I will unveil my Top 10 Predictions for 202o soon, but for now, lets see how I did this year. Original text is following by my comments in bold.
I am honestly having a hard time finding a lot to be optimistic about, as I think 2019 will be very volatile and uncertain – politically, both here and abroad, economically and for the markets. There are not many people looking for compromise or bipartisanship, and I only see it getting worse. I hope that I am wrong! Politically, things did not get any better, they actually got worse, but the strong performance of the stock market was an unexpected surprise – so I guess overall you have to feel somewhat positive overall as the year ends.
10 – The Mueller investigation will conclude by the end of the first quarter. At least one Trump (not the President) will be indicted, and the real possibility of a constitutional crisis will emerge if the President pardons him (them). President Trump will not be indicted for collusion with Russia, but there will enough in the report (perhaps obstruction of justice or campaign finance violations or questionable actions concerning his businesses) to set the Democrats off and running toward impeachment even though he will not be indicted while in office. The Democrats have to be careful to act rationally and to continue to try to get legislation passed at the same time, or they will hurt themselves leading into 2020. Donald Trump will still be President at year-end. A mixed bag here I guess! The report was done by the end of the first quarter, but no indictments – so crisis avoided for now. The President was not indicted in the Mueller Report, and the Ukraine issue is what ultimately sent the Democrats off on the impeachment trail. Trump will still be President at year-end, and it is too soon to know whether the current legislative stall will hurt Democrats next November (although recent progress on the new trade agreement with Canada and Mexico looks promising).
9 – The only hope of getting any meaningful legislation done next year will occur early in the year before the Mueller investigation results become public. The most likely accomplishment would be an infrastructure bill, which would receive wide bipartisan support during the honeymoon period of Pelosi working with the Senate and the President. Once the report is completed/released, however, I think the rest of the year will be filled with partisan fighting, subpoenas, hearings, etc. I put the odds of even infrastructure legislation passing at less than 30%; the Democratic leadership distrusts the President and as more bad news links out about the Mueller probe the political pressure on them not to cooperate with the White House will increase. I was unfortunately pretty close here – not a whole lot was accomplished this year through legislation. There was no infrastructure bill passed, and most things that got done were by Executive Order.
8 – At least 15 Democrats, including Joe Biden, Cory Booker and Kamala Harris, will announce their candidacies for President. There will be a few surprises as well, perhaps a few lesser known Governors, as well as Beto O’Rourke. Michael Bloomberg will decide not to run, and either Bernie Sanders or Elizabeth Warren will run as well, but not both. My money is on Sanders for now, as Warren has become too controversial and I think people are already kind of over her. And at least two Republicans will challenge Trump by year-end, although I think Jeff Flake will not be one of them. So, a mixed bag here. I was right on the number of Democrats running, on Beto, on some Republicans challenging and on Flake not running, but Sanders and Warrens are both running and Bloomberg made a late surprise entrance into the race.
7 – In what will make an already tumultuous political environment even worse, there will be an opening at the U.S. Supreme Court during the year. I am not going to speculate on how this opening will occur, but the hearings and ultimate confirmation (since the Republicans have increased their majority in the Senate) will make the Kavanaugh hearings look like a walk in the park. I got this one wrong, although there were a few times that health issues with RBG scared a lot of people.
6 – Having just delayed the Brexit vote in the House of Commons, the May government will fall and there will be new elections. The Tory’s will keep power – barely – with a new Prime Minister, and a second referendum on leaving the EU will be called. (This is being published one day after the vote was postponed, so some of these events might become happen before the end of 2018.) This time, voters will decide to stay in the EU, and despite having egg on its face, this is actually the best outcome for the country. (I don’t honestly think the majority ever wanted to leave; this whole fiasco is the result of what can happen when you have an off-cycle issue-related election where turnout is low.) The Court ruling last week that the U.K. could stay without the approval of the other EU members paves the way for this outcome. This story will obviously continue into 2020. Teresa May did resign, there were new elections, the Tories did keep power, but it happened so late in the year that nothing will get done before year-end. Not to steal any of the thunder from next year’s predictions, the election results did take a lot of mystery out of how this will end!
5 – Political upheaval in Europe will continue. Even though an ally has taken over as head of her party, Merkel’s influence and hold on power will continue to weaken throughout the year, and there will be elections held before year-end. While Macron has finally spoken and is trying to appease the demonstrators, I think the riots will continue into 2019. He will survive the year as President – barely – but his influence will be greatly diminished; he has become in effect a lame duck already. Italy will avoid a financial crisis, although its bond and stock markets will be more jittery than elsewhere on the Continent. In the Middle East, Netanyahu will lose a no-confidence vote in parliament over his financial dealings, and there will be new elections (which he will lose). There will be no Mideast progress toward peace as the Trump Administration will be occupied elsewhere, and at least one other country will leave OPEC. Relations with Saudi Arabia will continue to deteriorate as the Senate presses on the Khashoggi murder, but no arms deals will be canceled. As to China, the back and forth of a trade war, no trade war, will continue. Every time we will seem to take a step forward, we will take a step backward as was the case in 2018. Any deals will be short-lived. Lots here to digest – with the biggest story of the year (and one that dominated the markets) was the continuation of the trade war with China. Merkel, surprisingly, is still in power. I really thought her health issues (she was seen visibly shaking in public a number of times) would force here to retire, especially sine an ally became head of her party. Macron has held on to power, but remains weakened as the last month has seen mass protests and public strikes over pension reform. While Netanyahu is still Prime Minister of Israel, he is hanging on by a thread, and was just indicted on bribery charges. The country faces its third election in less than a year, and there is no question that Netanyahu is severely weakened. There was no progress toward Middle East peace, and the President has become increasingly isolated in his support for Saudi Arabia, especially after the recent shooting in Florida. Another interesting year that was hard to predict.
4 – For financial services, it will be a tumultuous year, with Democrats taking over the House of Representatives. While there will be a lot of Committee meetings and talk about increasing regulations and making life tougher on the banks, no overreaching legislation will pass (since it would not make it through the Senate). But because of the chatter, there will be a lot of nervousness in the industry, and I expect fewer mergers and more firms taking a wait and see attitude. Bitcoin will continue to struggle and will eke out a small gain for the year. But many efforts to increase the number of Bitcoin investment vehicles, such as ETFs, will not move forward. There was some negative press about the industry (a lot of it part of the democratic presidential campaign), but overall a pretty quiet year in the industry. Bitcoin fell, and seemed to continue to lose some of its momentum.
3 – The Fed will make good on its promise to slow the rate of interest rate increases, and I see two increases at the most during 2019, perhaps only one. The economy will begin to slow by mid-year, as corporate profits, while still impressive, will continue to decline from the record rates seen during the second half of 2018. Businesses will cut back on spending as the uneven economic policies of the Trump Administration continue. Real estate markets will continue to slow as well, as a slowing economy and continuing political uncertainty take their toll on people’s willingness to spend. But the economy will not turn negative in 2019 and there will be no recession. The economy slowed, there was no recession and the Fed has put its rate drops on hold for now, but did drop rates more than I thought than they would during the year. Many real estate markets did slow.
2 – The market will continue the volatility seen in the fourth quarter of 2018. The market hates uncertainty, and everything I have predicted here points to more uncertainty. The highs will be high – as when there is a positive announcement on trade for example, and the lows will low – as when one administration official contradicts another. The market will be down about 5% for the year, with technology stocks doing slightly better than the market as a whole. International developed markets ex the U.S. will be down about 10% on average next year and emerging markets will be down even more. The yield curve will be slightly inverted by the end of the year. Wrong on stocks. The year was better than most anticipated, but the volatility that we did see was mostly due to China and trade talks. And while the yield curve did invert during the year, it did not end the year inverted.
1 – And turning to sports, I hope I will do better than I did in 2018! Clemson will win the NCAA Football National Championship, finally beating Alabama. The Rams will beat the Chiefs in the Super Bowl after barely beating the Saints in the NFC Championship Game. Going with my heart here, Michigan will win the NCAA Basketball Championship (Duke would be my second choice), Tampa Bay will win the Stanley Cup, the Warriors will repeat again as NBA champions and the Red Sox will once again win the World Series. Not a good year on my sports predictions! Only got Clemson right unfortunately! Hoping I can do a little better here in 2020!
