How consensuses on “Wall Street” (meaning investment bank analysts and economists, and portfolio and asset managers), will be wrong in 2020:
“Wall Street” forecasts the following- with my responses below each of those forecasts:
– The dollar will weaken.
Nope. Low and negative yields and slow global growth, including in Japan, China, South Korea, and Europe will persist.
– Europe’s economy has bottomed and will rebound.
Nope. Too many structural issues with too many different cultures and practices and moving parts. Germany is restrained on fiscal help.
– China has plenty of levers to pull.
Nope. Well, only if it wants to destroy all its future economic hopes for decades out.
– EM economies will rebound.
Nope. China will remain weak, the dollar will remain relatively strong, global growth will remain weak. EM debt and defaults will rise.
– China will rebound.
Nope. Too many manufacturers have left and will continue to leave, banking internals are weak, and government debt issuance for unneeded infrastructure will grow. And what happened to the 2019 second-half rebound predicted?
– Fiscal stimulus can save China and Germany.
Nope (see India; how’s the fiscal stimulus working out there? There’s something to be said for executing on stimulus before it’s too late. Timing matters. The right kind of stimulus also matters. China is pushing its localities for infrastructure stimulus through bond sales. But, China doesn’t need more infrastructure investment at this time.)
– There will be a U.S.-China trade deal.
Nope. At least not one with lower tariffs.
– The yield curve has reverted, so we’re out of the woods.
Nope. Curves almost always invert and then revert before a recession.
– The business cycle is dead.
Nope. It can be extended out … if you use liquidity to form dangerous bubbles with financial crises and years of economic malaise to follow.
– A U.S. China trade deal will help the U.S.’s, China’s, and the world’s economy.
Nope- not unless existing tariffs are rolled back.
– U.S. small cap and value stocks are good investment ideas.
Nope, except to the extent of investing in acquisition targets. Scale- and economies of scale- is the name of the game. To that end, large cap growth companies in every industry will prevail- while acquisitions will often be needed to achieve scale.
– Lack of a trade deal is bad news for the U.S.
Nope- not if companies move forward with capex investments based on acceptance of the idea of having to permanently move their respective production sources and facilities.
– Inflation should return in 2020 as wages grow, over-capacity in China declines, and tariffs affect producer and consumer prices.
Nope. Mergers and acquisitions will cause scale, economies of scale, and job cuts.
– A strong U.S. housing market proves the economy and the consumer are strong.
Nope. How may home purchases are by investors due to low rates and yields? Lower interest rates from a weakening economy are stimulating investor asset purchases- houses and equities and credit.