Private equity firm releases their yearly market forecasts for 2018, following successfully having predicted market trends in previous years
Grace Century, an international research and private equity company based north of Dubai in the United Arab Emirates, has published its annual predictions, as they relate to global assets, financial environments and markets for the coming year of 2018.
The full set of predictions are reserved for its Angel Members, but a synopsis has been made public. Grace Century has once again been accurate on oil and a number of the predicted currency exchange rates. The target of higher interest rates has continued to be slow and possibly manipulated as a leftover and unwinding of the 2008 financial crisis. This question continues to confuse most experts, as they look for signs of inflation, mainly on wages. With a U.S. unemployment rate hitting new record lows month after month, the market asks where new workers will come from and, more importantly, when will employers begin to raise wages to compete for an existing talent pool. “We believe employee compensation increases to attract top talent is inevitable,” comments Grace Century CEO Scott Wolf.
“As stated before, we believe the Fed is always behind the curve. The 10-year bond just hit its highest yield in a year yesterday. The market will always lead. Anyone who knows anything about inflation can see higher prices and understands it is already here, but I keep hearing no inflation. As I stated in our last report, it will only be a matter of time that employers must pay more for a decreasing labor pool and, to make matters worse, the quality of available candidates continues to decrease.”
Wolf continues, “The most important development, at least in the U.S., was the passing of the new tax bill and the dropping of ‘headline’ corporate rates from 35 percent to 20 percent will have dramatic ripple effects. We say ‘headline’ because many corporations already had a considerately lower effective rate. Regardless, with some of the one-time ‘purging aspects’ as it relates to overseas retained earnings, it will bring substantial assets back ‘on-shore’ and will ripple through higher bottom lines. This will eventually be seen in higher equity prices.”
Grace Century believes the operative scenario is one best described by the phrase “a rising tide raises all boats.” The world, with exception of jurisdictions like Venezuela, North Korea and unrest in Iran which could further influence the Middle East, there seems to be a backdrop of solid growth. Years of liquidity and lower interest rates seem to have “saved the patient.” Before the tax bill, Grace Century recommended off-shore markets like Europe to be heavily weighted. The change in legislation could easily equate an additional 10 to 20 percent bump in the U.S.A. GDP, which could see a 3.5 to 4 percent growth hike, something which Grace Century believes is completely achievable. The only risk that the firm sees is political instability. The daily erratic actions by U.S. President Donald Trump, the investigations being conducted into his administration and the associated unpredictability that markets hate can render everything else moot.
Currency / Exchange Rates
Early last year, Grace Century called for accumulation of commodity currencies like the South African Rand and Canadian dollar. This proved correct as the Canadian dollar has appreciated by 10 percent, with the Rand doing the same. The firm continues to see improved strength in both. Participants are urged to only add to these on pullbacks but remain favorable to both. Grace Century sees targets ultimately at parity on the Canadian dollar with short-term targets of $1.15. The Rand could get 10 to 1 versus the USD. As stated previously, the market has stopped accumulating sterling over $1.30, with some of our largest acquisitions at or below $1.25 (versus the USD). Grace Century still sees the target to start converting back to the dollar at $1.50 to $1.70, basis sterling. The firm remains cautiously favorable on the euro versus the dollar and favorable to the Japanese yen until $1.02 versus the USD, which is consistent with their previously stated position. In short, Grace Century feels that higher interest rates will not affect dollar strength since all countries will be raising and normalizing rates. The firm remains bearish on the dollar.
Stock Market Indices
With the U.S. markets continuing a relentless and never-ending climb higher into uncharted territory, the old saying that “you cannot fight the tape” comes into play. Grace Century’s recommendation remains with value-based investments overseas that can take advantage of a weakening dollar and sectors that will benefit from normalization of interest rates, namely the banking sector. The firm states that healthcare (with the exception of pharmaceuticals) and particularly healthcare IT are hot market sectors, and will remain so.
Grace Century believes that inventory will drive demand geographically. In the U.S., it remains tight and will buoy prices, especially in the South. The tax bill had disadvantages for real estate, especially in high-tax states like New York, California and Illinois. This will penalize prices in these locations in favor of the South. European markets, even the U.K., where there seems to be a glut of houses bought on spec (which remain empty) should continue to be supported. For the Middle East, the firm recognizes that the implementation of VAT for the GCC states will present certain headwinds even though they don’t directly affect real estate. The increased building is likely to be absorbed by outside investors continuing to seek a home for property in warm and desirable vacation locals.
U.S. Interest Rates
Grace Century has been repeatedly and consistently calling for higher interest rates for years. With the market sitting at 10-month highs presently, the firm believes that the longer they are here with non-normalized rates, the higher they will rise, and that once wage inflation kicks in (or is at least admitted to) and additional funds from the tax deal in Washington filter through the system, interest rates will start to move in the direction Grace Century has been calling for and potentially seeing 30-year rates at eight percent, eventually.
Gold & Oil
Grace Century stays neutral to slightly bullish on gold. The firm believes that a lower U.S. dollar, inflation and world uncertainty will underpin the metal and they do not see the cryptocurrencies as a replacement. The technical picture has created a long-term shelf between $1,100 and $1,300. Their recommendation to non-holders is to take the absolute smallest physical holding (1 to 3 percent of a portfolio) and zero increase for existing holders.
As it relates to oil, like the equity markets, Grace Century has accurately predicted trading ranges in previous predictions. The firm sees only a slight future change and has raised their target range by $10 (with WTI at $62 on the morning of Jan. 10) At $50/barrel, producers and forward selling come in and at lower levels, wells stop as does selling. Additional changes in U.S. regulation along the Eastern and Western coasts (allowing new drilling, which was previously prohibited) will add supply and keep prices in check. Grace Century see $35 to $65 for the foreseeable future.
Concluding, Scott Wolf stresses, “These are our opinions and we recognize that some are contrary to the market’s opinion.”
About Grace Century FZ LLC
Grace Century FZ LLC is an International research and private equity consultancy located in Ras Al-Khamiah (north of Dubai) in the United Arab Emirates (UAE). Grace Century specializes in “game-changing” life science and health-related private equity projects.
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