2020 Predictions

`January 10, 2020

By Steve Blumenthal

“We have long felt that the only value of stock forecasters is to make fortune-tellers look good. Even now, Charlie (Munger) and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”

– Warren Buffett

 “I believe the benefits of negative rates have become overwhelmed by the costs and risks, and I believe that we are going to look back on this period of negative rates as being problematic to the functioning of a market-based economy.”

 – Mohamad El-Erian

Predictions? Read them all with a healthy dose of skepticism—mine included. If you’ve followed me for long enough, you know I favor processes that, while imperfect, have a high probability of keeping us on the right side of the market’s primary trend. No one knows what will unfold in the short term, but it’s a safe bet that over the long term, large cap-weighted equity indices will get you about 10% (and as I mentioned last week, there are ways to improve upon that 10%). And we can know when the odds are in our favor and when they’re not.

Despite their fallibility, I do like predictions, and I lean toward experienced players who have skin in the game. Great traders know the odds and have the ability to quickly pivot when it’s necessary. They know their outlook may be flawed from time to time, and they adjust.

One of my favorite forecasters is Jeremy Grantham from GMO. He’s been putting out a 7-Year Real Return Forecast that I’ve been following since the late 1990s. Researchers have found him to be highly accurate. Short-term guesses are one thing, but is seven years long enough? Well, Jeremy seems to be on to something and I find his forecasts valuable. Here’s his latest (real means after inflation is factored in):

I want to add that since 2010, his bond forecasts have been spot-on, while he has underestimated US equity returns and overestimated emerging market returns. This probably has to do with the unprecedented amount of QE since 2010.

Jeremy believes there will be a reversion to the mean. See last week’s On My Radar for a look at current valuations (extremely high), and where we sit in the long-term market cycle (well above trend).

Warning: Before you read on, I want to point you to a March 2017 study, “Evaluation and Ranking of Market Forecasters.” It covered more than 6,000 market forecasts (mainly for the S&P 500 Index) made by 68 forecasters who employed technical, fundamental, and sentiment indicators from 1998 through 2012. The study found accuracy was 48%, with two-thirds of market forecasters earning accuracy scores below 50%. Six percent of the forecasters had accuracy scores between 70% and 79%.

The study also referenced a recent study by Nir Kaissar. Kaissar analyzed a set of strategists’ predictions from 1999 through November 2016. He found a relatively high correlation coefficient of 0.76 between the average forecast and the year-end price of the S&P 500 Index for the given year. However, Kaissar also found that while the strategists’ forecasts were reasonably close most of the time, they were surprisingly unreliable during major inflection points.

Thus the healthy dose of skepticism. Speaking of which, here’s some quick advice. One of my favorite investment books of all time is Being Right or Making Money by Ned Davis. Ned sold his company, Ned Davis Research, a few years ago but remains the firm’s chief strategist. NDR’s new tagline is “See the Signals, Avoid Mistakes.” I love it. Here are Ned’s 9 Rules of Research (hat tip to fishing buddy Barry Ritholtz):

1. Don’t Fight the Tape: The trend is your friend, go with Mo (Momentum that is).
2. Don’t Fight the Fed: Fed policy influences interest rates and liquidity – money moves markets.
3. Beware of the Crowd at Extremes: Psychology and liquidity are linked, relative relationships revert, valuation = long-term extremes in psychology, general crowd psychology impacts the markets.
4. Rely on Objective Indicators: Indicators are not perfect but objectively give you consistency; use observable, rather than theoretical, evidence.
5. Be Disciplined: Anchor exposure to facts, not gut reaction.
6. Practice Risk Management: Being right is very difficult… thus, making money needs risk management.
7. Remain Flexible: Adapt to changes in data, the environment, and the markets.
8. Money Management Rules: Be humble and flexible – be able to turn emotions upside down, let profits run and cut losses short. Think in terms of risk, including opportunity risk of missing a bull market. Buy the rumor and sell the news.
9. Those Who Do Not Study History Are Condemned to Repeat Its Mistakes.

Source: Ned Davis Research

With that advice top of mind, let’s look at several notable 2020 predictions. We’ll first look at Byron’s “Ten Surprises.” I have to say that I really look forward to Byron’s annual post. I was in NYC last week and a good friend’s eyes lit up when he saw the Wien email come through. I quickly asked him to forward it to me. Read it below.

Today you’ll find Jeffrey Gundlach’s and Mohamad El-Erian’s predictions, along with the latest Trade Signals. (Honestly, I’m never sure whether I should post the full On My Radar piece in email format or link you through. Just know that I’m trying not to overwhelm your inbox.)

Ten Surprises

Byron R. Wien, Vice Chairman, together with Joe Zidle, Chief Investment Strategist in the Private Wealth Solutions group at Blackstone Advisory Partners. This is the 35th year Byron has given his views on a number of economic, financial market and political surprises for the coming year. Byron defines a “surprise” as an event that the average investor would only assign a one out of three chance of taking place, but which Byron believes is “probable,” having a better than 50% likelihood of happening. Byron started the tradition in 1986 when he was the Chief U.S. Investment Strategist at Morgan Stanley. Byron joined Blackstone in September 2009 as a senior advisor to both the firm and its clients in analyzing economic, political, market and social trends. In 2018, Joe Zidle joined Byron Wien in the development of the Ten Surprises.

Byron and Joe’s Ten Surprises for 2020 are as follows:

1. The economy disappoints the consensus forecast, but a recession is avoided. Federal Reserve Chair Powell lowers the Fed funds rate to 1%. Without a comprehensive trade deal in hand, President Trump exercises every executive authority he has to stimulate growth and ward off recession. He cuts payroll taxes to put more money in the hands of consumers.

2. Inequality and climate change become important election themes, but centrist ideas prevail. The House of Representatives sends articles of impeachment to the Senate, but Donald Trump is not convicted or removed from office. Enough information is revealed in the proceedings to cause some of his supporters, as well as many independents, to throw their support to liberal candidates in 2020 state races. The Democrats take the Senate in November.

3. There is no comprehensive Phase Two trade deal that limits China’s ability to acquire intellectual property. National interests result in the balkanization of technology. The development of separate standards for 5G and other tech hardware proves to be bad news for the future of world economies. The move toward “decoupling” gains traction in negotiations with China. US economic co-dependence with China erodes. Both China and the US keep their hands off Hong Kong and let the protest settle down by itself.

4. The prospect of a self-driving car is pushed further into the future. A series of accidents with experimental vehicles causes a major manufacturer or technology company to issue a statement that it is no longer developing self-driving technology.

5. Emboldened by the pain of economic sanctions, Iran takes advantage of America’s unwillingness to intervene and steps up acts of hostility against Israel and Saudi Arabia. The Strait of Hormuz is closed and the price of oil (West Texas Intermediate) soars to over $70/barrel.

6. Even though some observers believe valuations are stretched, a surge in investor enthusiasm pushes the Standard & Poor’s 500 above 3500 at some point during the year. Earnings increase only 5%, and S&P 500 multiples remain elevated because monetary policy is easy and investors become more comfortable that intermediate interest rates will rise slowly. Volatility increases and there are several market corrections greater than 5% throughout the year.

7. Big tech companies face growing political scrutiny and social blowback. Once the market leaders, certain FAANG stocks underperform and the equal-weighted S&P 500 outperforms. A proposal to break up the largest social media platforms and increase regulation and government oversight gains popularity. This has greater success than prior government efforts against Apple, Microsoft and IBM, because it has widespread support from the American people. A millennial in New York City puts a phone down and makes eye contact with another human and finds it non-threatening and refreshing.

8. Having secured a workable Brexit deal, the United Kingdom turns out to be the winner in its divorce from the European Union. The equity market rises and the pound rallies. The UK benefits from a long transition period, and growth exceeds 2% as foreign direct investment resumes now that the outlook is clarified. The EU economy remains soft, and European markets other than the UK underperform the US and Asia.

9. The bond bubble starts to leak, but negative rates continue abroad. Even though the US economy is slowing, the 10-year Treasury yield approaches 2.5% and the yield curve steepens. Japan and China pull away from the Treasury auctions. Rather than economic fundamentals or inflation, supply and demand drive yields higher.

10. The problems with Boeing’s 737 Max are fixed and deliveries begin. The plane becomes a mainstay around the world, enabling airlines to operate more efficiently and increase profits. The stocks become market leaders.

“Also Rans”

Every year there are always a few Surprises that do not make the Ten, because we either do not think they are as relevant as those on the basic list or we are not comfortable with the idea that they are “probable.”

11. Fears of an economic crisis in India are allayed. The emerging markets continue to have uneven performance but India recovers from decelerating growth. The Modi government continues business-friendly growth reforms, the economy grows at 6% and the market rises 20%.

12. Artificial intelligence begins to be viewed as a paper tiger. The AI jobs apocalypse fails to materialize, much as the Y2K bug failed to undermine the US economy 20 years earlier. Manufacturing jobs have already been automated and it proves harder to eliminate service jobs by using computer-based applications.

13. Economic problems in Russia intensify even though the price of oil rises. As a result, social unrest begins to spread. Putin’s cozy relationship with his circle of oligarchs becomes an issue and his influence as a world leader diminishes. He attempts to maintain his stature on the world stage through a closer association with China. In spite of serious differences, China and Russia appear prepared to face off against Europe and the United States.

14. Populism and inward-thinking continue to spread globally, particularly in emerging markets. Anarchy and disharmony spread throughout the world, creating turbulence in financial markets everywhere. Investors turn away from emerging market local currency debt, forcing spreads higher.

15. North Korea agrees to suspend its nuclear development program after another meeting with President Trump but does not give up its existing stockpile. Kim Jong-un halts work on a long-range missile capable of reaching the United States. North Korea continues to be a threat, but not an imminent danger.

Source and Disclosures here.

If a friend forwarded this email to you and you’d like to be on the weekly list, you can sign up to receive my free On My Radar letter here.

Follow me on Twitter @SBlumenthalCMG

Included in this week’s On My Radar:

• Jeffrey Gundlach — 2020 Outlook
• Mohamed El-Erian — No Recession, Moving More Personal Capital to Cash
• Trade Signals – Interest Rates are Key to Risk Assets in 2020
• Personal Note – Vail and Florida

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Jeffrey Gundlach — 2020 Outlook

I spent an hour this week listening to Gundlach’s 2020 outlook. Below are my notes in bullet point format along with a link to the charts. There were more than 40 charts and you know I’m a chart geek, but today I’ll spare you. Please click on the chart link if you need to get your geek on too.

Bullet point notes:

• Jeff expects a big decline in global growth: down 70 bps to 3%.
• As a point of reference: for 2020, economists expect 3.10% global GDP.
• He sees rates declining in Europe and Japan. Currently there is $11.82 trillion in negative yields. Down from an August 2019 high of $17 trillion. Expects it to go back up.
• There are $0.52 trillion in negative yielding corporate bonds (SB – I didn’t know… wow).
• Low and negative rates impact global markets and bank stocks:

1. Japan went negative first. Performance from 1995 to end of 2019: Tokyo Stock Exchange is down 81.25% over the last 25 years.
2. European banks are down 11.77% over the last 25 years.
3. While US banks are up 329.27%.

• Really bad results for banks, not surprisingly, when rates go negative. US banks rallied from 2009 low back to challenge 1995 bank highs.
• DB has rallied from just above 6 to 8. But still bad performance. Bullish if Euro rates go higher, bad if negative.
• The US financial sector has gained 3.76% since 2007 (just barely above its 2007 peak) while S&P 500 up 130.28% – low rates have been a struggle for banks.
• The Fed:

1. December 2018 reversal in interest rate policy to cut rates really helped out US risk assets.
2. Now the Fed is on hold. Fed unlikely to make any moves in 2020 – according to current sentiment.

• Jeff expects a lot of potential volatility in 2020 – with geopolitical uncertainty and upcoming election.
• Joe Biden and Bernie Sanders are rising. All others are declining. Jeff doesn’t give Bloomberg much chance to win given lack of love for billionaires. Elizabeth Warren has dropped significantly… Jeff thinks Bernie Sanders most likely to get the nomination – tied in Iowa.
• GDP for US:

1. 2020 consensus sees 1.80%.
2. 2019 was 2.30% (estimate).
3. 2018 was 2.90%.

• Jeff mentioned a roundtable he just recorded with David Rosenberg and others (more below) and said Rosey believes recession risks are being greatly underestimated.
• Jeff sees a 30% to 35% chance of recession in 2020 and said he’s watching the labor market as the key (some signs of weakening but way too early).
• He showed a chart showing the Leading Economic Indicators and said they always go negative before recession. I know I promised no charts but let’s look at just one:

1. I really liked this next chart from Gundlach. What it shows is that recession typically follows after both the year-over-year change in the Leading Economic Indicator (LEI) and the six-month change in the LEI both drop below the middle dotted red line. Currently the red six-month line has crossed lower but the black YoY line remains above. Bottom line: No sign of recession.

Every month I update my favorite recession watch charts and they continue to signal a low probability of recession. I’ll see if I can add the LEI chart to the list.

I took many more notes but here is the summary: Jeff expects a steeper yield curve (long-term rates will move higher than short-term rates). He recommends investors should be “defensive” with respect to long-term bonds. Wait until they move higher. He expects the Fed to step back in with QE4 and then long bonds will be a better buy again. He believes gold will go up, inflation will remain subdued and he believes there is a 30% to 35% chance of recession. His “highest conviction” trade? He believes the dollar will weaken. That will favor EM equities and fixed income. Jeff remains concerned about the size and quality of corporate debt. The biggest risk for the market in 2020? He said it is Bernie Sanders winning the Democratic Party nomination, which he said is also the biggest risk facing the market in 2020. His last prediction: Don’t expect returns on stocks or bonds to come anywhere close in 2020 to where we’re in 2019.

You can click here for a good summary from Robert Huebscher at Advisor Perspectives. A great website, by the way. Robert went back and looked at Gundlach’s 2019 forecast and scored him up. Six were correct and four were wrong. Remember, that doesn’t mean he didn’t make money. Great investors adapt.

Gundlach’s firm, DoubleLine Capital, recorded a global outlook video with David Rosenberg, James Bianco, Danielle DiMartino Booth, Ed Hyman and Steven Romick. I have not yet watched the video but will put on my sneakers and take an hour walk this weekend. I’m sure it will be worth your time.

Mohamed El-Erian — No Recession, Moving More Personal Capital to Cash

“Negative-yielding bonds, an issue that was dismissed in most textbooks until it became a reality, are yet another example of the unthinkable becoming fact. And this list of unthinkables is getting quite long.

They include not just negative-yielding bonds, but negative policy rates in much of Europe. The fact that the U.S. has gone from being the champion of free trade and globalization to be the most protectionist advanced economy is among other unthinkables.

So far, we have dismissed as a marketplace each of these as noise, and we have not taken the more valid interpretation, in my opinion,

which is that they are signals of underlying tensions in the global economy.

In the short term, it’s about being able to continue to ride this liquidity wave. Over the long term, I think you want to have the combination of resilience, optionality and agility.”

– Mohamed El-Erian

Jeff Benjamin of Investment News interviewed Mohamed last week. Here is the full interview:

Mohamed El-Erian, chief economic adviser at Allianz and former chief executive at Pimco, believes the United States is riding a “liquidity wave” that can’t last forever.

With that in mind, he recommends advisers embrace a combination of “resilience, optionality and agility” to navigate several unprecedented realities of the current global economy.

We sat down with Mr. El-Erian in December for a candid conversation about everything from global monetary policy and what’s driving the stock market’s historic run to how he’s allocating his personal portfolio and which team he thinks could win the Super Bowl.

Jeff Benjamin: What factors continue to hold up this historic stock market?

Mohamed El-Erian: There are three things keeping it so strong. One is massive liquidity support from central banks, which has been turbocharged by strong corporate balance sheets that have allowed for significant M&A activity.

Two is the hope of a handoff to more comprehensive pro-growth policies, particularly in Europe.

And three is the fact that it has been the most unloved rally, which means it has had technical support throughout its duration.

JB: Is the U.S. economy heading into recession anytime soon?

ME: I’ve repeatedly dismissed the notion that the U.S. will fall into recession in 2020. In fact, given the strength of the household sector, it’s hard to get the numbers to show a recession unless you assume a massive policy mistake or a very big market accident.

Without that, the U.S. will continue in a 1.5% to 2.25% growth range. I’m much more concerned about recession when it comes to Europe.

I think there’s a general complacency around the economic risks facing Europe. And I think that there’s a high probability that Europe will hit stall speed, which means show growth rates of around 1%, but that won’t be fast enough to overcome headwinds. That will be followed by a recession.

JB: President Trump’s tax cuts: good or bad?

ME: The combination of deregulation and tax cuts is one of the reasons why the U.S. has economically outperformed other advanced economies.

Economists disagree on two things regarding the tax cuts: Were they efficient and were they fair. There should be a lot of disagreements on these issues.

What they don’t disagree on is that tax cuts have given a short-term boost to economic growth in the U.S.

The longer-term boost has come from the deregulation measures. And the hope, which remains a hope rather than a reality, is that the third leg of this pro-growth policy effort would be infrastructure spending.

JB: How worried should we be about the threat of global trade wars?

ME: One of the big uncertainties of 2020 and beyond is whether we have simply pressed a pause button on globalization or whether we are pressing the rewind button on globalization.

If it’s just a pause, then the market is right to react short-term to every indication of where the discussions between the U.S. and China stand.

If, however, this is a much bigger process, a secular process, then the market must ask the question that it has not asked itself, which is how do you rewire the global economy for de-globalization?

That is such a basic question, and it’s one that the market has not dealt with yet.

JB: Is that a big part of the risk in the financial markets right now?

ME: I view it as one of the major uncertainties. What we have in the financial markets is short-term supportive dynamics and major long-term uncertainties. And these uncertainties speak not only to the globalization issue, they also speak to the effectiveness of central banks, they also speak to the collateral damage and unintended consequences of all this liquidity that has been pumped into markets, and they speak to the political uncertainties, where we are seeing country after country move more toward inward-oriented policies that have less respect for the global rule of law.

JB: What is your take on the roughly $13 trillion worth of negative-yielding sovereign debt outside the United States?

ME: Negative-yielding bonds, an issue that was dismissed in most textbooks until it became a reality, are yet another example of the unthinkable becoming fact. And this list of unthinkables is getting quite long. They include not just negative-yielding bonds, but negative policy rates in much of Europe. The fact that the U.S. has gone from being the champion of free trade and globalization to be the most protectionist advanced economy is among other unthinkables.

So far, we have dismissed as a marketplace each of these as noise, and we have not taken the more valid interpretation, in my opinion, which is that they are signals of underlying tensions in the global economy.

As to the direct answer, a prolonged period of negative rates would break a market-based economy. And we are already seeing concerns grow about the unintended consequences of negative rates.

They start with the extent to which they undermine the financial system — not just banks, but most importantly the providers of long-term protection services, financial protection services to households, including life insurance and retirement plans. These are very difficult to run at negative rates.

Secondly, they encourage excessive risk-taking by nonbanks.

Third, they support what I call zombie companies and therefore retard the process of rejuvenating a capitalist economy.

And fourth, they encourage economy-wide misallocation of resources. I think even within the [European Central Bank] today, which has been the main proponent of the negative rates policy, they are starting to question the equation of benefits and costs and risks.

I believe the benefits of negative rates have become overwhelmed by the costs and risks, and I believe that we are going to look back on this period of negative rates as being problematic to the functioning of a market-based economy.

JB: Could we see negative bond yields in the U.S.?

ME: I think that’s very unlikely because the Fed fully understands the risks and the costs. And secondly, it’s very unlikely because I do not believe we’re going to go into recession.

I do think one of the reasons why U.S. yields have been so low is because they have been depressed by what is happening in Europe.

JB: How concerned are you about the nearly $4 trillion balance sheet the Federal Reserve built up through several rounds of quantitative easing in the immediate wake of the financial crisis?

ME: The Fed has a very large balance sheet, and after a period of attempted normalization, it has reversed again and is now increasing that balance sheet. It is not calling it [quantitative easing], but the markets have behaved as if it is QE.

The reality is, there was an attempt at normalization. But it turned out that the markets did not want normalization, and they forced the Fed into a very dramatic U-turn at the end of 2018, and now we’re seeing an expansion again, not just in the Fed balance sheet, but also in the ECB balance sheet, which is a contributor to how well equities did in 2019.

JB: You were recently quoted saying you are building up cash reserves in your personal portfolio. Does that suggest you’re feeling risk-averse?

ME: Like many other investors, I have benefited from a very unusual trifecta, which is, one, significant returns; two, correlations that have broken down in favor of investors, in the sense that both risk assets and risk-free assets have gone up in price; and three, extremely low volatility.

Having said that, the longer this trifecta continues, the greater the risk of a change. So what I have done is very slowly and very gradually reduced my exposure to public markets, both equities and fixed income, and allocated that reduction to two alternatives.

One is cash, which provides two things in this environment: risk mitigation and the optionality to pick up good companies at depressed prices should we have a liquidity event.

Then, with a smaller portion of the reduction in exposure to public markets, which has been very gradual and slow, I’ve looked for two types of opportunities. One is distressed situations where the sell-off far exceeds the worsening fundamentals, and second is what I call market failures.

What it looks like from the outside world is a gradual move to a more barreled approach. The middle of the curve is slowly coming down. One side is the true risk-free asset, which is cash, and that’s going up. The other side is the less liquid, more opportunistic exposure, and that’s slowly going up.

JB: What is your general outlook on this year’s presidential election?

[More: Mohamed El-Erian: What the market rebound is telling investors]

ME: I’m not a political scientist and I don’t have views on how the election will play out, because I think there’s lots of uncertainties.

What these elections represent is what we have seen play out over the last few years and is also playing out in Europe, which is the difficulty of the political center to gain traction and a greater attractiveness to political positions that are on either side of the political center.

We see this in terms of the lack of traction so far for a centrist candidate, and we see that in terms of the support that President Trump, and Elizabeth Warren and Bernie Sanders combined, attract. That speaks of a more general phenomenon, which is, years of growth — that has been too low and insufficiently inclusive — has been hollowing out the middle distributions politically, economically, socially and institutionally.

That is a phenomenon that will continue to play out until we get a pivot to higher and more inclusive economic growth.

JB: What do you view as the biggest areas of concern going into 2020?

ME: Whether they apply only to 2020 or 2021 is hard to say because timing is really difficult in technically driven markets, and we are in technically driven markets that are underpinned by liquidity.

But I worry about a few things. One is the big medium-term uncertainties we talked about earlier: globalization, policy effectiveness, political support for rule of law, weaponization of economic tools. There’s a lot of uncertainties.

Second, I worry about the big valuation gap that has appeared between high market prices and struggling fundamentals. And I worry that the gap is getting bigger and bigger. I worry that the system has overpromised market liquidity to the end users, that we have seen a proliferation of less liquid products that are liquid for now.

And what we have seen in the past is when the paradigm of liquidity changes, you get contagion. In other words, when investors can’t sell what they want to sell because there isn’t enough liquidity, they’ll end up selling what they can sell, and that generalizes liquidity strains.

JB: What about areas of opportunity in the year ahead?

ME: In the short term, it’s about being able to continue to ride this liquidity wave. Over the long term, I think you want to have the combination of resilience, optionality and agility.

Resilience to navigate a potential liquidity shock without having to sell things you don’t want to sell.

Optionality to keep your mind open as to the timing of the transition from supportive short-term dynamics to more uncertain medium-term issues.

And agility to act quickly when opportunities arise, which will be name-specific to begin with and then asset-class-specific thereafter.

JB: Setting aside your loyalty to the New York Jets, what’s your prediction for this year’s Super Bowl?

ME: My fear is that it will be the Patriots again. As much as I respect the coach and the quarterback, they appear recurrently in my nightmares. If you are a beaten-down Jets fan, you’ll understand why.

My hope is one of the NFC teams — whether it’s the 49ers or the Saints or the Green Bay Packers — one of the NFC teams will ultimately prevail.

Source: Investment News

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Trade Signals – Interest Rates are Key to Risk Assets in 2020

January 8, 2020

S&P 500 Index — 3,258

Notable this week:

Geopolitical tensions remain high. With a new Marine in the family, my wife Susan and I are nervous. That does sound a bit selfish… please know we are troubled by the news, as I’m sure you are, with or without a son in the military. Given the risks, I would have expected to see risk elevate in the markets, but we sit higher today in the popular averages than we did a week ago. I’m keeping a close eye on the high yield market as that is where I believe we’ll see the first sign of trouble; however, HY prices continue to tick higher. Additionally, the trend in equities remains bullish and the markets breadth (the number of sectors exhibiting favorable price trends) is strong. Lastly, the Zweig Bond Model remains in a bullish buy signal. The chart below is a different look at the trend in interest rates. The blue line is the 13-week moving average of the 10-year Treasury bond yield. The red line is the 34-week moving average. The cyclical trend in interest rates remains lower. I believe what happens in to yields will be a key driver of risk assets in 2020. Keep watch. Notable too – Inflation is picking up and that will challenge the Fed’s position. I’ll talk more about inflation in this coming Friday’s On My Radar. Stay tuned.

Not a recommendation for you to buy or sell any security. For information purposes only. Please talk with your advisor about needs, goals, time horizon and risk tolerances. 

Click here for this week’s Trade Signals.

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Personal Note – Vail and Florida

“I meet many young people who want immediate success. They are always thinking and worrying about the future. I tell them don’t worry about your greatness in the future. Just be great today.”

– Jon Gordon (@JonGordon11)

Winter break is over for the kids and its back to school and work. We had a fun dinner last night and I feel happy for them and a little sad for me. Love having everyone home, but ever forward. My sister Amy sent me the quote above from Jon Gordon. Great advice to my kids and yours and for us: “Just be great today!” Amen to that…

Well, my Philadelphia Eagles are out. The underdogs that were hungry dogs are no longer running faster – now they’re golfing dogs. And I must add that the local orthopedists, imaging centers, and hospitals are in the money. The number of injuries this season must have set a record.

I’m flying to Vail on Saturday for a “business trip.” It looks like one to three feet of snow is in the forecast and that has this guy extra-excited. The event is a gathering of money managers, traders, and market makers. What I find most helpful are the friendships that are developed. When you’re stuck and need help, it’s good to know you have a friend you can call on. In the end, we are all trying to grow, improve, and help the people we serve.

The Inside ETFs conference in Hollywood, Florida, follows from January 26 to 29. It’s a gathering of more than 2,000 individuals and the important players that make the industry run. More dinners, too much red wine, and some valuable insights are guaranteed. Former New York Yankees captain Derek Jeter is the official keynote for 2020—a bonus.

If you are attending, please send me an email. I’d love to grab a coffee with you.

I’m praying for deep powder snow and wishing you the very best. Get out there and do something that fills you up.

Click on photo to learn how to ski in powder like a pro.

Warm regards,

Steve

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Stephen Blumenthal founded CMG Capital Management Group in 1992 and serves today as its Executive Chairman and CIO. Steve authors a free weekly e-letter entitled, “On My Radar.” Steve shares his views on macroeconomic research, valuations, portfolio construction, asset allocation and risk management.

Click here to receive his free weekly e-letter.

Follow Steve on Twitter @SBlumenthalCMG and LinkedIn.  

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IMPORTANT DISCLOSURE INFORMATION

Investing involves risk. Past performance does not guarantee or indicate future results. Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that future performance of any specific investment or investment strategy (including the investments and/or investment strategies recommended and/or undertaken by CMG Capital Management Group, Inc. or any of its related entities (collectively “CMG”) will be profitable, equal any historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. No portion of the content should be construed as an offer or solicitation for the purchase or sale of any security. References to specific securities, investment programs or funds are for illustrative purposes only and are not intended to be, and should not be interpreted as recommendations to purchase or sell such securities.

Certain portions of the content may contain a discussion of, and/or provide access to, opinions and/or recommendations of CMG (and those of other investment and non-investment professionals) as of a specific prior date. Due to various factors, including changing market conditions, such discussion may no longer be reflective of current recommendations or opinions. Derivatives and options strategies are not suitable for every investor, may involve a high degree of risk, and may be appropriate investments only for sophisticated investors who are capable of understanding and assuming the risks involved. Moreover, you should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice from CMG or the professional advisors of your choosing. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisors of his/her choosing. CMG is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.

This presentation does not discuss, directly or indirectly, the amount of the profits or losses, realized or unrealized, by any CMG client from any specific funds or securities. Please note: In the event that CMG references performance results for an actual CMG portfolio, the results are reported net of advisory fees and inclusive of dividends. The performance referenced is that as determined and/or provided directly by the referenced funds and/or publishers, have not been independently verified, and do not reflect the performance of any specific CMG client. CMG clients may have experienced materially different performance based upon various factors during the corresponding time periods.  See in links provided citing limitations of hypothetical back-tested information. Past performance cannot predict or guarantee future performance. Not a recommendation to buy or sell. Please talk to your advisor.

Information herein has been obtained from sources believed to be reliable, but we do not warrant its accuracy. This document is a general communication and is provided for informational and/or educational purposes only. None of the content should be viewed as a suggestion that you take or refrain from taking any action nor as a recommendation for any specific investment product, strategy, or other such purpose.

In a rising interest rate environment, the value of fixed income securities generally declines and conversely, in a falling interest rate environment, the value of fixed income securities generally increases. High-yield securities may be subject to heightened market, interest rate or credit risk and should not be purchased solely because of the stated yield. Ratings are measured on a scale that ranges from AAA or Aaa (highest) to D or C (lowest). Investment-grade investments are those rated from highest down to BBB- or Baa3.

NOT FDIC INSURED. MAY LOSE VALUE. NO BANK GUARANTEE.

Certain information contained herein has been obtained from third-party sources believed to be reliable, but we cannot guarantee its accuracy or completeness.

In the event that there has been a change in an individual’s investment objective or financial situation, he/she is encouraged to consult with his/her investment professional.

Written Disclosure Statement. CMG is an SEC-registered investment adviser located in Malvern, Pennsylvania. Stephen B. Blumenthal is CMG’s founder and CEO. Please note: The above views are those of CMG and its CEO, Stephen Blumenthal, and do not reflect those of any sub-advisor that CMG may engage to manage any CMG strategy. A copy of CMG’s current written disclosure statement discussing advisory services and fees is available upon request or via CMG’s internet web site at www.cmgwealth.com/disclosures. CMG is committed to protecting your personal information. Click here to review CMG’s privacy policies.