What We’ll Be Talking about in 2020
Just like that, we’re back.
Somehow I managed to not check emails at all — and my inbox shows it this morning.
I managed to avoid almost all financial newspapers…although I did keep sneaking a peek at the gold charts.
Nonetheless, I’m excited to be back at my desk writing to you. There’s fresh new stationary and a wall planner already filling up with ideas and plans for the year ahead. And just like last year, the dog is proving to be a perfect footrest.
I’m already putting together some analysis to share with you later in the week.
But while I was on my break, I realised there are some key themes we’ll probably focus on this year…
Gold, gold, and more gold
Like all other years, expect gold to be a key part of The Daily Reckoning Australia.
However this year it won’t just be me and a couple of other renegade analysts talking about it…
But before we get to this year, let’s recap what happened last year.
Turns out, the Santa rally did come to gold.
From Christmas Eve through to New Year’s Eve, the yellow metal managed to rally an impressive 2.9% to finish at US$1,524.
While that figure is down from the US$1,560 high it made during the year, gold started 2019 at US$1,283. Meaning gold gained an impressive 18.7% over 2019.
And if you thought the gains for gold were exciting last year, you ain’t seen nothing yet.
While I’ve been waffling on about the yellow metal for all of last decade, 2020 will see precious metals get more attention from the mainstream.
There were a handful of articles from mainstream financial rags towards the end of 2019.
Over the course of this year, I expect to see a slight — and perhaps reluctant — focus on gold from their financial writers.
There are many economic commentators and economists that think gold is useless, but when something gains over 18% in a year, it gets harder to dismiss.
To be honest, I believe gold is capable of a similar performance for 2020.
I’ll provide a more in-depth forecast later in the week, but I wouldn’t be surprised to see gold gain another 15–20% in 2020 alone.
That means the metal could end up as high as US$1750–1,820.
Possible? More like probable…
What the Aussie dollar does next
Central bank watching will get more important in 2020.
Although I don’t think their moves this year will be unexpected.
I’ll be keeping my eye on all the central banks which are breaking ranks and buying gold.
But be prepared for more rate cuts from our own Reserve Bank of Australia. Negative interest rates — while possible — might not be a problem for 2020.
Given we had two rate cuts last year, we already know the RBA doesn’t give a rat’s backside about fuelling credit-driven house price growth.
There will be two factors that justify rate decisions: the Aussie dollar, and consumption (how we spend our money).
Where the Aussie dollar sits is crucial to local consumption (what we buy from overseas) just as it is important to our exporters (so miners, famers, medical products etc.).
The thing is, if the Aussie dollar is too low, it becomes too expensive for consumers to buy products from overseas — which is pretty much everything but food in Australia.
However, if the Aussie dollar gets too high, then the products we export become too expensive compared to other countries, and they take their business elsewhere.
I’ll explain more on that later this week…
The economic impact of natural disasters hits home
But perhaps the biggest subjects for 2020 will be unavoidable. Such as the economic impact from natural disasters.
Now, I loathe discussing anything climate related. There’s very little healthy discussion around climate change. Nothing but hysteria from both sides.
However, the intensity of this year’s bushfires have really brought home how the bushfires aren’t just a ‘country’ problem anymore.
In fact, the fires ripping through the country as I type will have years’ long impact. And we are starting to see how natural disasters and climate science findings are going to disrupt our economy going forward.
The Aussie bushfires are crippling small towns, but there will be direct and indirect costs that impact all of Australia.
The obvious direct impacts are insurance premiums rising across the board.
But what if further down the line, insurance companies refuse home insurance to people in bushfire prone areas? Or jack up the cost so high that the cost of insurance sucks money out of other forms of consumption?
The indirect costs are harder to see, but the economic impact will be felt.
For starters the bushfires changed my own camping plans this year. Instead of heading up to national parks near Eden, New South Wales, I switched and went to the sand dunes of Robe, South Australia.
Did it bother me changing my location? Not at all.
Nonetheless, I wouldn’t have been the only one. And as a result, several small towns lost out on crucial income they rely on at this time of year.
Not only that, but given how devasting the fires have been, how long will it take for tourists to come back to the fire-affected areas? How will small businesses rebuild themselves if they have no one to serve?
Furthermore, there are roughly 177,000 volunteer firefighters across Australia (roughly 1.4% of the total people employed in Australia).
Many of these firefighters will forgo their income to go battle these blazes.
Reducing their income, and given that they may own small businesses, closing businesses even for a short period of time can have a long-term impact on income and their own financial stability.
Given some of these fires have been raging for months, at some point this lack of income is likely to start showing up as a reduction of personal consumption in GDP.
Already we are looking at a couple of billion in damages and the fires aren’t even out. Nor has the worst part of bush season arrived.
In other words, the worst is yet to come.
Already the Australian Financial Review reckons the recovery period from these fires could be a minimum of two years alone. That’s based on the damage done to date. How many billions in damage will be done by the time the fires are out?
To compound all of this, are the highly secretive water rights for irrigation.
Some crops in Australia require more water than others, and companies are allowed to buy water from other sources.
The thing is, it’s rather opaque and very little information finds its way to the papers.
But the fact is, companies and farmers are allowed to buy water for their crops which upsets the natural flow of rivers.
Leaving certain areas far drier than they would be…and the drier the land the more vulnerable to fire. This is effectively doubling down on drought conditions.
We’re only a few days into the New Year, and this is what they reckon we’ll be chewing on.
And in between that, there are privacy violations, sneaky government reforms, indoctrination and human rights abuse in China, a new commodities boom, and the daily stock market gyrations all to help preserve your wealth.
Settle in folks. Here at The Daily Reckoning Australia, 2020 will be our best year yet.
Until next time,
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