Greyerz: 2020 – Standing On The Edge Of A Precipice

As the world edges closer to the next crisis, today the man who has become legendary for his predictions on QE and historic moves in currencies and metals told with King World News that as we enter 2020 the world is standing on the edge of a precipice.

(King World News) – Egon von Greyerz:  “2020 – what an ominous year and even more so what an inauspicious decade. 

2020 is of course perfect vision or “facilely accurate judgment or assessment” as Webster’s defines it. 

So why should we be able to forecast the 2020s better than we have the 2000s or the 2010s? Well, I can with confidence say that we won’t…

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Who, 10 years ago, could have forecast that the Nasdaq would have gone up 7x since the 2009 bottom? Or that global interest rates would be around zero or negative for most of the last decade. Or that global debt would double since the Great Financial Crisis started in 2006 from $125 trillion to $260 trillion. And with all that money printing, who would have believed that gold in US dollar would still be below the 2011 peak of $1,920 nine years later?

It all goes to show that forecasting is a mug’s game. But many lucky successful investors would disagree with this statement. So would my good friend Alfred whom I wrote about in February last year.  Alfred has been fully invested in the US stock market since 1945 and has made a fortune in spite of many vicious pullbacks. 

Alfred proved that by always being long the market, you outsmart at least 99% of the professional investment managers who unsuccessfully try to time the market and turn over their portfolio frequently. 

So Alfred had another good year with the Dow up 24% in 2019. What a good life, you just follow the index, don’t do any analysis, don’t time the market, never sell and just, never read any financial news and just enjoy your retirement. Alfred has done this for, soon, 75 years and is unlikely to change his simple investment strategy. Why should he since by just investing his savings he now has a portfolio today worth $16 million (chart shows $14M)? Will Albert be lucky for another year? As always, we will know afterwards.

Many experts are sitting down at the beginning of the year and of the decade to make intelligent projections. I shall try to resist being a mug this time. There are so many others who will do this and most of them unsuccessfully. This still won’t stop me from giving some hints at the end of the article. 

But I believe, like many others that have views about market direction, that the most important factor for this coming decade is not to make money but to survive financially. 

The 2010s was a decade of fantasy – fantasy markets, fantasy valuations, fantasy money, fantasy debt and fantasy central bankers. For the people who have benefitted from this fantasy world, it clearly seems very real. Will the fantasy world continue for yet another decade? That we will know by 2030. The majority of all investors who benefitted in the 2010s are clearly not going to change their stance at the beginning of the 2020s. 

Traders are aware that the most dangerous period in their trading is after a major win in the market. That is the time when they think they are masters of the universe. There are many examples of this. Take hedge fund manager John Paulson who after his subprime mega gains has lost the majority of his assets, going down from $36 billion at the peak to $8 billion.

It will be the same today for most investors whether they are in stocks, bonds or property. They now believe that they are totally invulnerable and know it all. The same thing happened during the Nasdaq boom in the late 1990s. In early 2000 every investor was an expert on tech stocks. Two years later with the Nasdaq having crashed 80%, there was not a tech expert to be found. 

Standing On The Edge Of A Precipice
Today, after another record year in most global stock markets, very few investors show any concern. Why should they? After all, many investors are now wealthier than ever. So are we now standing on the edge of a precipice like in 2007, 2000, 1987, 1973 or 1929?

Those years are examples of peaks with subsequent falls in the various indices of 50% to 90%. We must remember that these were average declines and many companies disappeared. In 1973, I worked for Dixons Group in the UK and can vividly recall how my first options went from £1.27 to £0.09, a 93% fall. The company was financially strong but being in consumer electronics, it crashed a lot more than the market. Still, Dixons recovered and by the 1980s we had built it to a FTSE 100 company and the dominant consumer electronics retailer in the UK. 

After a long life in business and in markets, I have learnt that it is virtually impossible to exactly time tops or bottoms. As the economist John Maynard Keynes said, “The market can stay irrational longer than you can stay solvent.”…….More Here

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