by Rod D. Martin
January 1, 2020
It’s a new decade, a new year, and an election year to boot, so lots of you have been asking me how I think the economy will fare in 2020. Many were surprised to see markets up a whopping 30% in 2019, particularly after their televisions told them that the world was ending in December 2018; and those same talking heads have been assuring us of imminent economic collapse since the moment Donald Trump was elected President.
There are certainly reasons for concern about 2020, not least of which is the steady drumbeat that we must be concerned; and I would add that to the degree we are becoming immune to the media’s self-serving prognostications, that is both very wise and itself cause for concern. Markets behave badly when people stop being concerned, and in the absence of any objectivity in reporting — the major news sources have become nothing but corporate Super PACs for the Democrats — this effect is, shall we say, unpredictable.
Nevertheless, I’m pretty positive on 2020.
If I were guessing, I’d put the S&P above 3,600 at year’s end, and I’d expect a correction sometime between now and then (10% to 15%?) which will freak out (by which I mean delight) CNN and MSNBC but actually strengthen the market. Timing recessions is somewhat fanciful, but I’d be mildly surprised if we see one in 2020. Moreover, some positive trade news this year could be good for both the U.S. economy and (more so) that of our preferred trading partners, particularly the world’s fifth largest economy, newly independent Great Britain. The ever-improving U.S. energy picture (which the President likes to call “energy dominance”, a bit of bravado which is coming true more rapidly than one might think) will have more positive impact than widely expected, or readily seen.
I am however more than a bit concerned about concerted action by foreign sovereign wealth funds to attempt to produce a market meltdown and/or recession, as was attempted successfully in 2008. For that see my friend Kevin Freeman’s book Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It Can Happen Again, which confirmed my thesis regarding the absurd manner in which Lehman melted down. The precise vulnerabilities that existed then are gone, but there are always others, and the election is a tempting target.
Moreover, I am not unaware of the more bearish voices, nor am I unaware that the relative lack of them is not a good sign. I am (longer term) particularly concerned about where NIRP may take us, and where the (strongly denied) QE4 we saw begin in September may (or may not) be going. I’m not as concerned as my friend John Mauldin is about global debt levels, but I’m not unconcerned; and while I note that he’s put off the timing of his “Great Reset” hypothesis repeatedly, that doesn’t necessarily make him wrong.
At the same time, I have long thought that our economic measures (including and in some respects especially our GDP measures) have become grossly off, that the degree to which technology is altering what they attempt to measure is itself presently unmeasurable, and that the rate at which that is happening is accelerating. We’re applying monetary policy to economies we no longer understand properly, with predictably unpredictable results. I would go so far as to suggest that the impact of prosaic things like Walmart and (these days) the iPhone is so profound regarding what we think of as “inflation” (in scare quotes because inflation is a monetary phenomenon, but while the value of money does change, it is hard for people, including economists, to distinguish between a change in prices due to increasing or decreasing value of the money vs. the quality of the objects purchased over time) as to skew — possibly grossly skew — our understanding of the entire system. Several technologies in the 2020s, not to mention revolutions such as space development in the 2030s, are likely to put some of these things back to the drawing board entirely. But what is certain is that if you’re struggling to measure a thing you cannot control it; and so the Socialist impulse we’re seeing comes at the worst time imaginable, and we’ve never so badly needed economic freedom: let the system become what it’s becoming, and learn to measure it after (as if there’s ever truly an after). It’s the only way. By 2040 or 2050, we’ll be shocked how parochial our current views of some of these things seem.
I would be much more bullish on the markets and on economic performance over the next several years if we elected a (significantly) better House in November and really did something with its majority to increase economic freedom. The current strictures are like trying to buy the next full year’s clothes for a child hitting a growth spurt. The Socialists want to prevent the child’s growth entirely, and might be willing to kill it to achieve that. But barring that, the child is going to grow, a lot, fast, and our regulation of it may distort its growth and create all manner of needless trauma, but it won’t stop it becoming six feet tall.
That child is a revolution like unto the Industrial Revolution. The measures — and the understanding back of them — used in 1730, or even 1860 or 1880, were woefully inadequate to predict what was coming over the next 20 years, and would have assumed that virtually everything that did happen was pure fantasy. We are at one of those points today. But note well, the massive advance that took place in those times was not unaccompanied by all manner of short term shocks and downturns. I’m describing a stock chart, not a straight line.
All that said, I think 2020 will be a good year, for the economy as we measure it and for markets (albeit with a likely correction along the way). Even so, a Democrat win in November would likely look a lot like November-December 2016 but in reverse.
— Rod D. Martin’s Economic Forecast for 2020 and Beyond originally appeared as a Facebook post by Rod D. Martin.