Knoxville News-Sentinel (TN) January 20, 2020
On Jan.
6, 10 well-known investors and economists sat down with editors from the
financial newsweekly Barron's and reviewed their 2020 outlook for the economy
and financial markets.
The
good news is that the experts were unanimous in their assessment that the U.S.
economy would not slip into a recession this year.
The bad
news is that the experts were unanimous in their assessment that the U.S.
economy would not slip into a recession this year.
Call me
a contrarian, but when the experts are unanimous about something, I examine
their conclusions more carefully.
Their
opinions diverged on topics related to China, stock valuations and the Federal
Reserve's next move. However, there were three areas of unanimous agreement
among the experts: the need for increased immigration, the almost certainty of
Donald Trump's reelection and the unlikelihood of a recession this year.
The
rationale behind the no-recession position is compelling. (I'll pass on
addressing the other two areas of unanimous agreement.) Consumer activity is
strong, wage growth is outpacing consumer price increases, and U.S.
manufacturing is the healthiest among developed world economies.
All of
that is true, but it overlooks some inconvenient contraindicating data. Just
because the U.S. is essentially energy independent doesn't mean that oil prices
can't spike. It would take very little disruption in the daily
production/demand balance to send oil prices above $100 a barrel. The U.S.
Purchasing Managers Index fell to 47.2 in December, its lowest level in more
than a decade.
The
interrelated nature of world economies is always an external threat to the
U.S., regardless of the U.S. consumer's strength. That is, we can't ignore
Asian and European consumers as they relate to the health of our own economy.
And unfunded Medicare liabilities continue to grow faster than the overall
economy.
In my
expert opinion, the consensus expert forecast is usually little more than an
extrapolation of the recent past. Why are the Barron's experts so optimistic
about the economy in 2020? Because the economy was strong in 2019.
A year
ago, this same group was pessimistic about the prospect for stock prices in
2019. Why? Because only four weeks earlier stock prices had fallen 20% from the
year's highs.
Predictions
about whether the next recession will occur within 12 months should be taken
with a grain of salt. It's easy to forget that only 14 months ago, daily
headlines screamed "Inverted yield curve signals coming recession."
One of
the 10 experts interviewed for the Barron's piece, mutual fund manager Todd
Ahlsten, best summarized the risk of taking too seriously their consensus
opinion. "Three years ago, we all said that if Trump were elected the
market would crash."
David
Moon, president of Moon Capital Management, may be reached at david@mooncap.com
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