What Is Going To Happen In 2019

Venture Capitalist Howard Lindzon makes his 2019 predictions, writing:

I believe that we will have a different President of the United States by the end of 2019. The catalyst for this change will be a devastating report issued by Robert Mueller that outlines a history of illegal activities by our President going back decades, including in his campaign for President.

 

The House will react to Mueller’s report by voting to impeach the President. Which will set up a trial in the Senate. That trial will go so badly for the President that he will, like Nixon before him, negotiate a resignation that will lead to him and those close to him being pardoned for all actions, and Mike Pence will become the President of the United States sometime in 2019.

 

I believe this drama will play out through most of 2019. I expect the Mueller report to be issued sometime in the late winter/early spring and I expect an impeachment vote by the House before the summer, leading to a trial in the Senate in the second half of the year.

People said this exact same thing about trump in 2017 except with the impeachment date being 2018 instead of 2019. I would be willing to take the opposite side of that bet. The odds of impeachment are slim based on the rarity of past occurrences, and House democrats have expressed reservations about impeachment. Even if impeached, that does not mean he will leave office. Mueller almost certainly has nothing, or at least nothing that is sufficient to justify impeachment. It may show that laws were broken as far as Trump’s campaign staff is concerned, but does not implicate Trump. For 2019, I precinct no major hiccups or scandals for the administration, and Trump’s approval ratings will stay above the 40′s. I was correct in 2017 and 2018 about predicting no impeachment, and I predict Trump will serve his full term without any problems.

In 2017 and 2018, I correctly predicted there would be no wall and I stand by that prediction for 2019. It also depends how you define ‘wall’; if by barbed-wire fences, some were built along ports of entry. Trump faces numerous headwinds to getting a concrete wall built: courts, funding, Congress, changing priorities, and also general political inertia. The last reason is perhaps the biggest reason nothing gets done.

The US equity capital markets enter 2019 on shaky ground. Though the last week of the year brought us a relief rally, the markets are dealing with higher rates, some early indications of a weaker economy in 2019 (possibly due to higher rates), and, of course, the potential for the drama in Washington that we’ve already discussed. Here is a chart of the S&P 500 over the last five years:

 

I expect the S&P 500 to visit 2,000 sometime in 2019 and then bounce around that bottom for much of the year. This would represent a decrease in the S&P’s trailing PE multiple to around 15x which feels like a bottom to me given the recent history of the equity markets in the US:

Not looking good for Howard. Just two weeks into 2019, the S&P 500 has gained nearly 100 points from 2500 to 2600, or about 4%, which is one of the strongest starts to any new year. Interest rates are rising, but only very gradually, and much of this ‘drama’ in Washington is manufactured by the click-powered media or of no material economic significance, such as the partial shutdown, which despite all the media coverage has not hurt the economy or stock market much at all. That’s not to say it won’t in the future, but so far it has not had much of a negative effect. I predict if the shutdown drags on too long, in a piecemeal manner legislation will be passed to restore back pay and restore certain functions to full capacity, such as TSA.

I predict for 2019, the S&P 500 will hit 3,000. Like 2017 and 2018, there will be no recession or even much weakness at all. The pundits who predicted recession in 2018 will be wrong again as they almost always are.

When it gets more expensive to borrow, marginal projects don’t get funded. And what happens at the margin has a much larger impact on the economy than most people understand. No wonder the President wants to fire the Fed Chairman.

 

I expect the combination of higher rates, uncertainty in Washington, and storm clouds globally (which we will get to soon) will cause business leaders in the US to become more cautious on hiring and investment. Consumers will make essentially the same calculations. And that will lead to a weaker economy in the US in 2019.

By Howard’s logic the economy should have tanked in the 80′s and 90′s when interest rates were much higher than they are now, but the economy boomed in spite of high interest rates. And to think people give this guy money to invest with.

The global picture is not much better. The eurozone is about to go through the most significant change in decades with some sort of departure of the UK from the EU (Brexit). It remains unclear exactly how this will happen, which in and of itself is creating a lot of uncertainty on the Continent. I don’t expect most businesses in Europe to do anything but play defense in 2019.

Predictions in 2016 of recession due to Brexit were woefully wrong. Given that Brexit probably won’t even happen, this is even less reason to be concerned, as if it was ever much of a concern to begin with. Most pundits have generally a terrible track record of predicting this sort of stuff.

Probably the biggest unknown for the global economy is the resolution of the ongoing trade tensions between China and the US. It seems inevitable that China will make some concessions to the US to resolve these trade tensions. But, of course, what happens in Washington (first issue) may impact all of that. In the meantime, the uncertainty around trade and exports hangs over the Chinese economy. China’s GDP has been slowing in recent years as it achieved relative parity with the US and the Eurozone:

Financial pundits keep predicting a global crisis due to China, similar in severity to the 2008 crisis, but China’s economy continues to defy such dire forecasts, and I predict for 2019 there will be no major problems. China’s GDP has been slowing for over a decade, but that does not make for a crisis and is expected given how fast it was growing in the early and mid 2000′s. The potential crisis is in Turkey, Brazil, Spain, Italy, Greece, and possibly Russia to due to weak economies, commodity dependency, and political instability, not China. The left keeps predicting crisis, whether it’s political crisis or economic crisis, and keeps being wrong. Admittedly, many on the ‘right’ also predicted crisis during Obama’s tenure, so I’m not going to give them a pass either. To my credit, despite opposing Obama’s policies, I did not let my own ideological biases interfere with my forecasts, and I was correct about the post-2009 bull market continuing, about interest rates and inflation being low, and about there not being a recession.

I think the catalyst for the next bullish phase will come as the result of some of the many promises made in 2017 coming to fruition in 2019. Specifically, I think we will see some big name projects ship, like the Filecoin project from our portfolio company Protocol Labs, and the Algorand project from our portfolio company Algorand. I think we will see a number of “next gen” smart contract platforms ship and challenge Ethereum for leadership in this super important area of the crypto sector. I also expect the Ethereum open source community to ship a number of important improvements to its system in 2019 and defend their leadership in the smart contract space.

2019 won’t be as bad as 2018 for cypto-currency, but there will be no recovery. People still keep holding out hope that there will be a recovery, as if losing 80%+ of their money hasn’t yet crushed their spirits or taught them a lesson.

Further economic predictions for 2019:

S&P 500 rises at least 10%

FANG stocks continue to do well (especially Microsoft, Google , Facebook, and Amazon)

No U.S. recession, making the post-2009 recovery and expansion by far the longest ever. Despite the shutdown, tariffs, and uncertainty over Trump, none of the economic data portends to recession, and don’t see that changing. Consumer spending, corporate profits, exports, etc. still doing well.

No China crisis or any substantial problems beyond what we are already used to

U.S. dollar will gain versus Pound and Euro and most other foreign currencies

No Brexit

Inflation will remain low despite deficit spending, tariffs, tax cuts, etc.

Political climate will seem more divisive and angrier than ever, but very little civil unrest as far as the U.S. is concerned

Another mass shooting

Trump’s approval ratings will remain above 40%

Bitcoin will stay below $4,000

No bursting of college debt/tuition bubble

Home prices will keep rising

U.S. equities will outperform foreign markets again. The Trump administration has been specially bad for smaller economies due to strong dollar, falling oil, and threats of sanctions.