Global Market Update: 20/20

By ClearRock Research. January 2, 2020 Insights

2020Perhaps it’s still early, but the leading contender for the best magazine cover as we enter the new decade belongs to The Economist for its year-end “The World in 2020.”  On it, they list in decreasingly smaller block print against a clean white background the topics they predict will dominate the world discussion in the new decade.  It’s an eye chart for “2020.“

One way we strive to add value to ClearRock clients’ lives is by peering into the future.  While we don’t always have 20/20 vision, we feel that our decades of experience seeing trends play out (or not) gives us a bit of an edge.  It is with this in mind that we’d like to present our own opinions of what the new year – and the new decade — could bring.

  1. The trade war with China isn’t ending anytime soon.  Recent “progress” towards a first phase of the deal essentially gets us back to the same US/China trade status before tariffs started.  From the Chinese perspective, although they have plenty of domestic economic and social stress to contend with, they have little political incentive to appease the current president.  They know that if the Democrats win the election in November, US tariffs may remain for different reason: humanitarian violations in the north against the Uyghurs and unrest in Hong Kong.  At a recent Charles Schwab conference, a longer-term and more sober perspective on China was offered by Ambassador Nicholas Burns, former diplomat to the EU under George H.W. Bush. He reminded the audience that China has been the leading global economic power for 18 out of the last 21 centuries.  They are patient.
  2. Considering the flurry of political drama since January, 2017, one would have thought financial markets would have been much more volatile.  In fact, markets have soared due to low interest rates, a business-friendly administration, and consequently, better corporate earnings.  Election 2020 will cause investors to re-focus on our polarized politics, creating more volatility for stocks and bonds.
  3. The trend toward de-globalization will accelerate.  With the fall of the Berlin Wall in 1989, the advent of the EU, and Chairman Deng’s 1993 reforms in China, a trend towards globalization was unleashed, and it seemed endless.  The rise of the Internet in the early 1990s drove the cost of an international phone call down from $1/minute to 10 cents/minute while the number of users climbed from zero to 1.5 billion in just 12 years (Source: World Bank).  Foreign direct investment nearly quadrupled globally as a percentage of GDP (Source: World Bank).  According to the Brookings Institute, those suffering from poverty dropped from 33% to 8% across the globe.But the downside of globalization became apparent in the mid-oughts as income inequality, the re-emergence of an aggressive China who has ignored many of the WTO rules, and an increase in immigration gave rise to populism in many developed countries.  This new populism appears to be the new path to power.  Interestingly, populists on the left, and populists on the right, agree on more issues than they don’t — trade, elitism, endless wars — with the big exception being immigration.The outcome of less globalism could be more regionalism as powers align by geography, not by economic interests.  Power could shift away from Federal governments into the hands of state and local officials, activists, non-profit organizations, and even corporations.  It’s unclear what this means longer term for financial markets.

If we’ve learned one important lesson over time it’s that the most predictable factor in assessing markets and economies is that everything is cyclical.  Just as we’ve seen a fantastic economic expansion following the Great Recession, we’ll see another slowdown—eventually.  Our job is to build an informed, experienced opinion about where we are in these cycles, and how best to preserve and grow our clients’ wealth in any environment.

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Some material in this article is based on information from a variety of sources we consider reliable, but we do not represent that the information is accurate or complete. The material provided herein is for informational purposes only. Due to various factors, including changing market conditions, the content  may no longer be reflective of current opinions or positions. Moreover, you should not assume that any  discussion or information contained in this article serves as the receipt of, or as a substitute  for,  personalized  investment  advice  from  ClearRock  Capital,  LLC.  To  the  extent  that  a  reader  has  any  questions regarding the applicability of any specific issue discussed above to his/her individual situation,  he/she is encouraged to consult with the professional advisor of his/her choosing. A copy of our current  written  disclosure  statement  discussing  our  advisory  services  and  fees  is  available  for  review  upon  request.


Author ClearRock Research.

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