1. The Trade Wars Saga
Like the Paul Rudd meme, “Hey, look at us. Who would have thought it? Not me!”
After an exhausting 18 months, the U.S.-China trade war finally seems to be winding down. But that does not mean investors have cured their whiplash or news headline writers have patched up their brain aneurysms. So many months of will-they-or-won’t-they and back-and-forth hostilities can degrade anyone’s mental and physical health.
Perhaps the biggest business story of 2019, this impacted every facet of society: global financial markets, geopolitics, consumers’ wallets, business confidence, and political grandstanding. In October, President Donald Trump announced his team and the Chinese representatives had reached a phase one deal as part of a comprehensive trade agreement. Markets were ecstatic, but then came two months of consternation and seesawing. With the Dec. 15 deadline approaching to raise tariffs on the remaining $160 billion in Chinese goods, the White House employed The Art of the Deal tactics and averted an escalation in the trade dispute.
We are not out of the danger zone just yet – phase two negotiations are next. If you thought the first phase was sweat- and headache-inducing, just you wait for the second!
Fasten your seatbelts, it’s going to be a bumpy night.
2. Taking Stock of the Market and the Dollar
On Dec. 16, the Dow Jones Industrial Average recorded its 10,000th-point increase since President Trump moved into the Oval Office. One can only imagine how much more it would have gained were it not for a lousy trade war. That said, despite the trade spat and an interruption to global commerce, the U.S. stock market has been on a tear. In 2019, the Dow Jones soared 20%, the S&P 500 advanced 28%, and the Nasdaq surged 35%, thanks to an explosion in jobs, healthy consumer spending, and historically low interest rates. Surveys of hedge fund and money managers indicate the market can replicate these gains in 2020.
Even more remarkable, the greenback survived the chaos, rising 1% above 97 and peaking at 98.38. While we should give credit to the buck, the rest of the currency market is not exactly appealing, particularly as central banks attempt to devalue their currencies. Still, the dollar’s ascent in 2019 was impressive to watch.
3. Tossing a Yield Curve
It was supposed to be the end of everything. A recession was nigh! A financial crisis was imminent! An indictment on markets was going to happen! The day of reckoning is upon us! Why? The yield curve inverted – short-term rates are higher than longer-term bond yields – twice in 2019. This measurement usually indicates that a recession will soon follow, and it has been quite accurate since 1965. These inversions are no longer dependable, mainly because central banks have distorted bond markets with a plethora of quantitative easing (QE) programs and installations of subzero interest rates. Investors went to America and scooped up Treasurys, limiting long-term yields. Sorry, media dinosaurs, no recession just yet.
4. All That Is Gold Glitters
As Liberty Nation noted, the simultaneous rally in gold and the U.S. dollar is as rare as a four-leaf clover. But that is what happened. Gold prices recorded their best annual performance in nine years, skyrocketing 15% to $1,480. Like the greenback, the yellow metal peaked at $1,560 before sliding below the key $1,500 threshold. The next year should be interesting because there will be more certainty in international financial markets, but central banks are turning on the printing presses again.
5. The Fed’s Reservation
The Federal Reserve cut interest rates three times this year, lowering the target range to 1.50% and 1.75%. The Eccles Building also tapered the tapering and embarked upon a journey of expanding the balance sheet. Fed Chair Jerome Powell referred to the accommodation as a “mid-cycle adjustment” and insisted that he is not restarting QE again, even if all the hallmarks of QE are prevalent. In its final policy meeting of 2019, the Federal Open Market Committee’s (FOMC) dot-plot signaled no additional moves in 2020, which might irk Trump because he seemingly wants ZIRP or perhaps NIRP.
Its policy maneuvering in 2019 can be summarized this way: The Fed, concerned about the U.S. economy teetering off a cliff, placed it back on course and extended the expansion.
6. Trump Breaks China
Wow. China went from owning the 21st century to barely surviving. The world’s second-largest economy is collapsing and dreams of prosperity over the next 100 years are dwindling. It turns out that Trump broke Beijing, wounded by corporate debt defaults, bank runs, state-owned enterprises going bankrupt, and industries crumbling. Put simply, the Ponzi scheme economy is unraveling and being exposed. The trade dispute might have been asinine, but Trump disinfected the way Beijing operates with sunlight. In that regard, kudos to him.
7. Saudi America’s Energy Kingdom
LN has documented extensively America’s transformation into Saudi America in 2019. Thanks to its shale revolution, the United States is not only energy independent but also a net energy exporter. Again, to quote Rudd: “Who would have thought it?”
This was inconceivable just a decade ago. The United States rivals Russia and Saudi Arabia in crude oil and has soared to the top of the natural gas market. At the same time, our country is cutting down on its carbon emissions, creating jobs, and fueling the national economy. The fairy tale continued in 2019, but a concoction of market economics and Democratic policies may weigh on the industry over the next year or two. Until then, let’s pop open a little bit of the crude bubbly.
8. Death by Fake News
The downward trend of the mainstream media has been reported over the years. However, the legacy media’s hemorrhaging was more pronounced in 2019. LN’s Jeff Charles recently reported that 7,800 journalism jobs were lost. To put it into context, around 5,000 positions were shed between 2014 and 2017. It was not a very good year for legacy news media.
You can blame the public’s consumption of online news, the drop in advertising revenues, and an overall shift in consumer patterns. According to Charles, there is one more component that needs to be considered:
“And many media outlets are losing viewers. Why? Some claim the prevalence of skewed and deceptive reporting. As its ratings dropped to a three-year low, CNN recently laid off scores of staff members. Gallup released a report in September that gives a clue as to why viewers are tuning out. The poll showed that trust in the news media has dropped to 41%, and only 13% of Americans expressed ‘a great deal’ of confidence in the reporting of TV, newspapers, news sites, and radio. Only 28% stated that they trusted the media ‘a fair amount.’”
Death by a thousand cuts of fake news.
9. Repo Madness
Repo markets are not exactly the sexiest conversational gambit; you wouldn’t pick up a guy or gal by talking repo at the bar. Moreover, though it didn’t capture global headlines, as it should have, an interesting moment occurred on Wall Street in early fall. In mid-September, lacking reserves or cash in the system to lend out, the repo rate spiked. This resulted in institutions paying higher fees to meet their obligations. This was significant because repo markets are essential to Wall Street as investment houses and banks offer Treasurys as collateral to raise cash overnight to fund their activities and then repay the loans plus a nominal rate to rebuy the bonds.
This spiked doom-and-gloom murmurs, including from some of the big boys on Wall Street. The likelihood is that this was a case of the Treasury selling securities at about the same time corporations were making their quarterly tax payments.
The repo market is still in shambles because the Federal Reserve’s $320 billion injections were insufficient. The central bank spent the rest of the year trying to calm down the repo madness. Will things return to normal in 2020? Jamie Dimon, CEO of JPMorgan Chase, thinks this could be the start of a financial crisis. Pass the Pepto-Bismol.
10. Democrats Defy Economic Reasoning
The top-tier 2020 Democratic candidates were terrifying before the primary season started. When the presidential debates hit primetime, they became real-life versions of The Creature From the Black Lagoon, The Beast From 20,000 Fathoms, The Monster That Challenged the World, and The Thing. Unlike these campy monster movies of the 1950s, their proposals are not funny – they are downright frightening: tens of trillions of dollars in new spending for free college tuition, free health care (for citizens and illegal immigrants), free money, climate change programs to appease Greta Thunberg, and abortions in impoverished countries to please hysterics who think every day is The Handmaid’s Tale.
If you thought the budget deficit and the national debt were high under President Trump, then you ain’t seen nothin’ yet. The Democrats may or may not win back the White House in 2020 or regain control of the House and Senate, but they eventually will. And when they do, may God have mercy on the public purse and the printing press.
Let Me Count the Ways (I Love Dividends)
Are we in the middle or the tail end of the longest economic expansion in U.S. history? It’s difficult to forecast. As LN Managing Editor Mark Angelides recently said, “That’s the market for you. If we could predict them, we’d only be writing one piece a week. The rest of the time we’d be getting fat on McVities biscuits.” How deep and wise. Until then, we will enjoy the good times, keep an eye on the Fed’s M2 money supply data, and count our gold coins like Ebenezer Scrooge. If you sat on the sidelines this year, then a bah humbug! to you, good sir.
Read more from Andrew Moran.