Special to the Globe and Mail
Published December 21, 2015

By Tom Bradley

I’ve never been one to make market predictions. There’s too many variables and interconnections at play (some visible and many not) to determine what’s going to happen. My colleague Salman Ahmed calls the investment industry’s addiction to annual forecasts the Pseudo-Precision Smoke Machine. Right on!

Having said that, if you’d been able to tell me in advance how some key economic and market variables stood at the end of 2015, even I would have thought it possible to predict how we got there.

With perfect information, how tough could it be?

Near-zero rates

If you’d told me in January that we’d finish the year without making any progress on normalizing interest rates, I’d have confidently predicted that the U.S. economy would be in decline, with unemployment going through the roof.

For rates to have remained at crisis levels for another year, the United States would almost certainly be in crisis.

Well, no. That would have been dead wrong. The United States is doing just fine and employment has been strong.

What I missed was the Federal Reserve, the central bank in the United States, losing sight of its real job, which is maintaining a stable monetary system, and instead trying to micromanage the economy.

$35 oil

If you’d told me that oil would be $35 at the end of the year, I’d have predicted that oil production would be dropping like a stone.

Wrong again. Despite soft demand and mounting supplies, oil keeps pouring out of the ground. Debt-burdened companies and countries have to keep the pumps going to pay the bills.

Rachel and the executives

I would have thought you were referring to a new alt rock band, but no, you were serious. The Premier of Alberta, Rachel Notley, would stand on stage in November, surrounded by senior oil executives, and announce a carbon tax. An NDP premier in Alberta? Oil executives supporting her on higher taxes? What was I to make of this?

I should have seen that Wild Rose country had hit the wall and was ready for change. A lack of diversity in the economy, challenges in building more pipeline capacity and a reputation for dirty oil were issues that weren’t going away.

72-cent dollar

I also wouldn’t have believed it if you’d told me our dollar would be 72 cents by year-end. How could it possibly get there? For that to happen, the NDP must have also won the federal election, the housing market ground to a halt and our banks faltered.

For sure I’m never going to be a forecaster. I wasn’t even close. No NDP government, house prices are up 10 per cent in Toronto and 20 per cent in Vancouver and the banks, well, they made $30-billion. I should have known all these factors were irrelevant. The loonie is a petro currency, baby.

Plummeting preferreds

If you’d tried to tell me in January that preferred shares would be one of the worst performing asset classes in 2015, I’d have questioned your credibility. Scratching my head, I’d have guessed that interest rates must have gone up significantly, pushing preferred yields higher and prices lower.

Nope, the reason for the preferred meltdown was a feature highlighted in the name of the shares – rate reset. This feature ultimately devastated many retired investors’ portfolios. An enduring mystery will be why this country’s financial advisers didn’t clue their clients in ahead of time.

Not-so-confident Canadians

If you’d told me that diversified portfolios would be up on the year, I’d have called for the Canadian stock market to do reasonably well, fuelled by a recovery in resources and continued good returns from the banks. And for sure, Canadian investors would be feeling comfortable, with the 2008 crisis now seven years past.

Wrong again. Diversified portfolios held up nicely, but the Canadian market has been one of the worst in the world. Returns came mostly from owning foreign securities, which reflected a broader industry mix and benefited from our weak dollar. And as for investor confidence, Canadians remain grossly underinvested, with more than 60 per cent of their financial assets held in cash and other savings vehicles.

Wow, what a year. Crisis-level rates. Thirty-five dollar oil. A 72-cent dollar. An environmentally sensitive Premier in Alberta. Plummeting preferreds. And the Canadian market at the bottom of the heap. Who predicted all this? Not me, and certainly not the Pseudo-Precision Smoke Machine.