2020 Outlook and 2019 Recap of Berman’s Calls
The tradition on Berman’s Call has been for me to use my last show of the year to forecast what I expect for the coming year and address any mea culpa for bad Berman Calls in 2019. I got the volatility outlook for 2019 all wrong. That’s why forecasts are more of a Fun bar bet than anything you can take to the bank.
1. We suggested a very defensive approach to markets in 2019 as recession risks were high for 2020. Most of that weakness we expected in 2019 came in the days following our forecast last December 2018. We said that the recession would not likely hit Main Street until 2020 and that remains our core view. We now think the biggest risk that is not priced in is the re-elction risk of President Trump. Recall that the average recession induced bear markets historically is 29% for US large caps. This one will likely be higher and last longer than the typical 10 months from peak to trough when it plays out.
2. We suggested that low volatility and high quality (balance sheets) would out perform along with covered call ETF portfolios will weather the storm better than other styles. We were right on with the high quality call, but the more defensive high dividend and low volatility positions underperformed the S&P 500. Given that my recession risk forecast has yet to play out, I continue to believe that these lower risk plays make the most sense. And I HIGHLY recommend put protection and specifically option collars.
3. The Canadian dollar will likely dip back below 70 cents under the weight of recession and general market weakness. This has not played out yet and I still have this view.
4.WTI will likely head back to the low $30 or upper $20s once the recession fully plays out. We expect stability around the $50s for now. We hung out in the low $50s for most of 2019, so we got this one right. The trend is lower for a retest of the 2016 lows as the recession plays out.
5. Canadian banks fall at least 25% from current levels. We know that no one wants to hear this, but in a recession, it should be your base minimum assumption.
6. The S&P TSX should test support around 11,000 – 12,000 (currently 17,000). These are recession bottom targets for some time in 2020. The bottom for the S&P 500 is possibly in the 1600-1800 range. International (Europe and EM) markets likely perform better than North American markets in a recession scenario given better valuations.
With the benefit of foresight, here’s wishing all BNN viewers a happy, healthy and “Sleep-at-Night” 2020.
For those that could not make it out to our live version of BNN Investors Guide to Thriving tour (Fixing Fixed-Income), we have an upcoming webinar. With bond yields likely to remain low for many reasons, some of which are global demographics and the massive existing debt burden, we explore the history of fixed-income and inflation and look at reasons yields are likely to remain low. As we age, we need our money to last longer and low real interest rates (after inflation eats away your purchasing power) are a huge tax on incomes. And while rising stock markets help, they only really help the top third of the population that benefits from exposure. So the average person is doing OK, but the median person is increasingly worse off. The bottom half of people have little to no income impact from the wealth effect of rising asset prices due to low savings rates, but are hurt most from low rates in retirement as they require the safest retirement income. The safe bond part of your portfolio is broken, perhaps permanently impaired for decades. You will need to learn to get creative to enhance your REAL return on your fixed-income. Join the webinar on Dec 10th and learn how. Click here to register for the webinar.