Imagine the Unimaginables: 2019 Will be Driven by Animal Spirits – Just Going for It!

Food for Thought over the Holidays!

“Imagine the Unimaginables” is an annual attempt to identify what the capital markets are expecting in the months to come and therefore have efficiently discounted. It is an act of trying to identify consensus and then think of trends  that may defy that consensus and as a result create greater returns. Imagine the Unimaginables speculates what might happen in 2019 and is not yet discounted.

What is ‘Animal Spirits’?

Animal Spirits is a term used by the famous British economist, John Maynard Keynes, to explain financial and buying decisions in conditions of uncertainty. In Keynes’ 1936 publication, The General Theory of Employment, Interest and Money, animal spirits describes the human emotion that drives consumer confidence. In modern economic terms, animal spirits describes the psychological factors that drive investors to take action when faced with high volatility in the capital markets. The term is derived from the Latin spiritus animalis which means the breath that awakens the human mind. (

Animal Spirits is the combination of confidence and intuitive driven decision making – 

Imagine the Unimaginables: 2019 Will be Driven by Animal Spirits

Those who have known me over the years, have noticed that my predictions are usually a bit too early, often by one to two years, so it may be wise to take a look at the unimaginables from a year ago: Link to last year’s Unimaginables.

Actually, things looked rather upbeat and acted that way too a year ago. Global growth was in synch and at the end of 2017, we were fearful that the long bull market and recovery would soon come to an end and this fear loomed over the course of 2018. Now we are actually experiencing considerable doom and gloom. With all the looming fear going into 2018, it felt contrarian to be optimistic and forecast more of the same. This ‘more of the same optimism’ lasted a little over a month until the first blast of market volatility hit in February, but the US markets recovered with strong underlying economic support until October and wanted to again in December…not happening. Not happening, volatility rules. Europe and China disappoint in 2018. As a result, my expectations a year ago for Europe to outpace USA economic growth, calling for a rise in interest rates to more normal or positive levels… was too early. Another unimaginable that I got right, but the market wants to challenge is that inflation remains elusive and bonds should rally if the market accepts this (they didn’t ytd)! Consolidation esp. among mid-sized companies seemed unimaginable due to high prices and mostly are family owned, but still competition and the need for scalability has made it a driver: Chemicals, Semi-Conductors, Pharma, Autos and Auto suppliers to name a few. This will continue in 2019 esp. if it is a matter of survival. Weak OIL was my big call and it was correct at the beginning and now —  it was simply reflecting an oversupply and changing demand parameters, not economic weakness. Green technology got a lot of attention, but it ended causing political upheaval (France and Germany) rather than outperforming shares. Tesla shares have come through at the end! In the US Midterms, Republicans lost the House, but still no signs of a Macron-type or third party challenger. Brexit is still on the table, but remains a challenging undertaking. Populists, including President Trump appear to also lose credibility, but remain “in your face.” And finally, women disrupted and took the lead in many ways esp. on the political front! Black Swans in 2018? “Tensions arise between India and China, as well as deepening between Saudi Arabia and Iran…. but America maintains the peace and eventually comes to the rescue (unimaginable?) while deliberately or not isolates China with an Indo-Pacific and Quad Alliances (Japan, Australia, India, and the U.S.)” The ultimate Black Swan turned out to be Donald Trump! Still keep these ideas in mind going forward! 

Copyright:(c) Zubada |


Now what can happen in 2019 that most cannot imagine:

Unimaginable #1: This recovery cycle is NOT nearly over! Unimaginable after 10 years. Consensus leans more and more into an imminent recession camp. Animal Spirits will keep driving confidence in growth and employment esp. in Europe where they simply go for it – unimaginable! One indicator that will reflect this ongoing cycle: American mobility. Many have not been able to move because of negative equity on their houses. That is changing.

  1. US Mobility continues to decline, but looks what happens when confidence picks up (1950-70, early 80s when the bull market started) 

    Source: @graykimbrough / WSJ-The Daily Shot (11DEC2018)

    This chart shows the share of house listings with price cuts–implying greater affordability

     Source: @WSJ; Read full article/WSJ-The Daily Shot

    The number of US homes flipped – negative phase, temporary?

    Source:, h/t Paul Menestrier; Read full article /WSJ -The Daily Shot
  2. Time to look at US Homebuilder shares after their poor performance in 2018 as markets anticipate higher rates and possible economic slowdown?  From 2003 to present: XHB, NAHB Index, Toll Brothers, Pulte, Dr Horton, Lennar (Source: Bloomberg)

  3. The fact that consumer cyclicals and technology are leading sectors should fascinate all the finance nerds that study business/economic cycles. Both consumer cyclicals and technology tend to outperform during early expansionary phases after a recession. However, the U.S. economy is in the ninth year of its recovery since the Great Recession.” ” Kate Stalter Forbes Contributor, August 2018
  4. The jobless rate remains near multi-decade lows and is well below the natural rate of unemployment. This trend suggests that the US is in a later phase of the economic cycle and wage growth should be accelerating. Labor mobility can change behavior. The Economist attributes the very low Natural Rate of Unemployment to the patience of the FED. And they mention, there are still a great number of unclassified unemployed because they are no longer looking for work, and this implies there could be a steady stream of people re-entering the workforce. So maybe this indicator should be regarded as unprecise.
    Source: FRED / WSJ-The Daily Shot

Unimaginable #2: Manufacturing, not tech captures the attention of stock investors— again reflecting the ongoing cyclical recovery. This should favor European and esp. German shares. This will also be reflected in stable oil (rather than a more imaginable volatile oil price).

Tech shares dominate the top ten S&P 500 stocks. Judging from the chart below, if we are in a earlier part of the recovery, then cyclical industries may main join forces with Tech from a lower base as in the early 90s or 2003/04

Source: @axios; Read full article /WSJ-The Daily Shot

Manufacturing in China – Should We Stay or Should We Go?

Businesses with plans to relocate manufacturing out of China – no longer so competitive?

Source: AmCham South China, ANZ Research, WSJ-The Daily Shot (19NOV2018)

If the USA gets her way in the China-US Trade War, Europe would be in a Win-Win situation!

This chart shows the EU’s goods exports by destination.

Source:, h/t Paul Menestrier; Read full article / WSJ The Daily Shot

Unimaginable #3:  Like in 2018, inflation remains elusive such that rates stay low and bonds stabilize at a high level AND economies get additional stimulus from fiscal spending and favorable tax policies! These policies are meant to improve the quality of life of the average citizen (response to the French “Yellow Vests”, improve roads and bridges in the USA and giving less skilled labor decent paying jobs, similar policies in southern and Eastern Europe will contribute to revitalized growth). Cyclical growth (Unimaginable no. 1) will create sustainable growth and perhaps make last year’s unimaginable of Europe outgrowing the USA more feasible.

Stronger wage growth points to higher core CPI in the euro area next year, – consensus(?) — the ECB is not so concerned! Wage Growth in any case points to potential greater demand in Europe!

Source: Nordea Markets / WSJ-The Daily Shot

“One of the reasons for the rise in Treasury prices in the face of what appeared to be positive economic news has been short-covering. Large speculative accounts used the trade-war “ceasefire” as an opportunity to cover their short Treasury bets. The position unwind has been taking place since October and may have more room to run.” (WSJ-The Daily Shot, Dec. 4, 2018)

Rising global economic risks are contributing to this trend.

Source: @LizAnnSonders, @BofAML, @biancoresearch / WSJ-The Daily Shot

Unimaginable #4: Britain opts for a no deal Brexit! Animal Spirits in full display!

Unimaginable #5: European Populists do extraordinarily well in the May 2019 elections helped by Brexit and Social Media… Social Media (Facebook and Twitter) is blamed and  subjected to heavy regulation or even forbidden as a threat to democratic values…

This chart shows Italy’s credit growth vs. the Eurozone–catching up, but still not growing as much as EMU…

Source: ECB, Bank of Italy, WSJ-The Daily Shot (19NOV18)

Unimaginable #6:  “Disrupt the Disrupters” – Not only Border Walls, but also Cyber Walls or rather Fortresses get built and prevail–no longer a trade war, but a cyber one! A Black Swan!

Expanding platforms for social media, free speech and open sourcing with so much freedom become even more abusive, hacking, corruption, robbery and pain requiring policing and regulation. With the shutting down or heavy policing of Facebook and Twitter, open sourcing also gets scrutinized and loses value as tighter regulation challenges business models. Cash (Flow) is King! 

Unimaginable #7: Ecology and Global Warming measures get temporarily sidelined as the infrastructure does not yet exist for mass electric car use, efficient and cheap batteries and their eventual disposal. First steps first.

It looks like global warming will take a back burner. The clean up which really has to get started and take off in China, is way too expensive and the alternative solutions (electric cars) as well. You need to keep creating wealth first. 

Has the (US) nation’s household wealth peaked? Maybe not…

Source: @EconguyRosie /WSJ-The Daily Shot

We should witness an even louder campaign to raise even greater awareness and the whole tech and startup scene should concentrate on making the fight against pollution affordable and lucrative at the same time. Oil guys are way too powerful. (NY Times paywall)

Unimaginable #8:    The Short selling Uptick Rule is re-instated confusing many algorithms, and classified as gambling and taxed accordingly, plus borrowing shares will be subject to usurious  rates. 

Unimaginable #9: What Volatility? High volatility is one of the most underlying expectation for 2019, be it oil, interest rates and/or the stock market. But if we are still in a cyclical growth world, volatility like inflation might actually be elusive! The following podcast from Bloomberg explains why consensus should expect high volatility. Bloomberg Podcast: All about going long volatility and avoiding a “repeat” of the Crash of ’87!

Oil Volatility? Lots at stake for some oil producing countries!

This chart shows the breakeven price of oil for mostly OPEC producing countries and why OPEC and other producers need a higher price! Qatar is at the bottom at $47 while Venezuela is at $215! The USA which is  not shown is apparently around $44, Saudi Arabia is at $88 and Russia at $53.

Source: IMF, ERC Equipoise Ltd., Renaissance Capital, Rockefeller Treasury Services

Unimaginable #10: Women Disrupt! 2018 – The Year When Women Led the Way! Many start to wonder if we may experience setbacks in the progress women made in 2018, but unlike the global warming, women will continue to dominate headlines in successful business and political ventures.


Call this Food for Thought… I am eager to hear from you! Things might turn out much better than expected!

Heres wishing you all a joyous holiday season and a prosperous and successful 2019!

 May Peace be with You and Be Brave, Use Your Imagination and Let Your Animal Spirits Lead the Way!

”Guten Rutsch” (Good Start/Slide) into the New Year!





S. L. Haight-Kuntze, Founder




One Reply to “Imagine the Unimaginables: 2019 Will be Driven by Animal Spirits – Just Going for It!”

  1. Thanks, Stephanie, for putting this all together. I’m more encouraged…except for the sidelining of global warmi!g concerns which seems more urgent than ever. Have a prosperous new year!

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