The last month of the decade has passed. We can now start warming up for the new year. Before we dare to think of a repeat of the “Roaring 20s”, we can already establish that behind us are the “Roaring 10s”. But without the spectacular decline at the end. As it was a bit like it in 2019. Markets continued to move up and did not care much about the lukewarm and sometimes even cool economic figures.
Even long-term interest rates sniffed at the 0 level, as a sign that economic growth in Europe could expect a period of thaw. Neither the ECB nor the Bundesbank really believed this, but stock markets remained so hot that we got all the comforts of home. Even if it could have been a lot warmer, of course, if we had looked at the economy in a less cool and reserved way.
All-in all, it was the year of Global Warming, in which just about everything warmed up, also outside the stock market, and where climate deniers lost a lot of credibility. But if your village burns down and you have to flee into the sea to save your life, as happened in Australia, after months of fires, one really starts realizing that it can’t go on like this. And that Australian real estate is not included in our Real Estate portfolio this coming year.
The pace at which the predictions about sea level rise increased during the year, was also remarkable. It must be feared that the future of The Netherlands will be less grand than its past. Although the discussion about this remains remarkably quiet in our low lying country. At this delicate existential point we are still in the phase of denial. But who will buy houses built below sea level in 10-20 years? Could renting in due course become a lot more attractive than buying? I would not be surprised, but for the time being I do not see people leaving their owner-occupied houses en masse.
The Netherlands? Oh, water under the bridge, or “let’s put sand over it”, as we would say in Dutch. But on a serious note, the demand for sand is increasing sharply and a number of low-lying countries, such as Singapore, Vietnam and Indonesia have already banned the export of sand. Own soil first is not a luxury in Jakarta! Maybe sand will soon be a new asset class! As a suppletion to your rented property now that you may have some cash left.
But before you dust off your swimming diplomas, you had to quickly put your new electric car with a substantial tax advantage on the driveway. Pff, you were only narrowly in time, but good for you you succeeded… What you’ve got left to do is to look for a spot in a winter sport place above 3000 meters and your skiing holiday has also been saved again. For next year that is. In the years thereafter, your 2nd home in the Alps could become useful as an escape location.
But where do you flee to with your money? Is the interest rate rise just in time to thwart the penalty interest on your savings? And is Europe ready for a renaissance now that the dollar has fallen to around 1.12? Or will those American tech giants continue to dominate in 2020? In any case, we opted to invest some more in relatively high-yielding Emerging Market bonds. Should the dollar weaken a bit further, it will ease the debts of these countries and on the other hand strengthen their local currencies.
For a moment we thought that the Brexit saga had ended, but Boris keeps the tension high: without a new trade deal before the end of 2020 we will still be confronted with a hard Brexit. Amid all the euphoria about the election victory of the Tories and the deal with the EU, this is an strange news fact to keep bearing in mind.
Another new fact from 2019 is the changing climate on the street: street protests will not just disappear in 2020. Where politicians do not succeed in convincing their citizens, these will slowly but surely and in increasing numbers take to the streets. In an increasing number of countries, rich or poor, democratic or authoritarian, citizens are taking to the streets to underline their hopes, desires or demands. That leads sometimes to more money or more freedom, but sometimes only to rubber or even real bullets. Which in turn will lead to economic slowdown, sometimes even to a standstill, but so far these protests have not really impressed markets. Like if it will all blow over soon, but I have my doubts here as it seems that public resistance is on the rise, worldwide.
“Peace on Earth” is what we traditionally wish each other at the start of a new year. Given the heated conflict between Iran and the US, this new year already has a hot start. It’s a bit more peaceful on the trade front. With the World Trade Organization (WTO), recently being sidelined by the US, a first cease fire was noticeable between the US and China that prevented even heavier skirmishes. Whether companies will resume their cross-border investments remains highly questionable. It is more likely that producers will increasingly build factories in locations where products are being sold (local for local).
So while producers may hesitate, consumers could make the difference. The consumer who is benefitting from wage increases, both in the US and in Northern Europe. So we are relying on you, dear reader! You are therefore bearing a heavy responsibility. Anyway, you have always been the most important for our future…
And on that note, we wish you a sparkling and inspiring New Year.
BY: WOUTER WEIJAND, Chief Investment Officer