Good morning America, Good afternoon Europe, and Good evening Asia. The end is near… the end of the second decade in the 21st century is only days away. It is at this time I say thank you to all of you for listening and following me on this journey. It has been quite a ride and with a bit of luck, it will continue to be so into the new decade.
I wish you all a Happy Holiday Season and pray that the New Year and decade brings you continued good health, prosperity, and lots of love of family and friends. – Kp
As the year draws to a close, let me remind you of where we were so that we don’t forget the struggle that this decade created as we move into the third decade of the ‘00s.
So much has happened during this last decade. The financial crisis that began in 2007 and lasted nearly a decade itself continues to be and will be an event that will linger on. Efforts by central banks around the world meant to stop the bleed and prevent another “Great Depression” cannot be understated. In fact, policies implemented at the depths of despair continue to be implemented 12 years later.
Global equity markets, though not to blame, suffered the brunt of the attack as investors and portfolio managers sold stocks to raise cash. Other “assets” were rendered worthless, causing US markets to lose more than 60% of its value by March 2009. The events at times inexplicable. With Ben Bernanke at the helm of the FED, he led the global response by central banks around the world with a new form of Monetary Policy. The new buzzword: “Quantitative Easing” or QE hit the tape.
[Quantitative easing is an unconventional monetary policy in which a central bank purchases government securities or other securities from the market in order to increase the money supply and encourage lending and investment. – Investopedia]
Central banks around the world joined in, interest rates got slashed to zero, and central banks began to buy up long and short term debt, ballooning their balance sheets beyond recognition. The rates and new monetary policy which were thought to remain at these levels for a couple of years, remain today… 12 years later, with little chance of coming to an abrupt end.
The markets around the world began to recover, aided by central bank support. By March 2013, the US markets had regained the losses suffered during the heart of the crisis and were on their way to a new day. Global monetary policy remained accommodative, and today the S&P has more than doubled from 1540 in March 2013 to Friday’s close of 3221, a 374% move off the bottom (March 2009) and a 117% move off of the March 2013 levels. It has been nothing short of amazing to watch, yet the unintended consequences of this policy has created new headaches and issues for central banks, global markets and elected officials. Talk of how does this end and will rates ever be “normalized” again remain a constant. Technology which has changed the world and continues to change the world and different industry disruptors has shifted the balance of power, leaving many to wonder if this IS the new normal.
And so, as we move into the “20s,” many questions remain: How much longer can this go on? What will happen if central banks begin to “tighten?” Recall the meltdown we suffered only a year ago when it appeared that the FED was on its way to tightening. December 2018 saw losses of better than 15% for the S&P with individual “growth names” getting clocked even harder. What a difference a year makes. This December, with rates lower than they were last year and with no increase in rates evident anytime soon, the markets have enjoyed a surge of 5.5% on top of the 23% gains seen coming into the month. Year-to-date performance for the four major indexes has been eye popping, with the Dow up 22%, the S&P up 28%, the Nasdaq up 34%, and the Russell up 24%.
What’s in store for 2020? That is anybody’s guess, but we can all rest assured that it won’t be any increase in rates at all. In fact, the Fed Funds Futures are pricing in another rate cut sometime in the new year with a rate increase slated for early 2021. The Presidential election and the ongoing trade war drama are sure to create some volatility. Other geo-political events, like BREXIT and European elections, are sure to impact global markets as well. Most analysts are calling for a “return to normal” for the markets, meaning 6 – 8% returns and when you add in divys we get to 10 – 12% returns. While that won’t be nearly as exciting as what we saw in 2019, it is what “normal” is.
On Friday, US stocks set another record closing high. Energy (XLE) which has been this year’s underperformer (and my pick for the outperformer in 2020), led the gains with healthcare, tech and utilities not far behind. New signs of economic strength, at home and around the world, are lighting the fire while the talk of a Phase One trade deal with China kept the embers burning. Expectations that the FED is now on hold is offering new hope for continued improvement. Here in the US, Personal consumption rose 0.4% and Personal Income rose by 0.5%, better than expected. These new numbers suggest that the consumer is “alive and well.” GDP came in at 2.1% for the third quarter and other stats suggest that we are firing on all cylinders. The US yield curve is the steepest it’s been in more than a year and the talk of recession is now nothing but a distant memory.
It is the beginning of the Hanukkah and Christmas holidays. Markets around the world will churn, asset managers, investors and traders will be celebrating time with their families. Volumes will decrease and remain low until the 30th and 31st, the final days of the year, when we may get a last minute spike in volumes as final trades hit the tape. With little economic news to speak of, markets will offer little excitement in the days ahead. Only an unforeseen event can derail it from here and that appears unlikely.
Overnight, Asian markets were mostly listless. China did fall by 1.4% after a headline hit the tape that said a “state run fund would be paring back its stakes in some tech companies,” whatever that means. In other news, China said that starting on Jan. 1, they will lower import tariffs on more than 850 products, including pork and some consumer products. Lower tariffs on technology products will begin in July as China reconsiders trade and attempts to spur demand to help their economy all while the signing of Phase One of a trade deal is now only a month away (or so they say).
In Europe, concerns of a hard BREXIT remain as Jan. 31 approaches and talk of an accelerated trade deal between the UK and the EU continue to cause a bit of angst. And while it appears that markets are a bit weaker, (they are) do not worry. Expect to see some profit taking into year end, around the world, as investors dress up their portfolios.
In early trading – FTSE -0.17%, CAC 40 -0.22%, DAX -0.04%, EUROSTOXX -0/15%, SPAIN -0.30%, and ITALY -0.45%.
US futures are treading water, currently up slightly at 4 am, with the Dow showing +9 points, the S&P up 2 points, the Nasdaq ahead by 5 points and the Russell down 3 points.
The S&P, which added 15 points on Friday and closed at 3221, remains in unchartered territory. So we must use trend lines and economic data to draw conclusions. While the trend line suggested last week that we are near the top, the economic data suggests that we’ve got room to grow. It is also year-end and Santa is alive and well. Sit back and enjoy the ride. The tone could change in the New Year as some investors wait to sell pieces of their winners this year recognizing any gains in 2020, pushing any taxes owed on those gains into April 2021. Either way, the broader tone continues to be solid. 2020 projections call for another good year for global companies and global markets.
I too will be spending time with my family and will be back with the final 2019 editions of Morning Thoughts on the 30th. Until then, take good care and tell the ones you love how much they mean to you.
Take good care. Have a great holiday
Potatoes and Eggs
Nothing says “comfort food” like Potatoes and Eggs. This also makes a great Christmas morning breakfast dish…
This is one of those basic yet classic dishes that never goes out style… you can eat for breakfast, lunch or dinner – Enjoy.
For this you need: Eggs, potatoes, garlic, onion, s&p, butter, olive oil, fresh grated Parmegiana Cheese and if you prefer a pinch of Italian seasoning.
Preheat the broiler (oven) to high.
Peel a couple of russet potatoes and then slice – now toss into a pot of boiling water – bring the pot back to a boil and blanch for 3 – 5 mins… Remove – strain and set aside.
In a large bowl – crack 6 to 8 eggs – Beat well – add a splash of whole milk (or half and half), season with s&p (and if you like a pinch of the Italian seasoning). Add a handful of grated cheese. Mix well – set aside.
In a large oven safe frying pan – melt a dab of butter, add a squirt of olive oil and heat. Now add in chopped garlic and sauté. Next add some sliced onions and sauté – until soft and golden… add back the potatoes and brown on both sides. Next – pour the egg mixture into the pan and allow to set. Twirl the pan to allow the egg to spread and cook. Once the edges begin to pull away – place the pan into the oven under the broiler… Watch as it quickly cooks the top of the “frittata.” Remove and slide onto a large serving platter – cut like a pizza.
Have toasted slices of Italian bread on the table for your guests to make a sandwich. Serve with Ice Cold whole milk.