Welcome to 2020 and to a new decade.  Many want to know the future but as all know change is the only constant.  Based upon the massive ownership of several companies partially the result of passive investing and technology based trading, the vast majority believe the future will be the same as the present.   Many believe statements from today’s market icons as ironclad.

Market history however is littered with a gazillion examples as to how consensus view or predictions from today’s leaders fail to materialize.  I would like to list ten consensus views of 2015.

    1. According to Intel, computer chips will consume no energy thus reducing greenhouse emissions.  According to Intel, today’s computer chips demand more than two times more energy than a 65 inch TV.
    2. According to Ericsson, by extrapolating historical data, more than 90% of people over 6 years old would own a mobile phone by 2020.  According Bloomberg 2019 global penetration is 67% but this data is skewed by people who own and use multiple devices.  Moreover there is a global movement to prohibit phone ownership until age 13.
    3. According to Toyota, approximately 5% of cars on the road will be autonomous.
    4.  Uber will deploy flying cars.
    5.  Twenty five percent of Amazon’s deliveries will be drone.
    6.  The cloud will generate 50% of Amazon’s revenues and a vast majority of its profit.
    7. Bitcoin will be worth $1 million.
    8. Oil will never trade below $75/barrel.
    9. The budding economic nationalistic movement will quickly fade as multi polarity and interdependency becomes further ensconced.
    10. Hilary Clinton will become President.

To write the obvious, none of the above occurred.

All know today’s “definites.”  Passive and technology based trading will continue to dominate.  Geopolitical, macroeconomic and security specific research is meaningless.  Multi polarity and interdependency will again become dominant.  Technological breakthroughs will continue at its breakneck pace.  Oil will never again trade over $75 barrel.  Interest rates will forever remain low.

The markets are dictated by behavior and today’s technology dominated trading system cannot quickly adjust to the one off externality that always occurs.  Perhaps what makes today different than five years ago is the end user is the client not a money center bank or brokerage firm  Fear is more powerful than greed, a concept that is all but forgotten until the unexpected event occurs, shattering the illusion of liquidity.

It is dangerous to write what will happen in five years much less in one year.  I will argue to expect the unexpected.

Speaking of which, I think the economy will continue to grow at a pace faster than expected that will again question monetary policy assumptions.  This growth will increase the odds of increased volatility in equites and raises the probability of the President’s reelection.

All must remember voters vote their pocket books, where there is no interest like self-interest.  Most resent being told what to feel and what to think.

The recent outcome of England’s election is a perfect example of the above.  Labor and its progressive agenda was crushed, experiencing its worst defeat since 1935.  Most experts thought the outcome was to close to call.

Perhaps the only certainty to write about 2020 is change will occur.  It is the magnitude and direction of change that is unknown.

Last night the foreign markets were up.  London was up 0.90%, Paris up 1.29%  and Frankfurt up 0.87%.  China was up 1.15%, Japan closed of the holiday,  and Hang Sang up 1.25%.

The Dow should open moderately higher as China took actions to support its economy.  The 10-year is up 3/32 to yield 1.91%.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.