2020 – The year that will make or break the global economy

• The current economic cycle is simply too big to fail.
• After all the bad news you can take, it's time for the world to prove it can function normally.
• Generational wealth shift is coming and that will heavily affect the middle class.

In trading, we all love to say that we look at the past to predict the future. How true is this going to be in 2020, I’m not so sure. In the last decade, we have practically rewritten the rule book on fiscal policy, political office, we have created a decade with simply more questions (and debt) than answers. Now that decade is over, will 2020 be the year of reckoning for the global economy?

What goes up will come down, that’s a simple statement to describe any global economic cycle over a period of time. There have been plenty of references to the past, comparing the credit crunch and the .com bubble to where we are now. In reality, however, how similar are those instances to how today’s markets are functioning? For me personally they are completely different. We – and I’m using the Royal we – have created an economic cycle, globally, that is simply too big to fail. We have allowed the banks and big business to take pretty much-unlimited risk with the knowledge that if anything goes wrong there is little to no chance of jail time and the government will bail you out.

So why would you not take the risk? You would do and you probably already have.

Back then we didn’t know or care, or both, about the outcome, but in 2020 we can’t really say we didn’t know that excessive risk-taking will eventually have a pretty catastrophic end. It seems as if everyone if playing their get out jail card at once. From businesses servicing record debt to the US allowing the build-up of the biggest public debt, to individuals maxing out on mortgages and debt, as long as we are all doing it, ‘we’ can’t all be wrong, can we?

The start of a generational wealth shift

Why I see 2020 as being a turning point is simply that we have had all the so-called bad news any decade can take. We have had the trusted polls turned inside out with both Brexit and Trump, trade wars, we have the world trying to unite and demand answers for business and governments over climate change which, in my most cynical vein, I really believe this to be about generation inequality but that’s another article. So with all this bad news now known, it’s time for the decade long of QE, low rates, Brexit happening, Trump and his trade-war semi-conclusion to now come up with some answers. It’s time to pay up. The world has to now prove that it can function normally. We have put enough into the global economy for it to now stand on its own two feet.

So will 2020 deliver this? I think the world is getting tired of billionaire’s telling us how the world can be better. It’s hard to see how you can shut them up when 26 of them have more wealth than half the planet. But it’s this very idea that we can push all the money to the top and expect everyone else to pay for it. The stock market is only one measure of how well an economy is doing, but with billionaire Trump in charge, his only aim is to make himself and contemporaries richer and then allow this exorbitant amount of wealth to trickle down into the economy and eventually to the great unwashed.

When I say 2020 will be make-or-break for the global economies I don’t mean that there will be a financial crash or an instance like the credit crunch or .com bubble. I think we, that word again, have learned from these events and that whatever downturn happens it will not be the rich, the banks or the governments that fail, it’s a whole section of the middle class. The rich have spent the last decade becoming financially bullet proof. The poor have remained poor. It’s the middle classes that have leverage assets that will bear the most cost of the next ‘bust’, and what I mean by this is that there will just be a change of circumstances. This will come from things like automation, aging populations, generations with assets dying, a change in the perception of the younger generation of what wealth is and what ownership of assets is.

I see 2020 as the start of a 20-year period of adjustment both financially and morally as the generational shift of wealth starts to take effect. It’s not as simple as Boomers dying and rewarding millennials. It is more complex than that, it will be a race to see who can cash out their assets first before the domino effect of supply and demand that has not been addressed for over 100 years starts to unwind before our very eyes. In a world where you believe there is an only finite supply and infinite demand, what happens when that belief if broken?

 

This article belongs to the 20 trading ideas for 2020 series. Check the full list of 2020 pieces.