Category Archives: Economy

2020 Investment Outlook

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Investors should expect heightened market volatility in 2020. History tells us that it’s not uncommon for three to four large-cap equity stock market pullbacks of at least 5% to occur each year and market corrections of at least 10% can occur every year. As a result, it may be prudent for investors to position their stock portfolios away from higher-risk asset classes for safer asset classes.

Portfolio Guidance:

  • Cash has an important place in a portfolio as a volatility dampener and a source of funds.
  • Focus on higher quality assets.
  • Go beyond traditional fixed income for yield. Investors may consider equity dividends as another source of income.
  • Defense can be a good offense. Given expectations for market volatility, suggest reducing exposure to riskier assets.
  • Focus on longer-term diversification, as shorter periods are likely to be more volatile

China’s Seven Deadly Trade Sins

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China has not been partners in good faith in trade and economic negotiations. They’re an authoritative Communist Dictatorship that enslaves it citizens for the empowerment of the Party

The U.S. and the Western multinational enterprises have enabled and fueled China’s extraordinary quarter century economic and global geopolitical growth. While the U.S. goal is Free Trade, Individual Freedom and Democratic Capitalism. U.S. companies are getting fed up with the force technology transfer by companies doing business in China and the Chinese firms exporting and selling those products in the U.S. market.

China’s Seven Deadly Sins

1. Stop stealing Western intellectual property,

2. Stop forcing technology transfers,

3. Stop hacking U.S. computers,

4. Stop dumping into U.S. and Western markets and putting our companies out of business,

5. Stop state-owned enterprises from heavy subsidies,

6. Stop the importation of fentanyl, and

7. Stop the currency manipulation

They’ve reneged on the Hong Kong autonomy agreement, they reneged on the agreement signed in the Oval Office with President Obama regarding the militarization of the South China Sea. In 2015, China’s President Xi stood with President Obama in the Rose Garden at the White House and promised (lied) that “there is no intention to militarize” a collection of disputed reefs in the South China Sea known as the Spratlys.

President Obama stated on his way to the 2016 G20 Summit in Hangzhou China. That “If you sign a treaty that calls for international arbitration around maritime issues, the fact that you’re bigger than the Philippines or Vietnam or other countries … is not a reason for you to go around and flex your muscles,” Obama added, according to Reuters. “You’ve got to abide by international law.”

Military analysts have criticized President Barack Obama’s administration for having been too timid in countering China aggression and militarization in the South China Sea. Critics, for instance, have faulted the previous administration for not conducting more frequent freedom of navigation patrols. “China’s militarization of the South China Sea has been a gradual process,

Source: https://www.nytimes.com/2018/09/20/world/asia/south-china-sea-navy.html

Democrats In Love With Big Tax Hikes Might Do Well To Remember Walter Mondale | Tax Policy Center

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Mondale insisted his tax hikes would target the wealthy and Reagan’s wouldn’t. It didn’t matter. In the election, Reagan got 525 electoral votes. Mondale got 13. He lost the popular vote by 18 million.

— Read on www.taxpolicycenter.org/taxvox/democrats-love-big-tax-hikes-might-do-well-remember-walter-mondale

3 reasons investors might not be benefiting from rock-bottom fund fees – MarketWatch

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There’s more to successful investing than just watching costs

The index fund fee-cutting battle reached its seemingly inevitable conclusion more than a year ago, when Fidelity Investments launched four zero-cost index funds. You can’t get any lower than zero, right? Apparently, you can. One small fund company is now effectively paying investors to own one of its index funds.

Still, the price war among financial companies has clearly moved on, with some firms eliminating brokerage commissions in 2019 or touting the high interest rate paid by their brokerage cash account. Cutting index-fund expenses is, it seems, so last year.
— Read on www.marketwatch.com/story/3-reasons-investors-arent-benefiting-from-rock-bottom-fund-fees-2019-12-18

2020 Market Outlook: U.S. Stocks and Economy | Charles Schwab

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Key Point

  • The U.S. economy likely will remain bifurcated in early 2020. Manufacturing and business investment may continue to struggle amid trade uncertainty, but services activity and consumer spending may continue to be healthy.
  • The Federal Reserve’s 2019 rate cuts should support stock prices, as well as rate-sensitive areas of the economy. However, rate cuts are only a partial cure for what ails manufacturing and corporate animal spirits.
  • A preliminary U.S.-China trade deal could stabilize the decline in corporate confidence. However, returning to a strong business investment environment likely requires a more comprehensive trade deal.

The dividing line remains firm

U.S. economic growth slowed in 2019, pulled down by weak business investment and manufacturing activity. Although strength in consumer spending and services persists heading into 2020, we expect stabilization—at best—in growth next year.

Myriad uncertainties are clouding the outlook, including earnings and the presidential election. Ongoing trade war ambiguity could further depress corporate confidence and investment.

A key risk in 2020 is that manufacturing weakness and business investment fatigue could hurt services activity and consumer spending, by depressing job growth. Although the U.S. unemployment rate (a lagging indicator) remains low, weekly initial jobless claims (a leading indicator) in manufacturing-oriented states have been rising.

As such, U.S. payroll growth may weaken if limited headway is made on a comprehensive trade deal. However, global economic stabilization could be positive for U.S. growth.

— Read on www.schwab.com/resource-center/insights/content/outlook-us-stocks-and-economy

Animal Spirits

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Animal spirits refers the state of confidence or pessimism held by consumers, businesses and investors. Regarding financial markets, they represent the emotions of confidence, hope, fear, and pessimism that can affect an investor’s financial decision making, which in turn can fuel or hamper economic growth.

If spirits are low, then confidence levels will be low, which will drive down a promising market—even if the market or economy fundamentals are strong.

Likewise, if spirits are high, confidence among participants in the economy will be high, and market prices will soar.

According to the theory behind animal spirits, the decisions of investors and business leaders are based on intuition and the behavior of their competitors or other investors rather than on fundamental analysis.

Famous British economist, John Maynard Keynes believed that in times of economic upheaval, irrational thoughts might influence people as they pursue their financial self-interests. In 1936, Keyne published, The General Theory of Employment, Interest, and Money, where he postulated that trying to estimate the future yield of various stocks, companies, or financial activities using general knowledge and available insight “amounts to little and sometimes to nothing.”

Keynes referred to these psychological factors that make investors jump into the equity market — in the face of deep uncertainty and volatility, as animal spirits. He thought, only a manic, driven, strong-willed person would put capital at risk in periods of high uncertainty and volatility.

When animal spirits are strong, investment is sufficient to maintain aggregate demand; when they lag, aggregate demand falls, and the economy lapses into depression.

It is assumed that the only way people can make investment decisions in an uncertain and extremely volatile environment is if animal spirits guide them.

Source: CARLA TARDI, Animal Spirits, Investopedia, Updated Apr 20, 2019

Democracy and Economic Opportunity

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Frustration with polarizing politicians, unequal wealth distribution and personal economic opportunities breed dissatisfaction with democracy in America

“The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.”
– Winston Churchill

A Pew Research Center survey found that the discontent that many citizens of democratic countries feel are tied to concerns about the their respective domestic economies, individual rights and out-of-touch elites. Furthermore, most believe elections bring little change, that politicians are corrupt and out of touch and that courts do not treat people fairly. On the other hand, citizens are more positive about how well their countries protect free expression, provide economic opportunity and ensure public safety.

Several surveys of how well democracy is working for the average citizen vary considerably across nations. In Europe, for example, more than six-in-ten Swedes and Dutch are satisfied with the current state of democracy, while large majorities in Italy, Spain and Greece are dissatisfied, according to the Pew Research Center survey. Thus, it is safe to assume that citizens per capita income and their respective country’s economic business cycle seem to impact democratic dissatisfaction differently in some advanced and emerging economies.

Furthermore, it appears that there is a considerable correlation between the prevailing views of the domestic economy and the assessments of democratic performance. If the domestic economy is growing and the perceived distribution of wealth are seen as relatively equitable, then people tend to have a more favorable view of democracy.

Source: RICHARD WIKE, LAURA SILVER, AND, ALEXANDRA CASTILLO, “Many Across the Globe Are Dissatisfied With How Democracy Is Working”, APRIL 29, 2019

Market Minute | TD Ameritrade

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U.S. consumer activity remained robust and employment continued to set records – hence the many critics and even a few Fed dissenters of the “mid-cycle adjustment.” Now, Treasuries are selling off with some momentum the last two months as the economy stabilizes.

It’s not that our economy is vastly improving – it’s that it’s stabilizing with the rest of the world while geopolitics are looking less dire. So rates are a little topsy-turvy, going up without real economic acceleration.
— Read on mail.tdameritradenetwork.com/H/2/v40000016e6519f5f6b372a96e965fc958/67faea12-ef19-46a7-9842-7bf7e98df4dd/HTML