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PostPredictions for 2020; from Ric Mauricio (John Eipper, USA, 01/11/20 2:09 pm)
Ric Mauricio writes:
In the spirit of procrastination, this post was initially meant to be sent on New Year's Eve, but alas, here we are 11 days later. My crystal ball has been polished and it appears as cloudy with a chance of rain.
But it is always fun to make predictions, although one should never, ever take them seriously. My attorney is actually the only one who has been able to read between the lines and figure out which predictions I make that I really don't want to happen, and which ones I do want to happen. He knew my personality and could figure out my tongue-in-cheek predictions. Unfortunately, more predictions that I have made that I do not want to happen have come true.
I was reminded by a friend that I made a prediction, more a thought process than anything, that the President will Wag the Dog in more ways than one to take our thoughts away from his trade war or impeachment situation. Thus, I surmised that a war with Iran would be the best Wag the Dog situation. In fact, A.J. Cave's latest post brought up some good questions, in which I add a few more. How did we know that the General was in Iraq? Iraq and Iran are not exactly on the same side, so what was he doing in Iraq? As to the question of calling Iran a republic, I point out that Communist China's official name is the People's Republic of China.
But I digress from my predictions. The market will be volatile. 2019 was a good year. I'm happy if I hit a 10% return every year. My target is 15% per year. But the S&P 500 gained over 31% and thanks to several individual holdings that gained over 85%, I was able to outperform the S&P 500. I really don't expect this type of performance in 2020. I expect a regression to the mean. But does that mean the markets will crash? One should always be ever vigilant that their portfolio is ready for that type of event. Again, I utilize technical analysis to ascertain the trend of the markets. Many years ago, a millionaire investor taught me about charting. He drew a line connecting the bottoms of the chart (if the stock is in an uptrend) or the tops of the chart (if the stock is in a downtrend). Thus one would sell if the stock price violated the line (aka support line) on a uptrend line and vice versa, buy when the stock price broke the downtrend line (aka the resistance line). At first I was skeptical. No way it can be that easy. But it has worked 80% of the time. You're right, nothing works 100% of the time. But if I were a baseball player hitting .800, I would be in the Hall of Fame.
China actually had a better return this year than the S&P 500, but not as good as the NASDAQ. Will this continue? Pundits point out that China's economy is slowing. Is this because of the President's trade war? Partially, but more so is the fact that there is a limit to how fast an economy can grow, so China's economy is just following the natural flow. It's manufacturing is still growing, albeit at a slower pace than before. In the meantime, US manufacturing is receding. Ouch. But aren't the new trade bills a good thing? Take the USMCA bill, the replacement for NAFTA. The President applauds this accomplishment of his, stating that Canada will buy more milk from the US. But why are the two largest milk producers in the US now declaring bankruptcy? And of course, our vehicles are costing more because of increased Canadian steel and aluminum prices. The same could probably be said of the Phase 1 China deal. To quote Shakespeare: Much ado about nothing.
Many years ago, the president of my company lost his voice and asked me to give the company presentation on the 401k program that we had designed for them. I agreed to give the presentation, thinking there about 20 employees would be attendance. Lo and behold, there were 200. Oh man. But when one of the attendees pointed out that the US markets have done better than the international markets in the last two years and should he switch his funds to US fund, I was ready. I had a chart showing that the US markets would outperform, then the international markets, including the emerging markets would outperform. Not perfect timing, of course, but a natural shifting of assets from outperformers to underperformers and back again. And since we really don't know the exact timing of that shift, our allocation should most likely be 50% US and 50% international, and a reallocation at the end of each year to retain that ratio. Don't ask me about bonds (fixed income) because I don't believe in investing in an investment that is guaranteed to lose money (inflation) and doesn't grow to account for that. My bond allocation is replaced by real estate.
And now for the big prediction: Trump will be reelected. And more Wag the Dogs. War? Hope not. I have 3 grandkids who are or will be in the draft age.
JE comments: Ric Mauricio is the second to predict a Trump victory on WAIS. (Tim Ashby was the first.) I'll start stocking up on antacid. One thing I can predict, Ric: if there's war, there won't be a draft, as nothing would stop an "optional" war faster than compulsory military service.