Looking Ahead – What to Expect in the new year
The last decade has been one of the best times for investors of any generation. 🙂 It didn’t matter if you had money in stock, bonds, or real estate. Almost every major asset class delivered terrific returns on average. But I think 2020 will be a very pivotal year.
The U.S. will hold a presidential election. Stock markets are about to head into the new year at record highs. And there’s a greater than 50% chance Canada will fall into a recession according to Oxford Economics.
The U.S. is even more likely at 64% probability to hit a recession in 2020 according to the New York Fed.
Data seems to indicate consumer spending in North America will almost certainly slow down next year. The U.S. government will spend a buttload of money to desperately prop up the economy. Deficit spending will go through the roof. But the market demand for U.S. bonds won’t be there unless interest rates rise. But rather than let natural market forces drive up interest rates, the Federal Reserve will step in and buy up the newly issued bonds at lower rates. This will likely create some inflation which will be felt in Canada as well.
Protecting Your Net Worth
No matter how we look at the financial markets it’s not hard to see how overvalued most asset classes are. A straightforward way to reduce our exposure to the markets right now is to become more conservative with our investment strategy. If you’re worried about a financial crisis here are some ideas to consider…
- Emphasize investing new savings into value stocks and dividend stocks rather than growth stocks.
- Sell some equities and hold onto short term bonds or cash.
- Stay away from IPOs and ICOs.
- Find value in alternative investments such as peer to peer lending.
- Write covered calls or buy some put options.
Any of those methods should help reduce portfolio losses in the event of a stock market correction.
My Strategy for 2020
We can’t predict the future. But there are events we can anticipate ahead of time and be ready to make the correct decision when the time comes. Given what we know so far, I think one of two scenarios will happen next year.
1st scenario: The current course of expanding asset bubbles will accelerate – widening the wealth gap between the haves and have-nots even more. Private and public debts will grow.
2nd scenario: We see a dramatic economic slowdown followed by a recession in the U.S. first, and then probably in Canada. Central banks inject over $100 billion a month of new liquidity into the markets. Public debt grows. Private debt shrinks through paydowns and defaults.
Right now it’s impossible to know which scenario will play out. But I don’t see an in-between scenario happening. This isn’t financial advice or anything, but if I’m right about next year, then here are some investment opportunities to watch out for.
- Real estate.
- Silver stocks.
- Telecom stocks.
- Investment grade corporate bonds.
If either of the 2 scenarios play out then there will be a lot more debt owed by governments. This will cause inflation, especially if the money makes it into financial markets and trickles down to the consumer level. Inflation is also good for precious metals, and silver appears to be undervalued compared to gold right now. Phone and cable companies should also perform well next year as telecommunications tends to be an inelastic service. Canadian real estate prices have been cooling off since 2018. Meanwhile the TSX/S&P composite index climbed to an all time high last week. Compared to the stock market, the real estate sector seems like a bargain. Personally I will be looking at buying an investment property around the Greater Vancouver area. The expected return on investment for real estate about 7% under current conditions. If I see something I like and the price is reasonable then I will buy it. 🙂
Random Useless Fact:
Facebook’s content moderators make about $29,000 per year.