It’s the end of the world as we know it – or at least as we’ve known it for the past seven years. The money for nothing that fueled government spending, emerging markets and the allure of risky financial assets will start going the way of disco in 2016 as the U.S. Federal Reserve raises interest rates. For nations and corporations with strong balance sheets, it could be a welcome shift – even a stairway to heaven. For overvalued businesses, profligate governments and high-yield markets, danger lies ahead – perhaps a highway to hell.

That’s the theme of Reuters Breakingviews’ Predictions 2016, a collection of financial insight aimed at giving readers a jump on the year ahead. If the past is any indication, many of the pieces will be pitch-perfect. A year ago we said Deutsche Bank would oust its leaders and accounting fraud would become a top regulatory priority. Bingo. But we also forecast oil at $80 a barrel and a cooling mergers and acquisitions market. Right or wrong, our goal is to offer intelligent and provocative ideas in our typically pithy format.

This year’s book is divided into four classic rock-inspired sections: The Thrill Is Gone, Anticipation, A Hard Rain’s A-Gonna Fall and Won’t Get Fooled Again. In the first category, we are doubling down on our view that mergers and acquisitions have peaked in America. Also look for oil-rich nations like Saudi Arabia to start raiding sovereign wealth funds to pay for social stability.

A new U.S. president will take office just in time to battle the first recession since the financial crisis, and old-school interest rate indicators make a revival as the Fed raises rates again. Quarterly reporting will get a rethink – a prediction British insurer Legal & General just proved true. Activist investors will roam again and may move the earth under U.S. machinery maker Caterpillar.

Many nations and companies will be judged on how well they anticipate challenges in the new monetary environment. Brazil’s economy will probably get worse before getting better, but the rule of law should help the nation emerge stronger from its crisis. China will allow Facebook to re-enter the Middle Kingdom, and entertainment juggernaut Walt Disney will rocket higher with the Star Wars franchise. Meanwhile, prudent banks will spend the year preparing thoroughly for Britain’s possible exit from the European Union.

Tough times are ahead for the likes of Valeant Pharmaceuticals and other corporate rollups that padded profit with cheap money and financial engineering. The overall earnings of U.S. companies will take a hit from competition, disruption and tax policy after accounting for a historically high share of economic output.

Elsewhere, big energy companies will scramble to account for decades of downplaying climate concerns. And lousy governance could force wrenching changes in the boardrooms of Volkswagen and Glencore.

Anyone who vows not to get fooled again almost certainly will. A world hunkering down for more sub-$50 a barrel oil will breathe a sigh of relief as the price rises – wait for it – past $80. Media moguls who once considered Netflix an ally will come to view the video-streaming service as a villain, and companies will probably regret some of the self-aggrandizing titles they splashed on the covers of their annual reports. Even the Fed, having confidently raised interest rates, may wind up having to cut them again as 2016 draws to a close.

We also have predictions about Prada, HSBC, Argentina and other topics. And if you want to know what country will bring home the most medals from this summer’s Olympics in Rio de Janeiro, check out our calculator.

Prescient but imperfect, and with dated taste in music, we nonetheless promise to cover the coming year with the clarity, speed and insight that you expect. Join us now for a glimpse of the near future. Stick around to see how it all turns out.

Reynolds Holding

Law editor, Reuters Breakingviews

Jan. 4, 2016

(Image: REUTERS/Jim Young)

Contents page

The Thrill is Gone

Fed liftoff will reinvigorate key market gauges

Two signs of M&A bacchanal’s last hurrah

U.S., Chinese unicorns will bolt in opposite ways

Arab sovereign wealth fund exodus just beginning

From Caterpillar an activist investor will hatch

Europe’s least bad option: ditch Schengen

Giants of central banking will be cut down to size

Argentina and Elliott give peace a chance in 2016

Quarterly reporting to get a major rethink

Recession probably awaits next White House chief



Disney awakens the financial power of the Force

Bank rule zealots will be forced to back down

Cheap batteries will give utilities electric shock

Virtual reality will spring to life in 2016

Rail mega-deal holds ticket to runaway M&A train

A (fake) bank CEO memo on plans to leave London

China will stop ignoring Facebook’s friend request

Capital squeeze will spark unicorn M&A orgy

London’s bankers should retrain as builders

Drought, not just of ideas, challenges Africa


A Hard Rain’s A-Gonna Fall

Balance sheets will get more unbalanced in 2016

Global corporate profit is under serious threat

Volkswagen top brass will be up for the chop

Luxury groups could shrink their way to riches

Brazil crisis may have silver lining: Rule of law

The illusion of debt-fuelled earnings

Fund glut will send Asia’s buyout barons off-piste

Climate will supplant shale as top energy disruptor


Won’t Get Fooled Again

The Fed may be cutting rates again within a year

Oil will blow past $80 a barrel in 2016

Home economics cloud Clinton White House run

Numbers add up to HSBC leaving London

Annual reports offer front-page warnings

Global economy depends on more than India in 2016

Netflix will be recast from ally to villain

The Uber or Airbnb of finance will prove elusive

Global smartphone brands face mass extinction

Host Brazil may challenge for 2016 Olympics glory



The mighty United States will most likely take top spot once again in the medals table in the 2016 Summer Olympic Games. But a prediction based on population, GDP, the cost of Nikes and past willingness to dope suggests host nation Brazil could break into the top five. Like Team GB in 2012, that will require capitalising on home advantage.

The national flags of Russia, China and Japan will be the others most frequently raised alongside the star-spangled banner as medals from the modern era’s 31st Olympiad are awarded, according to Breakingviews’ new Olymponomics calculator.

graphic-new-Olymponomics leader board

(Source: World Bank, NationMaster.com, IAAF. REUTERS/Matthew Weber, Himanshu Ojha, Robert Cole, Richard Beales.)

It stands to reason that successful Olympic nations have large populations. That ensures deep pools of raw talent across a wide range of events. Countries with big economies, meanwhile, have the financial resources to equip and train athletes. The cash clout per head may also be relevant, but places like the United States, China, and Russia, which have large resources overall, can direct the biggest sums to train teams of elite sportsmen and women.

National statistics only capture part of the story. Sports participation is critical. The cost of a pair of Nike running shoes is a workable proxy. The rationale is that the cheaper the shoes, the lower the barrier to entry and the greater the likelihood of eventual Olympic success.

Performance can also be enhanced through the illicit use of drugs. Athletes are subjected to stringent anti-doping measures. Cheats, however, may get an outsized share of the spoils if they aren’t detected. The Olymponomics calculation uses recent test results from the International Association of Athletics Federations to identify countries that have been more willing to bend and break the rules, and assumes their representatives may be the most likely to succumb to temptation again.

The analysis includes the 20 countries that have been most successful in the last two Olympiads. That excludes some like India, for instance, whose large population and poor record on doping might otherwise have earned it a place nearer the top of the forecast medals table. The idea is that a nation’s overall athletic prowess takes time to develop, making past performance relevant as well.

Brazil finished way down the medals table in London four years ago and in Beijing in 2008. In 2016, the home team’s green and gold flag may fly a good deal higher.

Published December 2015

(Image: Rob Schumacher-USA TODAY Sports)