In a few days, you’ll be enjoying the company of your family for holidays and – maybe – arguing about politics.
Fox News just ran an interesting article on how many Wall Street big money players believe the U.S. economy is going to continue to grow through 2020. And, therefore, Trump is going to win the election.
So, there you have it – ammunition to use against your Trump-hating relatives.
Or, if you hate Trump, an argument you’ll need to counter.
I don’t care whether you love him or hate him – I’m concerned about the stock market and the economy.
So I’m thinking about how that ties into next year’s election.
Wall Street Also Hates Trump
That’s no secret. Apparently they got the short end of some of his deals in the past, and have, understandably, never forgiven him.
In 2016, they greatly preferred Hillary Clinton. They saw her as a pragmatic candidate who would stifle the demands of the leftist wing of the Democratic Party, represented by Bernie Sanders and Elizabeth Warren.
This year, they still don’t love Trump. They don’t like the trade war with China. But he’s delivered on tax reform and deregulation. After nearly three years of President Trump, the economy is booming. Nobody but nobody expected that.
Wall Street doesn’t like to argue with a high-flying stock market.
Also, unemployment is just 3.5%, the lowest it’s been since 1969. That’s a remarkable achievement.
Those are all good signs for President Trump, if a presidential election is always about the economy.
Despite the most boring impeachment in history, Trump appears to have a good chance at reelection.
London bookies and odds makers in Vegas believe Trump’s going to win, and who can argue with them?
Moody’s Analytics Also Predicts a 2020 Trump Victory Based on the Economy
Moody’s developed three different models to predict the outcome of the 2020 election. All three are based on economic factors:
* How people feel about their own economic circumstances
* The stock market
* Prospects for unemployment
When backtested, these models have been accurate back to 1980, calling every election except 2016. They actually predicted Hillary Clinton would win by a small margin.
The models do assume the economy continues to remain strong through the election. If it does so, they predict, Trump wins with from 289 to as many as 351 electoral votes.
Even more interesting: Moody’s stock market-based model assumes the stock market will fall 9%, but Trump will still win.
What About All the “Recession/Crash” News of the Past Few Months?
One of the prominent Wall Street traders reportedly bearish on stocks was Ray Dalio. He’s head of Bridgewater Associates, the largest hedge fund in the world.
The Wall Street Journal reported Bridgewater had placed a $1.5 billion trade that the United States stock market would drastically drop before March 2020. The article basically portrayed Dalio as bearish.
Recently, Dalio said the Journal was “wrong.” Bridgewater was NOT net short the market. He was NOT bearish on stocks.
Apparently, he bought some long-term puts on the S&P 500 or something similar. Meaning: he hedged his long stock positions.
Hey, sometimes hedge funds actually do hedge their positions. Hedging is part of a hedge fund manager’s job. So what?
Crazy for a Crash
As I’ve said before, the mainstream media exaggerates or twists everything in the news if they believe it will cost Trump votes.
TV comedian Bill Maher openly says he’s rooting for a recession, in hopes that would “unelect” President Trump.
Why not? Bill’s a millionaire. If you’re laid off your job or lose your life savings to a stock market crash, it’s no skin off his nose. Even if HBO fired him, he’s never going to qualify for food stamps.
So, Why Am I Nervous?
Because the economy is looking TOO good. I keep asking myself, what’s the catch? What problem does nobody (yet) know about or anticipate?
While hedge fund traders, economists and money managers are smart folks, they don’t know the future.
In 2016, Ray Dalio predicted the stock market would crash by 50% if Trump won.
Trump won, and the S&P 500 is UP by 47%. So, he’s a smart guy, but not infallible.
The yield curve – the difference in interest rates – between 2 and 10 year Treasuries, turned negative last August. That means short term interest rates are higher than long term interest rates.
Which makes no sense. It is a bad sign for the economy.
And Wall Street traders know that.
And they know 70% of economists told the National Association for Business Economics they expected the United States to go into a recession by the end of 2021.
When the stock market reaches new highs, as it’s done a lot in 2019, bears talk a lot about how expensive stocks are. They can’t go on like this.
The market’s current P/E ratio is just around 18. That’s sort of high, well above the historical average of 15.8. But it’s below the top of the late 90’s Tech Bubble (34) and the late 2007 high (23) – before the Great Recession).
Clearly, stock prices can go a lot higher before they crash.
Past Results Don’t Predict the Future
Every bull and bear market is different than the one before. But economists and traders are usually, like generals, fighting the last war.
Nobody really knows how the current economy will eventually go wrong. Yes, the yield curve has inverted and, historically, that’s been bad news.
But how exactly does it matter in a world that’s full of capital looking for yield? In many parts of the developed world, interest rates are negative. That’s ridiculous. People are paying banks to hold their money for them. They’d be better off using their mattresses.
Wealthy people in those countries are looking for a safe, positive (even if tiny) return on investment. Currently, the United States is providing that.
So we’re attracting money from the rest of the world, some of it going into stocks.
How much will that affect our future?
Nobody knows.
This time is different, because EVERY time is different.
Don’t give in to greed or fear.
Invest for the long term, keeping plenty of cash on hand to pick up bargains when the market does crash.
It WILL crash again, but nobody knows whether that will be in 2020 or 2050.
