Well, it’s a brave new world for us cynics. Somehow, we all survived another year, but it wasn’t easy.
It was a good year for terrorists (Paris, San Bernardino), despots (hello Cuba, Syria, Iran, et al.) and hackers (any repercussions from China’s hacking of government records, federal employees sharing classified documents on unsecure servers, etc.?).
It was a bad year for investors. Or, if not bad, not so good. Heck, even Warren Buffett lost money, although he can afford a nick more than the rest of us. 
It would be generous to say that stocks ended the year “sideways,” as the year was volatile and the beginning was much more forgiving than the end. Overall, though, the year was as flat as Twiggy in Nebraska. As The New York Times put it:
“Name a financial asset — any financial asset. How did it do in 2015?
“The answer, in all likelihood: Meh.
“It might have made a little money. It might have lost a little money. But … the most widely held classes of assets, including stocks and bonds across the globe, were basically flat.”
We called 2014 the Year of May, as in “the economy may be improving … interest rates may go up … The Federal Reserve Board may be done with quantitative easting … ” So the Year of May gave way to the Year of Meh, a word that summarizes indifference, apathy and mediocrity in just three letters.
But take some consolation in knowing that flat was better than Warren Buffett did. His 11% loss for the year brought Berkshire Hathaway’s per-share intrinsic value over the past 50 years down to a gain of a measly 1,826,163%.
A few more decades of this and Mr. Buffett may be knocked down to middle class status.
Three-Card Monte
2015 proved to be a turning point, as interest rates rose for the first time in seven years. And while the Federal Reserve Board completed its monetary version of Three-card Monte by shifting the focus from bond buying to interest rates, there’s no third entity to which the Fed can shift its focus.
And so, with corporate profits down, no more tools in the Fed’s toolkit (which consists solely of a screwdriver for loosening and tightening) and the rest of the world in an economic malaise, what’s going to boost asset prices in 2016? At least no one brought up macroprudential supervision in 2015.
The problem with the Federal Reserve Board’s $3.5 trillion experiment has always been that, sooner or later, it had to end. And end it did … with a 25 to 50 basis point bump in interest rates. If that little bump can wreak chaos in the financial sector, imagine what will happen when interest rates “normalize.”
Meanwhile, the rest of the world continues to make the U.S. approach of handing off economic policy to the Fed look good.
After watching the epic failure of Fed policy to revive the U.S. economy, other countries around the world, perhaps craving the 2% annual economic growth the U.S. has enjoyed throughout the current “recovery,” have been following our lead and initiating their own form of “quantitative easing.”
Buying bonds is much easier than creating incentives for economic growth.
Unfortunately for the U.S., quantitative easing has turned out to be just another form of protectionism. As with trade tariffs, QE’s weakening of the dollar made U.S. exports more competitively priced. And, as with trade tariffs, other countries followed suit, so the weak dollar no longer provided an advantage.
So today America’s dollar has strengthened and its ability to export has weakened, while currency-weakening QE programs in China, the Eurozone and Japan continue.
For hints of how this ends, read up on the Smoot Hawley Tariff Act. Ironically, former Fed Chair Ben Bernanke has been quoted as saying, “Economists still agree that Smoot-Hawley and the ensuing tariff wars were highly counterproductive and contributed to the depth and length of the global Depression.”
Apparently, the similarities between Smoot Hawley’s tariff wars and QE’s currency wars escape the former Fed chair.
Let the Election Year Begin
Meanwhile, America continues to have the world’s highest corporate tax rate and many of the country’s most successful companies continue to move their headquarters abroad because U.S. tax policy gives them an incentive to do so.
It didn’t matter as much when the Fed was jacking up asset prices, but now U.S. corporations face a combination of high taxes, a stronger dollar and rising interest rates, as central banks abroad continue their QE programs, which will make foreign goods cheaper and U.S. exports relatively more expensive.
The campaign for the next presidential election began in 2015, yet there hasn’t been much focus on tax policy by presidential candidates. How about President Obama or Congress? It’s come up, but, like other efforts that would boost the U.S. economy … meh.
Has anyone running for the office of president focused on our federal debt, which is now approaching $20 trillion? Or what about the $100+ trillion in unfunded liabilities from Medicare, Social Security and federal employee pensions? Meh.
While we allegedly care about our children, why are so many content to leave them with today’s financial problems? Why should they pay for our inability to manage money? Meh again.
So what can we expect in 2016? We’ve already noted the potential for a recession, in spite of optimistic economic forecasts by the Fed and others.
You can believe the economists if you’d like, or you can consider this cautionary tale from David Collum of Peak Prosperity, who cites a 1991 survey described in John Mauldin’s Code Red “in which a poll of 53 economists put the probability of a recession that year at 3%, ignoring the 15% probability for recession in any year. The final arbiter of recessions—the NBER—eventually showed that the poll had been taken five months into a recession.”