The year 2018 was anything but boring. Currently in the midst of the worst December for equity markets, in the history of equity markets, investors are reeling from a year-end beating. Some investors argue that markets have been on a decade-long rally and that a correction was due. Some argue the perfect storm of rising interest rates, exploding income inequality, trade wars, and the resurgence of protectionism and nationalism will spark the greatest recession since the Great Recession. While I don't doubt that markets have been due for a correction, I don't believe this will be like other corrections before it. I predict a multi-year recession with a major re-alignment in investments in 2019.
The U.S.-China trade war will be decided in the first quarter of 2019. The new paradigm in Syria will play out in 2019. The Mueller investigation will come to an end and its results announced in 2019. The U.S. presidential election season kicks-off in 2019. Brexit and the trajectory of the European Union will be decided in the new year. These issues, to name a few, will make for a very risky 2019. The current sell-off in markets could be an indication of fear gripping investors in the face of such a tumultuous environment in 2019.
Cryptocurrencies have seen a collapse like they've never seen before. I had predicted a 90 percent drop in the top three cryptocurrencies in 11 months time and at present Bitcoin is down 75 percent in the last year, Ripple is down 65 percent, and Ethereum is down 83 percent. I stand by my prediction and will refresh the data on the one-year anniversary of that call as I believe the end is very near for currencies that can't fulfill their roles as currencies
For Turkey, 2019 looks to be a reversal of many of the difficulties it faced in 2018. While the currency has rebounded, the real economy is at a fork in the road. Should fundamentals worsen, Turkey will be in a very difficult spot. Should things improve, however, Turkey can very well be the beneficiary of an investment environment that will see funds flow into the country. On Thursday President Donald Trump said that he discussed "heavily expanded" trade relations with Turkey. This is in juxtaposition to where Turkey and the U.S. were in 2018. Should Trump and President Recep Tayyip Erdoğan come to an agreement with lowering of trade barriers and improved cooperation over trade, both countries could very well benefit with Turkey benefiting the most in the short-term.
On May 23, members of the European Union will vote in EU parliamentary elections. With current anti-EU sentiment boiling over in Italy and other major eurozone countries, their votes will be especially important. Will the "leave" voters in the U.K. stick by their guns and see the U.K. through a successful Brexit? Will Brexit happen at all? Or will, in the worst case, will an unsuccessful Brexit be pulled-off? One that will leave both sides, the EU and the U.K., bruised and battered? I believe that either the U.K. will "cancel" Brexit before the March deadline or it will negotiate a Brexit that isn't nearly as "exit" as it is a limited removal.
Finally, the Federal Reserve (the Fed) and the fall-out from the current decline in U.S. financial markets. President Trump will be able to scapegoat both the Fed and his Treasury Secretary Steven Mnuchin for the decline in financial markets. Not that he is solely responsible for this "correction," but President Trump will need to assign much of the blame for this decline on members of his cabinet, Congress, and the Fed. With the latest hike, the Fed will now pause, despite the Fed's statement that they will hike twice in 2019, and I believe the Fed won't hike at all in 2019. We may even see a rate cut by the summer.
Whatever the results of many of the issues we've discussed, 2019 will be a very exciting year and it will be interesting to see how many of these crucial decisions are made. Here's to a healthy, happy and peaceful 2019 for all.
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