Campbell's law and 2015

With 2015 markets officially opening in the US today there are will be countless reviews of the year and prediction of the next big asset class, stock, or economy that will grow through 2015. These predictions usually never come to fruition (I know I tried it) or if they do it is not because of the reasons or in the pattern that was originally expected.

This time of year brings to mind Campbell's law, which states that the more a given metric is used to measure success in a domain, the less reliable it becomes. The reason is the participants will start to neglect other metrics and focus on improving the metric being measured to; which will corrupt the process it was meant to monitor. Charles Goodhart a former BOE adviser had a similar theory pertaining to markets as well, as soon a governments try to manipulate a specific asset class, this asset class becomes unreliable as indicators of economic trends.

This theory should be kept handy in 2015 as the expectations for the year are heavily based on government manipulations. Oil is being crushed by the increase of US shale production and OPEC (but mostly Saudi Arabia) look to keep production high and even lower prices they sell oil for. The US equity market is leaning on the fact the the Fed is quick to act in the case of any headwinds in the real economy and bonds are looking for an interest rate increase because of the language used by the Fed in the last statement and growing economic indicators. Russia is suffering from a drop in oil but also sanctions from governments in Europe and the US imposing sanctions. 

With many market moving trends thought to continue in 2015 being government caused, almost all of the major asset classes have some degree of intervention embedded in the price. This is something to look out for in 2015, much of the movements we see in asset classes will be coming from governments and regulators decisions or in-decisions on specific asset classes they have attacked or propped up for years. Add to this that speculative capital is dominated by future exchange and interest rate expectations and you are in for a potentially volatile year, of course expecting that, markets can lose their predictive factor of volatility ahead as regulators try to measure and mitigate this.