Not so much a New Year’s resolution so much as a re-engagement of my hobby, I have vowed to start up this blog again and sneak in my first post for 2018 (hey, it’s better late than never!). That being said, now is a good time for the old clichéd prediction post for 2019 based on the current events, analysis and a little good old common sense. As always there are a lot of things happening as 2018 winds down and 2019 is sure to not disappoint when it comes to politics, finance, social unrest and your money.
The Political Drama in the US Will Continue: Despite the “blue wave” hyped up so much by the center left news media, Washington will remain in gridlock. The “wave” consisted mostly of centrist or center right suburbs that moved across the aisle after one party control, hardly a great departure from the historical norm in a midterm election. Rural states and voters will remain firmly entrenched with Trump. The government shutdown will last into the new year. Trump will admit that he has abandoned a real “wall” for a spruced up barrier. Meanwhile the narcos in Mexico will continue to outwit and outfox all of these grand schemes with tunnels, airplanes, submarines and anything else they can devise to both smuggle drugs and the people desperate to cross the border to flee the poverty and violence of their native countries. The shutdown may finally force Trump into some concessions on the status of dreamers and other undocumented migrants but his message of legal immigration, despite its ethnic overtones, will continue to reverberate strongly with his base.
Volatility in the Stock Market Will Not Let Up: It’s been a long bull run: From March 2009 to September 2018, we have seen the longest bull run in stock market history at 115 months surpassing the go-go bull run of the 90’s dot com era. Despite all you see in the headlines, the below comparison should give you great pause if you ever tried to time the market. Remaining invested no matter what has benefited those consistent investors handsomely, in a period of 30 years we have managed to see 2 of the greatest bull runs in history, an enormous wealth generator for those who managed to stay disciplined.
Source: visualcapitalist.com
On the other hand, the smart money is well aware the party cannot last forever but the game of musical chairs has begun in the sense that volatility will spike as managers jump in and out of the market, weighing benefits of the potential for a little more gain versus protecting against the losses everyone knows will eventually come. The current spike in volatility has hit the highest levels seen in 7 years. Not since the US was downgraded by S&P and the markets took a tumble did we see this level of volatility, which I expect to continue into the new year.
Source: Macrotrends.net
The Wealth Gap Will Remain and Potentially Grow: Forget the income gap, the wealth gap tells the real story. We are currently in the midst of a long term widening of the wealth gap that shows no signs of letting up. Those in the top 10% of wealth are approximately 11.6 times richer than those in the top 50%. See the $942K vs the $81k in the chart below. The same disparity in income is only about 3 times more ($159k to be in the top 90% in 2013 vs $56k to be in the top 50%). This is likely explained by a higher nominal savings but more importantly investing and the power of compounding over many years through private funds and retirement funds of the rich. Over the last 50 years, the bottom 10th percentage of family wealth has actually gotten marginally poorer in terms of net worth the top 50th relatively better off and the top 10th, 5% and 1% exponentially richer. With a growing army of private advisors and family offices suited exclusively to the rich, even stock market volatility may not dramatically affect the wealth of these super rich families and individuals as they may then start to benefit from derivatives which increase in value with volatility and assets that are illiquid and long term in nature. The rich took a hit during the 2007 crisis, will this repeat or will the rich really decouple from the rest of us in the next recession?
Source: pbs.org
Big Bank Balance Sheets Will Remain Resilient: While everyone remains stuck in the past and focused on whether big banks will fail and how to further shore up their balance sheets, the seeds of the next recession have already been sown in some dark corner (tech? auto loans?) that only a few lucky hedge fund managers know about and will exploit. Banks have become boring and that will suit them well for the next recession. The largest banks with the most scrutiny I believe will fare well in a downturn as they have had their hands tied by regulators, steering them away from the normal late cycle pitfalls, since the crisis. The smaller banks on the other hand may be more of a wild card. While new administration has eased up on the oversight of the smaller names in the US, that has opened the door for looser credit terms and dodgy lending to hit profit targets. A bad combination when things turn sour and particular regions or sectors of the economy are harder hit than others. When the tide eventually goes out, don’t be surprised to see a few smaller banks not wearing any shorts.
Most Places Will Remain Completely Unprepared for Climate Change: Earlier this year the Fourth National Climate Assessment was released which aggregated studies and data from hundreds of scientists across 13 different federal agencies. One of the unique conclusions they put forward that differed from other climate reports is they attempted to put an economic price tag on the annual cost of climate change. One for a “business as usual” scenario where emissions continue on their current trajectory and another with a “modest curb” to greenhouse gas emissions. Of the 4 costs they cited, heat related deaths, coastal property loss, lost wages for outdoor work and heat related deaths I believe a number of these will not reach these costs because people will learn to adjust. Just as New Yorkers who move to Florida learn to adjust to the heat by changing what time of day they go out and monitoring their water intake, I think the impact will be lessened over time for many of these issues except one: Coastal Property Loss. The US continues to incentivize building in flood prone areas by subsidizing insurance rates their, if costs were to truly reflect the risk, many areas damaged by floods and storms would likely be left alone after many homes are destroyed. With rising seas and no change in policy on the horizon, look forward to more stories this year of catastrophic storms making a real economic and social impact on the world.
Source: sciencenews.org
The information provided by www.cashchronicles.com is for informational purposes only. It should not be considered legal or financial advice. You should consult with an attorney or other professional to determine what may be best for your individual needs. www.cashchronicles.com does not make any guarantee or other promise as to any results that may be obtained from using our content. No one should make any tax or investment decision without first consulting his or her own financial advisor or accountant and conducting his or her own research and due diligence. To the maximum extent permitted by law, www.cashchronicles.com disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses. Content contained on or made available through the website is not intended to and does not constitute legal advice or investment advice and no attorney-client relationship is formed. Your use of the information on the website or materials linked from the Web is at your own risk.
Thank you and welcome back!