What Investors Should Expect in 2020…
I came across a tweet the other day, it made me laugh…
The tweet read:
‘Imagine if in your 2009 market outlook you said “By 2019 we expect President Donald Trump will be facing impeachment as the Dow ticks past 28,000.” It would be the last note of your career.’
TV cartoon series The Simpsons was actually way ahead of this ‘crazy’ notion.
They predicted a Trump presidency way back in the year 2000 — well before it was our crazy reality!
Here’s the scene from the ‘Bart to the Future’ episode, as President Trump comes down the escalator with a bewildered Homer behind him.
Ever the TV showman, the real Trump repeated this scene in 2016.
Source: The Washington Post
In the cartoon version of Trump’s rule, it didn’t end well.
Here’s finance whizz Milhouse Van Houten, showing how Trump’s administration brought the nation to financial ruin.
Source: The Daily Mail
The writers imagined the US would end up having to accept handouts from China to survive…
That doesn’t seem so far-fetched these days.
But almost 20 years ago, this would’ve been crazy talk. Even for a cartoon!
The secret to good investing…
If there’s one reason for Money Morning’s existence, it’s tied to this very concept.
The idea that strange and unexpected things happen in the world and in markets. And they happen more often than people think they will.
While the mainstream financial press stick to the centre ground, happy to be right and wrong, as long as they do it together, Money Morning editors have free rein to examine the weird possibilities at the edges of accepted wisdom.
That doesn’t mean we always get it right either.
But by even considering these ‘edge of the bell curve’ ideas, and presenting them to you for your consideration, we think it’ll make you a smarter and more informed investor.
Or at least not be a sheep…
That’s why when it comes to what’s coming up in 2020, I’m happy to say to you I really have no idea.
Well, actually let me change that. I’ve heaps of ideas! But I’m not 100% certain about any of them.
And yet, I still think smart investors will be able to make money from a strategy of being open to any and every possibility.
Everything — and I mean everything — is always on the table when it comes to investing.
From raging bull markets, to apocalyptic crashes. And everything in between.
The secret to good investing is there is no secret.
There are many roads to Rome, so to speak, when it comes to making a buck in the stock market. The real key is to find out which system suits you best. And then being prepared to work like crazy to perfect it.
Steve Jobs once said:
‘I’m convinced that about half of what separates the successful entrepreneurs from the non-successful ones is pure perseverance…’
I reckon the same goes for investing.
It’s a learning process that never really ends.
That all said, here are a few ideas of what could happen in 2020…
Three things that could happen…but might not
We all know 2020 is an election year in the US. Which means you just have to be prepared for the ‘Trump pump’.
As my colleague Ryan Clarkson-Ledward wrote on Wednesday:
‘See, everyone expects Trump to pull out all the stops for his re-election bid. Building an irrefutable case for a second term.
‘So, I would count on seeing a roaring stock market as we get closer to the election.
‘After all, Trump loves to use stocks as his barometer for economic performance.’
On the other side of the coin is the slowly unfolding disaster that is the repo market in the US.
The so-called Repocalypse…
The repo market — short for repurchase market — is where around $3 trillion per day is borrowed between US banks to settle their daily ledgers.
In September this year, the Federal Reserve had to jump in to finance the repo market as there wasn’t enough cash — or banks didn’t trust each other enough — to settle the daily accounts.
Since then the Fed hasn’t stopped injecting funds.
They’ve been funding around US$60 billion per month in the repo market and said they’ll continue to do so until at least mid-2020.
Make no mistake this isn’t business as usual.
And repo market specialist Zoltan Pozsar thinks this will end in disaster.
He said in a recently released, though highly technical ‘Doomsday’ report:
‘FX swaps could end up as the orphaned asset class without an obvious backstop, and that may force banks in some parts of the world to the edge of the proverbial abyss.’
But before you run for the hills, here’s another thing that could just as realistically happen. A much happier idea…
Are you ready for a 2020s commodities comeback?!
Commodities should interest all Australian investors. For better or worse, they’re the lifeblood of our collective economic wealth.
Which makes this chart very interesting…
Source: Professor Torsten Dennin
What this chart shows is astounding…
It shows the ratio of the S&P 500 — the top 500 companies in the US, to the major commodities index of mining companies.
Right now, commodities have never been more undervalued relative to the rest of the stock market.
You’d have to go back to the 70s to get close.
A comment I overheard the other day:
‘I wish I could own a Commodity Fund. Truly once in a lifetime. Metal shortages and dollar devaluations will kick start the rally soon. Might run for decades.’
What could be the catalyst for such a move?
Could be anything really…
But my best guess would be a globally coordinated infrastructure boom as governments around the world realise the limits of monetary policy and seek out their next sugar hit for the economy.
One thing is for sure…
In 2020 you’ve got to be prepared for the unexpected. And be ready to strike when an opportunity presents, no matter what the conventional wisdom says.
Editor, Money Morning