Welcome back to What’s Happening Now in this holiday-shortened week. We too will be brief, although we did want to share a number of yearend thoughts on what’s been naughty and what’s been nice as the focus shifts from 2019 to 2020.

Let’s get started…

Let’s Look Back to Get Ahead

In a nutshell, 2019 has been nice to stock investors heading into the final days of the year, posting heady gains of 22% year to date. The naughty part is that 2019 is going to be a tough act to follow. Since 1950, plotted by Bloomberg, the S&P 500 Index typically struggles in years after achieving gains this high.

What’s Not to Like About 2019?

A naughty Fed, we would posit for the heady equity gains achieved have not discounted the stark reality that this has been a Fed-driven rally. GDP has been tanking since June 2018. Coming into 2020, equity oscillators are overbought and GDP in Q4 2019 is not expected to provide a lift with estimates coming in at a consistent 2.1%

Consumers Are Key

The U.S. is a consumer-driven economy. The mighty consumer effectively drives our GDP. So, growth in 2020 will in large part depend upon a cooperative consumer.

Consumers have been nice so far, this 2019, carrying the economy and bolstering holiday cheer, never mind the naughty, namely tumbling GDP, messy tariff and trade policy, weak manufacturing and waning business investment.

Inflation Targets

Here’s what’s not so nice, though. We’re heading into 2020 with inflation well below the FOMC’s 2% inflation target.

Yield Curves

It’s been a weird year when it comes to the U.S. Treasury yield curve. Negative sloping for much of 2019, stepped-up Fed stimulus was nice and restored the curve to upward sloping – over a short period of some 90 days, which casts doubt that this was an economically-derived fix.

According to Fed Chair Jerome Powell, “both the economy and monetary policy right now are in a good place.” We’re not so sure. Neither has been the bond market been so sure, for the yield curve has been inverted for most of 2019, leaning towards recession.

Rate cuts have been tabled, not so nice. We’ll see how that goes in 2020.


Closing Out 2019

Here’s our takeaway as we close out 2019. We are in the 11th year of expansion and risks remain. Growth is not where it needs to be. Inflation is not where it needs to be. Debt levels are not where they need to be.

The World Bank was quick to warn last week that the biggest, fastest, and broadest buildup of debt across emerging and developing economies in a half century means policy makers must quickly strengthen protections against financial shocks. Financial shocks trigger recessions.

Can the Fed outlaw a recession for 2020? We don’t think so, reported here.

As to the risks ahead, we’ll be addressing those in CSR’s to come, along with solutions for whatever economic environment may hit in 2020, built upon Storm Tacker and our soon-to-be-revealed, all-weather portfolio solution – come rain or come shine, come a naughty or a nice 2020.

And that’s where will leave it for now.

Happy Holidays to All!

Like you, we’ll be taking a break for the rest of this week. Looking ahead, we can’t wait for 2020. It’s going to be different. We’ll be “listening to the markets” and will be here to help you navigate whatever lies ahead.

Sincerely,

Matt and Tom


Comments

9 responses to “2020: NAUGHTY OR NICE?”

  1. I have followed the guidance provided in adjusting my portfolio mix of cash and equities. I have approximately 40% cash. Oddly, even with such a mix, I have managed a 22%+ return in my wife’s and my retirement accounts. I certainly rest better at nights knowing that a significant percentage of my retirement investments are sidelined. I consider it a bonus that having such an percentage in cash, I still have enjoyed such a healthy return. Thank you for the realism! It is so refreshing to have sound counsel in the “Twilight Zone.”

  2. Your comments are always prescient Tom & Matt! I can’t for the unveiling of your all-weather portfolio solution. What’s the ETA on that? I can imagine it’s been in the work for some time and that it has been back tested under past economic scenarios including the housing bubble which led to the Great Recession and the tech bubble earlier in the millennium.

  3. Keep coming up short in investments by jumping out of the equity markets, thinking that markets can’t possible remain this overbought for this extended stretch. NOW, you hint at a potential financial shock?

  4. follow your comments faithfully. Your comments are insightful above all honest. I am ready to short the market. when your signals are pointing in that direction.

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