It's the time of year for learning from mistakes.
Luckily, lots of people made lots of them
in markets in 2018.
So what did we learn?
Yes, this is an obvious point.
But it suddenly seemed to take a lot of investors
by surprise, that markets can go down, as well as up.
Two big shocks in 2018 drove this home.
One in February, when the Vix index tracking expected
volatility went haywire, delivering a heavy blow
to the S&P 500 that fanned across other assets.
And one in October, sparked by a mix
of higher interest rates in the US, and cracks in big tech.
The latter was initially written off as a blip,
but recoveries through November and December
have proven fleeting.
Brace for more volatility in 2019,
which some investors have described
as the year of the bull, the, bear and the kangaroo.
So, it's OK, though, right?
When stocks and other so-called risk assets hit the skids,
you can always fall back on government bonds
and have currency, surely.
Well, not this year.
Correlations that typically hold fast have fallen apart,
and no one is quite sure why.
Government bonds, notably in the US,
have dropped out of long-held ranges.
And the Swiss franc and yen, usually
mechanical beneficiaries in times of stress,
failed to climb.
This has been a nightmare for many hedge
funds and other investors.
The most plausible explanation I've
heard for this breakdown in reliable patterns
is that the power in trading has shifted away from banks.
The muscle memory employed by traders on trading floors
is just not there any more.
That leaves other funds and high-frequency traders
to fill the gap.
And with fresh eyes, it's always been
tough to see why the yen, for example, plays that role.
Easy fallbacks are just so 2017.
Never have political consultants been in such high demand
among investors.
Hedge funds that correctly predicted
the election of a maverick new coalition government in Italy
made a fortune on the subsequent collapse
in Italian government bonds.
Turkish politics, no stranger to drama,
generated a full-blown currency crisis.
The plot of the Brexit soap opera meanwhile,
has become so baffling that many overseas investors are simply
staying right out of sterling markets.
The smart money says sterling is heavily
undervalued at this point.
But until the politics clears up,
it's impossible to put money behind that view.
And finally, after a decade of quantitative easing
from central banks, we're shifting
to quantitative tightening.
Turning off the stimulus taps, in other words.
Has the Fed raised rates too much already?
Will it hit the brakes?
How bumpy will the US landing be?
In Europe, investors almost unanimously believe
the withdrawal of support will be smooth and well-managed.
With such widespread confidence, what could possibly
go wrong next year?