Published December 15, 2018
“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.” (https://www.investopedia.com/terms/a/animal-spirits.asp)
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.
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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.
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).
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.
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…
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!
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.
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!
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!
This year’s Pantone color of the year? Living Coral. (Elle Décor)
“Living Coral, also known as Pantone 16-1546, is a warm, peachy orange with a life-affirming golden undertone. The color evokes vitality and buoyancy; the marine invertebrate get its vibrant tone from the tiny algae living on its surface.
“In choosing the color of the year, we look at everything around us. We look to see what people are doing in beauty and in fashion and in art; we look to see what people are wearing, and buying, and posting about on social media. In a time when so many of us are increasingly immersed in digital experiences that can be cold and isolating, Living Coral felt like an appealing shade of connection. There’s just something about the color that feels earthbound and welcoming, optimistic and intimate. And those are the exact reason’s Living coral is so applicable in the home and design space.”