If 2018 proved anything, it was that, from a risk management perspective, unpredictability will continue to rule the roost and "the unexpected" will continue to reign supreme. This trend has now become well established, leaving risk managers to wonder how best to prepare for the future.
What follows are my predictions for some of what may be in store for 2019, based on a current read of the headlines, but also based on the magic ingredient that all good risk managers possess: gut instinct.
If a Move To Impeach President Donald Trump Proceeds, It Will Not Be Successful in Removing Him from Office
The Robert Mueller investigation will reach a conclusion, and the trail of breadcrumbs may indeed lead to the president's door. That does not, however, mean that he will necessarily either be successfully impeached or removed from office. President Trump is too smart to leave himself so exposed, but apart from that, there must be incontrovertible proof that he broke the law and two-thirds of the US Senate must vote to impeach him. I do not believe either will happen. It is a certainty, based on the composition of the Senate, that he will not be impeached in his first term.
The Democrats should not spend any time trying to achieve that and should instead focus on getting things done, to the extent that they can. Both parties should learn, once again, what at one time not so long ago came instinctively: to reach across the aisle.
A Solution Will Be Found to the China/US Trade War, Placing China on a Closer to Equal Footing
Both the Chinese and American economies are hurting as a result of the trade war, but China is hurting far more, with its stock market and currency crashing and a slew of economic indicators pointing to a difficult 2019. The damage on the US side is much more contained, but its effects are certainly being felt. That said, both sides are incentivized to find a solution.
While this may not be achieved within the current 90-day framework, it will eventually be achieved, for there is no other viable option. China will need to get used to not having free rein to do as it pleases in and with the US economy.
The Backlash against China's Belt and Road Initiative (BRI) Will Grow in the Developing World
More and more countries around the world are having second thoughts about continuing to subscribe to Beijing's BRI, which is designed to enhance China's soft power through the distribution of aid and construction of major infrastructure projects throughout the world. Many smaller and poorer countries have come to realize that the BRI can be a debt trap that they cannot afford to repay. The backlash has already occurred in parts of Africa and Asia. Expect more of that to occur and for more countries to say they have had enough.
Europe Will Become Even More Fractured, and Its Surge to the Right Will Continue
The Yellow Jacket movement in France is more evidence of how fractured European societies (and societies around the world) have become. More countries will reach a boiling point going forward, as decades of neglect and poor policy making by successive governments prompt citizens to revolt. As the scope of wealth inequality continues to broaden, more and more people in more and more places will feel the need, and become emboldened, to rise up.
The Stalemate in the Peace Process with North Korea Will Likely Continue, and Progress Will Be Incremental and Slow
There is too much history between North Korea and the United States, and too many broken promises by the North Koreans, for anyone to have imagined that progress since the Kim Jong Un/President Trump Summit would have been either swift or definitive. The process will continue, but in the absence of any meaningful concessions being made by the US side, progress is likely to be incremental and slow.
The Price of Oil Will Likely Stabilize in the $60s
It appears that the global suppliers of oil realize that an equilibrium has been established with the consuming community. A price in the $70s was unsustainable in 2018, and the $50s appears to be too low to be sustainable, so the price will likely stabilize in the $60s, barring some unforeseen shortage or disruptive political or economic event. With the United States having assumed the position of the largest global supplier of oil, the dynamics of the oil markets are changing. And with Qatar having expressed its desire to leave the Organization of the Petroleum Exporting Countries (OPEC), and other OPEC members considering it, there is a reason to believe that an unsettled supply marketplace will endure for some time to come, likely benefitting consumers rather than producers.
Cryptocurrencies Will Continue To Fall, and Bitcoin Should Settle in the $2,000–$3,000 Range
In their decade-long history, cryptocurrencies have already endured several booms and busts. That tradition is continuing and will continue well into the future. Until such time as investors truly understand cryptocurrencies, they are more widely accepted as methods of payment, and there is sufficient regulation to ensure their safe usage, wild valuation swings will also continue. Bitcoin is likely to settle somewhere between $2,000 and $3,000, but it could easily go lower.
The Long-Awaited US (and Possibly Global) Recession Should Begin in 2019
The United States is well overdue for a recession. Between the China trade war, frothy asset valuations, and deteriorating market sentiment, there is a reason to believe that the beginning of a recession could begin in 2019. Economists have of course been saying this for several years now, but we may have reached a critical juncture, given the performance of the US economy since 2010, which has been contrary to what history would dictate. The party cannot last forever.
In short, 2019 promises to be a year of transition and change, but the pace of such change may be enhanced by personalities and trends that are already influencing the landscape. Momentum is likely to gain pace as many of the issues that have been raised in the national and global economy, and polity, remain unresolved in the coming year. They must all eventually be resolved, and there is every reason to believe that some of them will be resolved in the year to come. The impact on some marketplaces, and the risk mosaic, are likely to be profound.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.
If 2018 proved anything, it was that, from a risk management perspective, unpredictability will continue to rule the roost and "the unexpected" will continue to reign supreme. This trend has now become well established, leaving risk managers to wonder how best to prepare for the future.
What follows are my predictions for some of what may be in store for 2019, based on a current read of the headlines, but also based on the magic ingredient that all good risk managers possess: gut instinct.
If a Move To Impeach President Donald Trump Proceeds, It Will Not Be Successful in Removing Him from Office
The Robert Mueller investigation will reach a conclusion, and the trail of breadcrumbs may indeed lead to the president's door. That does not, however, mean that he will necessarily either be successfully impeached or removed from office. President Trump is too smart to leave himself so exposed, but apart from that, there must be incontrovertible proof that he broke the law and two-thirds of the US Senate must vote to impeach him. I do not believe either will happen. It is a certainty, based on the composition of the Senate, that he will not be impeached in his first term.
The Democrats should not spend any time trying to achieve that and should instead focus on getting things done, to the extent that they can. Both parties should learn, once again, what at one time not so long ago came instinctively: to reach across the aisle.
A Solution Will Be Found to the China/US Trade War, Placing China on a Closer to Equal Footing
Both the Chinese and American economies are hurting as a result of the trade war, but China is hurting far more, with its stock market and currency crashing and a slew of economic indicators pointing to a difficult 2019. The damage on the US side is much more contained, but its effects are certainly being felt. That said, both sides are incentivized to find a solution.
While this may not be achieved within the current 90-day framework, it will eventually be achieved, for there is no other viable option. China will need to get used to not having free rein to do as it pleases in and with the US economy.
The Backlash against China's Belt and Road Initiative (BRI) Will Grow in the Developing World
More and more countries around the world are having second thoughts about continuing to subscribe to Beijing's BRI, which is designed to enhance China's soft power through the distribution of aid and construction of major infrastructure projects throughout the world. Many smaller and poorer countries have come to realize that the BRI can be a debt trap that they cannot afford to repay. The backlash has already occurred in parts of Africa and Asia. Expect more of that to occur and for more countries to say they have had enough.
Europe Will Become Even More Fractured, and Its Surge to the Right Will Continue
The Yellow Jacket movement in France is more evidence of how fractured European societies (and societies around the world) have become. More countries will reach a boiling point going forward, as decades of neglect and poor policy making by successive governments prompt citizens to revolt. As the scope of wealth inequality continues to broaden, more and more people in more and more places will feel the need, and become emboldened, to rise up.
The Stalemate in the Peace Process with North Korea Will Likely Continue, and Progress Will Be Incremental and Slow
There is too much history between North Korea and the United States, and too many broken promises by the North Koreans, for anyone to have imagined that progress since the Kim Jong Un/President Trump Summit would have been either swift or definitive. The process will continue, but in the absence of any meaningful concessions being made by the US side, progress is likely to be incremental and slow.
The Price of Oil Will Likely Stabilize in the $60s
It appears that the global suppliers of oil realize that an equilibrium has been established with the consuming community. A price in the $70s was unsustainable in 2018, and the $50s appears to be too low to be sustainable, so the price will likely stabilize in the $60s, barring some unforeseen shortage or disruptive political or economic event. With the United States having assumed the position of the largest global supplier of oil, the dynamics of the oil markets are changing. And with Qatar having expressed its desire to leave the Organization of the Petroleum Exporting Countries (OPEC), and other OPEC members considering it, there is a reason to believe that an unsettled supply marketplace will endure for some time to come, likely benefitting consumers rather than producers.
Cryptocurrencies Will Continue To Fall, and Bitcoin Should Settle in the $2,000–$3,000 Range
In their decade-long history, cryptocurrencies have already endured several booms and busts. That tradition is continuing and will continue well into the future. Until such time as investors truly understand cryptocurrencies, they are more widely accepted as methods of payment, and there is sufficient regulation to ensure their safe usage, wild valuation swings will also continue. Bitcoin is likely to settle somewhere between $2,000 and $3,000, but it could easily go lower.
The Long-Awaited US (and Possibly Global) Recession Should Begin in 2019
The United States is well overdue for a recession. Between the China trade war, frothy asset valuations, and deteriorating market sentiment, there is a reason to believe that the beginning of a recession could begin in 2019. Economists have of course been saying this for several years now, but we may have reached a critical juncture, given the performance of the US economy since 2010, which has been contrary to what history would dictate. The party cannot last forever.
In short, 2019 promises to be a year of transition and change, but the pace of such change may be enhanced by personalities and trends that are already influencing the landscape. Momentum is likely to gain pace as many of the issues that have been raised in the national and global economy, and polity, remain unresolved in the coming year. They must all eventually be resolved, and there is every reason to believe that some of them will be resolved in the year to come. The impact on some marketplaces, and the risk mosaic, are likely to be profound.
Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.