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Loss of the Landline

With the holidays soon upon us, the news has gotten decidedly slow.  However, it does seem a trade deal is imminent as of this writing, which is a nice step toward more normal trade relations with China. Also deals appear to have been reached on both the USMCA (NAFTA replacement) with Mexico and Canada and an agreement between both parties in Congress on the $738 billion National Defense Authorization Act. I can’t recall the last time our government got so much got done in just one week. Perhaps with the year quickly drawing to a close, there are good tidings for Christmas and a Happy New Year?

Let’s start with the trade deal. From early readings, it appears both sides have agreed to roll back approximately half of the tariffs on $375 billion in goods. In addition, President Trump appears willing to forgo further tariffs on $160 billion in goods scheduled to take effect this Sunday. This should provide a tailwind to the economy going into 2020 with potentially a phase two providing further trade relief in the first half of next year.

Perhaps not surprisingly, this is the time of year analysts put forward their prognostications for the coming year. At the end of last year, 8 in 10 analysts were pessimistic putting the chance of a recession by the end of 2019 north of 70%. Listening to them were the investors that yanked a record $135 billion from U.S. stock-focused mutual funds and ETFs this year, the largest exit ever. Unfortunately for those who pulled their money out, they missed out on what’s shaping up to be the market’s best year since 2013. It just goes to show that analysts don’t have any special powers of prediction, and that trying to time a market can often lead to poor outcomes.

In other news, JPMorgan announced it expects the stock market to rise 8% next year. On the basis of its reputation and considerable number of analysts analyzing the data, one would think this is a very solid forecast. However, if we take a moment to look at historical returns, we’d find that on average the stock market annual return from its inception (1926-2018) is about 10% while the average annual return in the modern era (1957-2018) is 8%. So upon further reflection, it doesn’t seem JPMorgan is going too far out on a limb with this guess.

In economic news, U.S. mortgage delinquencies continue to decline. The percentage of U.S. mortgages in some stage of delinquency declined to 3.8% in September, down 13.5% year-over-year. Also, for the eleventh straight month, the U.S. foreclosure rate was the lowest in at least 20 years. No U.S. states posted a y/y increase in overall delinquency rate in September. Given the low rate of unemployment and modest inflation, this shouldn’t come as a surprise. However, it is just one more indication that the economy is doing just fine for now.

As for corporate news, we learned this week that the recently merged SunTrust Bank and BB&T will change its name to Truist Financial. This combined bank will be the sixth largest in the United States. Also this week, Aramco finally had its initial public offering (IPO). We’ve been watching this unfold for several years, as Saudi Arabia plans to diversify away from oil as its major industry. Aramco raised over $25 billion but more importantly has a valuation over $2 trillion. This is almost double the next largest company in the world which would be Apple at $1.2 trillion.

I’m hesitant to mention that the Federal Reserve met this week and to no one’s surprise kept interest rates steady. That is not really news since no one expected a change. However, the Fed did indicate it expects to keep rates where they are for 2020, which is a little surprising. Considering the Fed said it was going to continue raising rates at the end of last year, only to lower rates three times this year, I’d say take this announcement with a grain of salt. It will do whatever is necessary as the data and the economy dictate.

In closing, I came across an article this week that gave me pause. The title is “How the Loss of the Landline is Changing Family Life.” Of course the ubiquitous cell phone has changed things, but upon reading the piece it made me a little nostalgic. Children growing up today will never hear the phrase, "I’ll get it", "He’s not here right now", and "It’s for you". Let that sink in. Perhaps most intriguing is what the article calls “the loss of the shared social space of the family landline.” I know having a shared line was not always ideal, but it did foster a sense of sharing and a sense of family that seems lacking today. I’m not advocating for going back to landlines, but like I said, it did make me a little nostalgic. I’ve linked the article in the title above. Give it a read and let me know what you think. Now you know.

Bruce J. Mason, MBA