2017, a year of changes

It is the beginning of 2017 and still not too late to provide or change the forecast of this year. I think that 2017 is a year of changes and I have already talked many factors that could cause significant changes and shift in the current world situation, in terms of politics as well as economics. Over 80% of fund managers expect there will be an increase in the world inflation and the US Federal Reserve provides a forecast involving three rate increases. My opinion is that the shock in terms of politics will soon appear, but the economic impact may be lagged. There is I think one certain thing that the median will not be the outcome of 2017.

The current environment is mixed with both downside factors and upside factors, leading to the potential downside outcome or the potential upside outcome become greater; in other words, there could be a large volatility in this new year. When there is a large volatility, choosing the median will definitely cause a low rate of return. However, it could match investors with risk averse preferences, especially when they expect there is a right-tail outcome. In this case, they could have a great chance to gain positive returns from their portfolios, and lower their risks and losses if they choose the wrong side.

Investors who are looking for greater returns have to choose their sides as always, but this time they will face greater risks. Although they could bet on the large market volatility by holding both call and put options, such strategies could not generate greater returns than choosing the correct side. In addition, some of these factors are from the political side. Politics could set different rules for the market and even the market may need to change the strategy of making profits. For example, tax regulations could create difficulties of transferring investors' profits across borders, which increases investors' costs and even their expected utility and returns of their investments. In a more extreme case, foreigners may even be forbidden to transfer their profits out of the country where they make profits. Therefore, the complexity of 2017 is greater than ever, as both the economic system and the political system interact and influence the whole society and the system.

If you are very confidence about your estimation of 2017, choose the side you think is correct and hopefully make great profits; otherwise, stay at the median or even not make a move, as the risk is very high.