself the greatest of our miseries.” Life is difficult for many of us, but very often we make it even more difficult for ourselves by the way we think. In our age of connectedness and perpetual motion, there is something to be said for cultivating stillness in order to summon some emotional and mental clarity. We suspect that most of man's problems arise from his abandoning the religion of solitude. Pico Iyer, in The Art of Stillness, reveals the unexpected pleasures of sitting still, without being distracted, as a way to uncover a form of well-being that is inherent to the nature of our minds.
He reflects with a sense of nostalgia:
Not many years ago, it was access to information and movement that seemed our greatest luxury; nowadays it's often freedom from information, the chance to sit still, that feels like the ultimate prize…. We've lost our Sundays, our weekends, our nights off—our holy days, as some would have it; our bosses, junk mailers, our parents can find us wherever we are, at any time of day or night. More and more of us feel like emergency-room physicians, permanently on call, required to heal ourselves but unable to find the prescription for all the clutter on our desk.
Iyer believes that this is the reason why many people seem to be turning to yoga or meditation or tai chi. They are all desperate to unplug.
How many times have we imagined sitting on the banks of a river in perfect tranquility or leaving everything behind and retreating to the top of a mountain to live an unperturbed life?
From time to time, we all feel overwhelmed by the demands of this world and would like nothing more than to withdraw into a more peaceful state. But, as the example of the man in the opening story shows, harmony eludes the untutored mind. But it is surely something we can attain if we put our heart to it, as demonstrated by Layla when she went in search of her Majnun.
Much has been written about meditation as the solution for the modern man or woman, given his or her frantic schedule. According to popular blogger Maria Popova:
Over the centuries, the ancient Eastern practice has had a variety of exports and permutations in the West, but at no point has it been more vital to our sanity and psychoemotional survival than amidst our current epidemic of hurrying and cult of productivity. It is remarkable how much we, as a culture, invest in the fitness of the body and how little, by and large, in the fitness of the spirit and the psyche—which is essentially what meditation provides.
Research has shown this can lead to better health and clearer thinking, even emotional intelligence. And if you're Ray Dalio, it can even lead to bigger profits. As acknowledged by the founder of the world's largest hedge fund, “Meditation, more than any other factor, has been the reason for what success I've had.”
We find all cultures of the world steeped in esoteric practices of one form or another to provide an effective means for acquiring self-knowledge. A kind of introspection and detached observation that helps people discover an even higher aspect of themselves. In the Judeo-Christian tradition, it is contemplative prayer. In the far Eastern traditions, vehicles of meditation often have to do with mastering aspects of breathing or the heartbeat. In the Zen Buddhist tradition, it is sitting with an awareness of thoughts and feelings without clinging to them. In Islamic tradition, it is emptying your heart and invoking God's name. The objective of these practices is not to force yourself into a state of peace – which would be counterintuitive – but instead, to refocus your attention away from the ego or intellect toward the calm, pristine depths within. To attain harmony, one has to seek that lilt which is present in the innermost core of our being. According to Inayat Khan, “It is just like the sea: the surface of the sea is ever moving, yet the depth of the sea is still. And so it is with our life. If our life is thrown into the sea of activity, it is on the surface. We still live in the profound depths that are still, in that peace. But the key is to become conscious of that peace which can be found within ourselves.” As the Roman emperor Marcus Aurelius shared in one of his Meditations, nowhere can man find a quieter or more untroubled retreat than in his own soul. You need not sail to St. Barts or travel to the Himalayas.
