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A Year of Surprises?

December 16, 2016 | Global/Emerging Markets


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It seems as if 2016 has had more than its fair share of big surprises, but in retrospect, it is clear that many of these surprises were years in the making. Hindsight is 20/20, but I want to try to change the lens through which we look at a few of the examples this year.

Rugby and Baseball

Before I get to politics, which is likely why you are reading this, I want to talk about sports, which provides a context.

One of the biggest upsets in sports this year was Ireland over the All Blacks of New Zealand in rugby, which occurred after 111 years of pain, if you are an Ireland supporter. The odds against it were 14:1, according to the bookies. Could we see it happening? For the All Blacks fans, perhaps not. On the other hand, the second row of the All Blacks was injured; the three main players were out. The team had won 18 contests in a row, and the previous record was 17, held by South Africa. It had already won the World Cup, and trying to maintain that level of intensity is always difficult. And of course, the team was competing far from home at Soldier Field in Chicago.

Applying a similar perspective to the baseball team residing farther north on the shores of Lake Michigan, the Chicago Cubs had the best pitching staff in the major leagues with three Cy Young candidates, the lowest earned runs allowed, the largest run differential of any team by far, and the second-best record away from home (just behind its archrival, the St. Louis Cardinals). So perhaps while a century seems like a long time, we could have seen it happening.

If we change the lens through which we look at these events, we can see that there was at least some reason to expect them.

Brexit: The Beginning

The same could be said of politics. Brexit, which had an outside chance of passing, according to pollsters and the broader consensus (the odds were 5:1 against it passing). Could we have seen it happening?

There is certainly reason to think not. The United Kingdom had experienced two previous elections—one referendum on Scotland and one general election—and the specific scenarios for those were to vote with or against the status quo. With both, there was something of a scare tactic involved. Regarding Scotland, the scare tactic was, “Do not leave the United Kingdom; it will be terrible if you do.” In the end, Scotland stayed in the union.  Regarding David Cameron's reelection, the scare tactic was, “Do not trust Labor with the economy; the party does not know what it is doing.” That scare tactic resonated brilliantly. People thought, “I'm scared to vote Labor; I will vote Conservative.”

The third time was not a charm, however. The scare tactic was, “Do not vote against the status quo; we should be with Europe.” That did not resonate with the broader population at all. Fundamentally, the “yes” vote was a move against the status quo.

The Trump Surprise?

It is not difficult to transition from Brexit to the next rejection of the status quo, which occurred in the United States. The odds against Donald Trump's election were 150:1 at the beginning of his campaign. But he was ahead in the Los Angeles Times poll beginning in October. The anti-status-quo element as reflected by Brexit existed. And, this was not Trump's first time running for elected office (although the previous three occasions were a stop-start affair). So, his win should not have been a massive surprise.

The odds against Donald Trump's election were 150:1 at the beginning of his campaign.

Summing it all up, 2016 brought a number of surprises—but should all of them have been massive surprises? If we change the lens through which we look at these events, we can see that there was at least some reason to expect them. And in some cases, it appears that something deeper was occurring.

Here I've talked about some of the notable events of 2016 in politics and sports, but the financial markets also brought surprises. I'll discuss that in another post.