The Fleet Street Letter portfolio is available only to paying subscribers. But for a preview of how investment director Charlie Morries sees markets in 2016, see the excerpt below. It’s taken from a report called, The Momentum Effect Or why it doesn’t pay being a perma-contrarian.

How to make momentum your friend

The financial world is changing. It’s remarkable what private investors can achieve without a costly intermediary. That’s one of the reasons I decided to move on and write the Fleet Street Letter. For most people, understanding the benefits of the Vanguard Global Momentum Fund over a standard index fund isn’t easy. Advisors are unlikely to recommend it because they probably don’t understand it, nor do they have an incentive. I want to show you some outstanding opportunities that offer good value for money.

The second improvement we can make is to judge when to buy momentum, and by that, I mean the leaders or the laggards. In my last piece, I was discussing the opportunity coming from oil, emerging markets, gold and commodities. These are the laggards, not the leaders. In order to buy them, the plan is to anticipate a momentum crash and profit from it.

Investments in these areas have fallen considerably. At some point they will turn because the world needs oil. To embrace this idea would be precisely the opposite of embracing the leaders. The current laggards are volatile and have consistently lagged the market for the best part of five years.

The primary reason I don’t regard the oil, gold or emerging markets trades to be radically different is because they will all benefit from the next momentum crash at the same time. I would expect to see continued distress until it becomes extreme. That could see oil at $20 or lower for a brief moment, just as we saw in 1998.

This will coincide with extreme levels of volatility, low valuations and a heightened sense of general fear. Under these conditions, there will be a general panic and the whole market will fall, including the winners.

If that happens, we can be confident that a momentum crash will follow. The resources and the emerging markets will enjoy a powerful rally and a great deal of performance will be delivered in a short space of time. This is scenario A.

If, on the other hand, there is no broad bear market in equities, but these themes gradually improve, the recovery will be more modest. This is scenario B. Under such circumstances, things will just drag on.

The world will have become accustomed to cheap oil and there will be no crisis. The price may hold steady or rise a little, but demand will remain muted over the long-term. Capital will continue to find its way to the USA. The US consumer will have more to spend as the ‘gas’ bill stays low. Finally, the emerging markets will endure a lower rate of growth.

I can’t say whether scenario A or B will come to fruition, just that we will know what to do under whatever happens. Under scenario A, a general crash, we should focus on the past laggards when the turn comes. The trade is emerging country funds, energy stocks, mining stocks,other commodities and industrial companies.

Under scenario B, the prevailing winds will continue. Silicon valley’s finest will trade even higher. There could be another tech bubble. US equities will continue to out-perform under a strong dollar. Energy stocks and the emerging markets may stabilise, but won’t deliver much more than the overall market.

Scenario A seems more likely and the evidence is building for such an event. We have rising borrowing costs for both corporations and nations. The number of stocks performing versus deteriorating is falling; otherwise know as market breadth. This tends to deteriorate during the late stages of a bear market.

Damned if you do, damned if you don’t

Quantitative easing has boosted asset prices to lofty levels and this is coming to an end. There’s still some ongoing in Europe and Japan, but the impact is behind us. In the USA we now have monetary tightening.  As for the UK, we will soon discover whether or not we are economic Europeans.

The strategy of the moment is to preserve your wealth. The fall in sterling against the dollar has begun. The highest priority is to protect yourself against that by holding some dollars and yen. Stock markets will present enormous opportunities at some point in the not too distant future. I suspect that will be in 2016, but may take a little longer.

In the mean time, it’s a waiting game. Rule one: don’t lose money. Rule two: see rule one.