Here’s what I love about annual economic forecasts
Three “big ideas” about the 2020 economy emerged from five economist and business presentations in Delaware in recent weeks.
1. Expect the robust equities market performance to continue, and, no, the public equities market is not yet “overheated” or overvalued.
2. Little reason exists to be concerned about a rebound in interest rates that would make borrowed money more expensive.
3. Coronavirus remains “the X factor” in the economy, creating some “whistling past the graveyard” false courage, but it really is the wellspring of uncertainty.
Speakers who furnished these prognostications included Wilmington Trust / M&T Bank economists; a Legg-Mason economist for WSFS Bank; Federal Reserve Bank of Philadelphia President Patrick Harker; an Alliance Bernstein economist; Northern Trust Bank regional leadership; and investment counselor Michael Farr.
Among other important takeaways:
- For investors seeking greater alpha return, alongside a modest risk profile, the proportionately undervalued asset class right now is dividend-paying stocks, a view offered by the Legg-Mason economist for clients and friends of WSFS Bank;
- Another asset class worthy of attention, because of the opportunity for the above-index returns it offers, are non-publicly traded equities, a view offered by Bernstein’s analysis, an advantage the global powerhouse has over others, in making access available to such equities; and
- Reminiscent of the Millennial “tech boom,” it’s the tech industry stocks – Apple, Amazon, Google and five or six others – that are the point of the sword in market performance, both in disproportionate size and higher performance, a point by analyst and manager Michael Farr for Lyons Insurance.
At the risk of appearing to become “a nerd” about such things, as a lifelong economy watcher I confess to really enjoying such presentations, and I’ve gone to them for years. But I’d never represent myself as an economist. It takes an unusual professional who even wants to be an economist.
Scottish historian Thomas Carlyle called the field “a dismal science,” his observation inspired by Thomas Malthus observation – today referred to as “Malthusian economics” – that the population always would grow faster than food, dooming mankind to unending poverty and hardship.
The professional challenges for economists are indomitable.
As a society, we non-economists often try to treat the field as a science, when, in my view, it’s really an art. It focuses on both aggregation and disaggregation of human behavior as its currency, and it attempts to forecast in a limited away into the future by reliance on the past.
It was in “The Tempest,” where William Shakespeare wrote, “What’s past is prologue.”
It was another famous economist, and baseball immortal, Charles Dillon “Casey” Stengel who once observed, “Never make predictions, especially about the future.”
The bravado of economists cause them not to heed Mr. Stengel’s caution, something which I both value and admire.
Having attended such presentations for years – I remember similar ones by award-winning DuPont Co. economists Charles B. Reeder and Richard “Dick” Stuckey from more than 40 years ago – they always represent a delightful window into creating a sense of order from chaos.
What really struck me this year is that there was little remarkable in them. It was as if all of them had gotten together in the fourth quarter of 2019 and agreed that around the world they simply would extend the 2017-19 trend lines into 2020.
In America, it’s my view that economics and the economy are metaphors to the temperature gauge, where the convergence of government, Main Street and Wall Street are the metaphors for the sun and the climate conditions. It’s kind of an indicator about where we are on any given day.
Most interestingly this year, a few economists took note of “populism” in American politics – both on the left and on the right – as increasingly significant economic forces. That seemed a major theme of the Wilmington Trust/M&T presentation when I heard it twice, both at my Rotary Club and later at a M&T event for its clients.
Political populism, in the bank’s view, has the potential – like the coronavirus – to be a significant destabilizing factor in the American economy. If the new Marxist wing of the Democratic Party prevails, through the nominating process and in November, it’s a whole new game for the American economy, given its promise to confiscate wealth from families who have earned it and redistribute it to others who have not.
On the Republican side, where aggregators of capital always have been respected, if not honored, President Trump continues that adoration of capitalist values.
It’s a massive clash for the ages in American values.
But, the X-factor, as noted, is the coronavirus. And it was particularly interesting to me to see that even in just the three or four weeks that these five events occurred, the view of the coronavirus on the economy became increasingly grave.
Near the end of them, professionals like Farr were taking note of supply-chain disruptions for product components and as well as outright product manufacturing for a variety of industries reliant on the People’s Republic of China, ranging from the automotive industry to the tech industry.
Although the window for such presentations had closed, it became a fascinating endpoint when last Tuesday’s 3.15% decline of 880 points in the Dow Jones index was largely attributed to issues around the coronavirus.
Takeaway then for 2020?
The economic outlook is good for 2020! Kinda. Sorta.
Sam Waltz is Publisher Emeritus of the Delaware Business Times.