PREDICTIONS 2016 STAIRWAY TO HEAVEN, HIGHWAY TO HELL

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PREDICTIONS 2016 STAIRWAY TO HEAVEN, HIGHWAY TO HELL

BREAKINGVIEWS

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PREDICTIONS 2016

CONTENTS Introduction.............................................................................................. 4 The Thrill is Gone .................................................................................... 6  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

Anticipation ..........................................................................................25  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

BREAKINGVIEWS

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CONTENTS

A Hard Rain’s A-Gonna Fall ................................................................. 43  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 ..................................................................... 60  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

Acknowledgements .............................................................................. 76

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PREDICTIONS 2016

INTRODUCTION 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. Bing