2020 Outlook

2020 Outlook

Entering year 4 of a 15-year private sector confidence cycle, expect a mixed bag for risk-on asset classes in a world weighed down by the continued miscalculations of public sector actors.

Major Themes:

  1. A Mixed Bag for Risk-on Assets in 2020: The S&P 500 rises modestly; so does Gold. Crude oil continues to fall and the US Dollar weakens.  
  2. Trump 2020: The 2020 election is Trump’s to lose. Like him or not, the private sector President rides robust economic growth to victory. Look to the 1948 Presidential election for parallels.
  3. A String of Conflict Pearls 2020: Elevated risk of the simultaneous breakout of asymmetric hostilities along a new Axis of War across Eurasia.
  4. Red Scare 2020: Anti-Chinese sentiment grows in the US – expect a high profile national security case and little if any further advancement in US-China trade negotiations.

This 2020 outlook is late and thus benefits from over a month of hindsight. Full code and data are on my GitHub under post 68.

A Mixed Bag for Risk-on Assets in 2020

I expanded my neural network Market Model, first discussed here, to project year-end levels for several asset classes. The training set for this analysis is monthly data on nearly 140 economic and market data going back to 1992 through December 2019. I use the most recent available data, and acknowledge that restatements occur.

[table id=44 /]

Major takeaways: Political risk likely limits the rise in stocks. Gold and equities can and have gone up at the same time, this year is no different. Crude oil continues to drop, as the coronavirus wreaks havoc on the Chinese economy. The US Dollar weakens.

Trump 2020

2020’s election resembles 1948. In both cases, an incumbent, abrasive President, considered illegitimate by many and hated by coastal elites.

A strong economy and the President’s resurgent popularity are likely to carry Trump to a narrow victory in November.

Most people focus on national polls and the President’s likeability. More importantly, the electoral map is completely scrambled. At the granular state detail, the President is well poised to hold the Rust Belt, as I wrote here. In that post, I also wrote about voter registrations in 2016 Democratic strongholds being below trend. As Iowa just showed, this trend is real.

This will be the third election since 2000 where Democrats win the popular vote and lose the Electoral College. Calls for change will continue.

The President’s Legitimacy

President Truman entered office as a result of FDR’s death and was viewed with suspicion. It became known after the election that he harbored insecurity himself and offered to serve as Vice President on an Eisenhower-Truman ticket in 1948.

Due to President Trump losing the popular vote by several million votes and the recent impeachment proceedings, many Americans do not view him as a legitimate President.

Campaign Style

Truman’s feisty campaigning style energized his base of traditional Democrats, consisting of most of the white South, as well as Catholic and Jewish voters; he also fared surprisingly well with Midwestern farmers. Dewey ran a low-risk campaign and largely avoided directly criticizing TrumanAnother reason for Dewey’s surprise defeat was his complacent, distant approach to the campaign, and his failure to respond to Truman’s attacks. Journalist Jules Abels wrote that the election was not thrown away by indifference or lack of effort. Preparation and more preparation had always been the distinguishing characteristic of Dewey and his team throughout his career…The truth is that Dewey’s campaign was the result not of careless, but too careful and painstaking, calculation. The Dewey campaign was frozen into inertia not because it had been underthought, but because it had been overthought.‘” – Wikipedia

Trump is President because he energized traditional Republicans and flipped traditional Democrats, namely white Southerners and Midwesterners. 

At no point in the 2016 election was any opponent of the President’s able to attack him with success. Right or wrong, this meant that Trump appeared to be the more energetic and feisty candidate in 2016. No 2020 Democratic challenger has demonstrated the ability to do better.


“Journalist Sidney Lubell found in his post-1948 survey of voters that Truman, not Dewey, seemed the safer, more conservative candidate to the “new middle class” that had developed over the previous 20 years…Truman’s campaign strategist, Clark Clifford, later said that Truman’s campaign was “pitched to four distinct interest groups – labor, the farmer, the Negro, and the consumer. Every move had these four interest groups in mind.” – Wikipedia

In 2016, the heartland embraced Trump as the champion of the new American middle class. A middle class, unfortunately, left behind in by globalization. Since then, economic gains are more widespread across the country. Can the Democratic nominee convince voters to vote for change?

The 2016 Trump campaign put on a microtargeting master class. Per Bloomberg:

Trump ran 5.9 million different versions of ads during the presidential campaign and rapidly tested them to spread those that generated the most Facebook engagement, according to the paper. Clinton ran 66,000 different kinds of ads in the same period.

Trump’s Campaign Said It Was Better at Facebook. Facebook Agrees
By Sarah Frier, April 3, 2018

With the 2020 Trump campaign led by 2016 campaign digital director Brad Parscale, expect much more of the same.


Since he was trailing in the polls, Truman decided to adopt a slashing, no-holds-barred campaign. He ridiculed Dewey by name, criticized Dewey’s refusal to address specific issues, and scornfully targeted the Republican-controlled 80th Congress with a wave of relentless and blistering partisan assaults. Truman claimed that ‘the Communists are rooting for a GOP victory because they know it would bring on another Great Depression.’ In several speeches, Truman stated that ‘GOP ‘actually stood for ‘gluttons of privilege’, and said that Republicans were ‘princes of privilege’ and ‘bloodsuckers with offices on Wall Street.’ He told one audience that ‘The Republicans have begun to nail the American consumer to the wall with spikes of greed.’ At the National Plowing Contest in Dexter, Iowa, Truman told 80,000 farmers in attendance that ‘this Republican Congress has already stuck a pitchfork in the farmer’s back.’ He nicknamed the Republican-controlled Congress as the ‘worst’, ‘do-nothing’ Congress, a remark which brought strong criticism from Republican Congressional leaders (such as Taft), but no comment from Dewey. In fact, Dewey rarely mentioned Truman’s name during the campaign, which fit into his strategy of appearing to be above petty partisan politics.”Wikipedia

The 116th Congress is an ideal foil for the President. Recent impeachment proceedings have given him ever more fodder. A “do-nothing Congress” is a tried and true Presidential election talking point.

“Under Dewey’s leadership, the Republicans had enacted a platform at their 1948 convention that called for expanding Social Security, more funding for public housing, civil rights legislation, and promotion of health and education by the federal government. These positions were, however, unacceptable to the conservative Congressional Republican leadership. Truman exploited this rift in the opposing party by calling a special session of Congress on “Turnip Day” (referring to an old piece of Missouri folklore about planting turnips in late July) and daring the Republican Congressional leadership to pass its own platform. The 80th Congress played into Truman’s hands, delivering very little in the way of substantive legislation during this time. Truman simply ignored the fact that Dewey’s policies were considerably more liberal than most of his fellow Republicans, and instead he concentrated his fire against what he characterized as the conservative, obstructionist tendencies of the unpopular 80th Congress.” – Wikipedia

Do the left-leaning positions of Senators Sanders and Warren represent the country’s views? Centrist Democrats like Speaker Nancy Pelosi and former Secretary of State Hillary Clinton certainly don’t think so. The truth seems irrelevant. This divide is an opening for the President to paint the Democrats as socialists. Expect him to do that day in and day out.


The 1948 Republican National Convention was held in Philadelphia, Pennsylvania. It was the first presidential convention to be shown on “national” television.” – Wikipedia

The President represents the epitome of a made for television and social media candidate. None of the leading Democratic candidates measure up on this metric.

Campaign Themes

“He spoke in platitudes, avoided controversial issues, and was vague on what he planned to do as president. Speech after speech was filled with non-political, optimistic assertions of the obvious, including the now infamous quote “You know that your future is still ahead of youA writer noted that the ‘one broad issue that Dewey set forth in the campaign was unity…but [he] was oversold on an issue which had no visceral appeal to the average American. It was hard to understand what Dewey was driving at. Sometimes it seemed that he was asking Americans to achieve unity by being united behind him.'”- Wikipedia

Virtually all of the Democratic candidates are calling for the country to unite, come together under new leadership. But like in 1948, there is no evidence to suggest that this is appealing to anyone in particular. A high road message of rising above petty partisan politics just doesn’t resonate with people, certainly not during an economic boom.

Foreign Policy

“Other possible factors for Truman’s victory included …broad public approval of Truman’s foreign policy, notably the Berlin Airlift of that year.” – Wikipedia

On this front, polling data suggests problems for the President.


The Economy

“After suffering a relatively severe recession in 1946 and 1947 (in which real GDP dropped by 12% and inflation went over 15%), the economy began recovering throughout 1948, thus possibly motivating many voters to give Truman credit for the economic recovery.” – Wikipedia

The current U.S. economy is booming. It’s that simple.

A String of Conflict Pearls 2020

The Council of Foreign Relations maintains a global conflict tracker. The latest tracker highlights a string of conflicts across Eurasia that will consume U.S. foreign policy for years to come. Ironically, the eastward push of these conflicts likely correctly focuses the U.S. on Asia-Pacific.


Each of these conflicts shares the same characteristics. All protagonists are authoritarian regimes, all face weakening economies and internal unrest, all are influenced by great game maneuvers between the U.S. and China, all have sought out asymmetric military capability, and all except one are in some form of conflict with the U.S. or its allies. While this suggests each protagonist is holding a weak hand and will not seek wider confrontation, long-simmering regional and/or border conflicts are a basis for hardliners inside these regimes to push for asymmetric action against the U.S. or its allies in the respective region.

India and Pakistan

Since unilaterally revoking Jammu & Kashmir’s special status in November, the Indian government has faced only a tepid response from Pakistan. The latter is in a greatly weakened economic state. In late January, Pakistan’s Prime Minister Imran Khan, at Davos, called for the UN to mediate his country’s dispute with India. That has been Pakistan’s primary response. The country is caught in a difficult economic spiral, accelerated by shrinking gains from Chinese Belt and Road projects.

I wrote in December here about the precarious state of the Pakistani economy. In January, the United Nations issued its own stark assessment:

“Pakistan, meanwhile, has been struggling with a balance-of-payments crisis and the burden of high public debt, which have led to an arrangement with the IMF and corresponding fiscal tightening. High inflation and security concerns have hurt domestic demand and private investment, and the Government’s ability to address the slowdown has been severely curtailed by the fiscal tightening.”

World Economic Situation – South Asia, United Nations, January 2020

Increasingly, Pakistan is caught up in great game maneuvers between the United States and China. This conflict, for now, centers around the China-Pakistan Economic Corridor (CPEC), a planned network of roads, railways and energy projects linking China’s Xinjiang Uyghur Autonomous Region with Pakistan’s Gwadar Port on the Arabian Sea.

The project underscores the longstanding unease between a series of civilian Pakistani governments and the country’s military. Prime Minister Imran Khan demanded a review of all CPEC projects upon assuming power, concerned about a debt trap. The Chinese demurred and only a visit by General Qamar Javed Bajwa, Chief of Army Staff (COAS), kept progress on track. In a show of support, the Pakistan Army last year announced it will maintain a special unit just to protect the CPEC corridor.

Any attempt by the Khan government to back away from CPEC will likely meet internal Army resistance. This would be in line with Pakistani history. In the 73 years since independence from Great Britain, there have been dozens of military coup attempts, including three major successful ones. The country has spent at least 33 of those 73 years under military rule.

The odds of another coup, in a nuclear state no less, have gone up dramatically. While Pakistan’s response to Indian actions has mostly been diplomatic, hardline elements could label Indian politicians warmongers, and push for an asymmetric response, including targetted assassinations and terror attacks inside of India.

Israel and Iran

The Iranian government in some respects is on as shaky ground as the Pakistani one. Sanctions by the United States have taken their toll. Per the World Bank:

Iran’s economy is expected to contract further by 8.7% in 2019/20 due to external shocks to oil and gas sector output. The plummeting exports comes after the expiration of US waivers to major importers of Iranian oil and tightening of banking sector restrictions in addition to new sanctions being imposed on the country’s petrochemicals, metals, mining, and maritime sectors. The expected deterioration in economic growth would mean that by the end of 2019/20 the economy would be 90% of its previous size compared to just two years earlier.

World Bank Iran’s Economic Update — October 2019

It is estimated that Iran is exporting no more than 500,000 barrels of oil per day, down from over 2 million prior to the U.S. pullout of the 2015 nuclear deal. With oil prices dropping in a coronavirus world, the pressure is sure to increase.

I wrote here in December about rising internal unrest in Iran. Per The Armed Conflict Location & Event Data Project (ACLED), Iran experienced over 2,500 internal protests in 2019, an average of 10 per day, assuming the traditional Sunday to Thursday full-day workweek. In the week after the shooting down of Ukraine International Airlines 752, that trend continued with 62 protests on Saturday to Thursday following the prior Thursday incident.

Again, a US-China great game is being played. Most of Iran’s oil exports head to China, says Esfandyar Batmanghelidj, the founder of Bourse and Bazaar, an organization that tracks developments in Iran’s economy. The respite, if any, is short-lived. I expect oil prices continue to fall 33% this year.

Iran’s military has been humiliated by the killing of General Qasem Soleimani and the botched cover-up of the missile attack. While the conventional military in Iran is not world-class, they possess special assets that could assert asymmetric influence.

Iran’s proxies arguably are even more dangerous. “Through its vast network of Shiite militias, the Quds Force adds tens of thousands of fighters to Iran’s real combat strength. . .The Quds Force, for example, has managed Iran’s role in the Syrian war, which together with Russia’s intervention in that conflict, enabled Bashar Assad to remain in power.”

Sean Naylor, Yahoo News

Expect these forces to continue activity in the region, especially if the Iranian government is subjected to continued protests.

South Korea and North Korea

Understanding the true nature of the North Korean economy is beyond the scope of this article. 38North.org recently provided a clear summary:

Sanctions continued to keep North Korea’s foreign trade at abysmal levels in 2019, particularly for its most important export goods. It was not as disastrous as 2018, when exports to China, its most important trading partner by an extremely wide margin, plunged by over 88 percent. . .North Korea enters 2020 very much in the same difficult spot that it was in during 2019. It can continue to muddle through under conditions of slow stagnation. . .On the brighter side, although quantitative data from within the country should always be taken with a grain of salt, it shows few signs that sanctions have created a widespread economic crisis among North Korean civilians. Had there been such a crisis, we would have seen signs of inflation and significantly rising prices for food and other necessities. The data shows none of this.

The North Korean Economy in 2019: Treading but Not Underwater in the New Year by Benjamin Katzeff Silberstein, 1/20/20

Sanctions are having some effect, but clearly not at the same level as they are in Iran. Available economic data likely undercounts the shadow economy and the actual level of economic activity with China.

North Korea epitomizes asymmetric positioning. Numerous reports suggest that the country is close to a credible offensive nuclear threat against the United States. It is hard to imagine North Korea forfeiting its nuclear weapons. If hardliners in D.C. accept that near-future possibility, they may pressure President Trump to exert maximum force right now in order to alter the course of events. Despite new sanctions from the Trump administration, U.S. hawks don’t believe the President is committed to maximum pressure:

“The idea that we are somehow exerting maximum pressure on North Korea is just unfortunately not true.”

Former White House National Security Advisor John Bolton to Axios in December 2019

Kim Jong Un may realize that President Trump’s hand will eventually be forced. Kim, believing this, may respond preemptively via asymmetric action. Option include an offensive against South Korea or missile launches toward Japan.

The United States and North Korea may have squandered a groundswell of political goodwill that accompanied the first high-level talks in 2018 because of unrealistic expectations about what could be achieved. . .Now that things are falling apart, it’s hard to see where the pieces fit together anymore, especially if North Korea goes down a more militaristic path. . .We are in a downward spiral now.”

Jenny Town, a fellow at the Stimson Center and the managing editor of 38 North

History is littered with preemptive strikes, especially by lesser powers. This could be one of those moments.

Belarus and Russia

Secretary of State Mike Pompeo visited Belarus on February 1, 2020, the first SecState to do so since 1993. The last visit was before the ascension of President Alyaksandr Lukashenka, who has ruled Belarus with an iron fist for 25 years. Just prior to Pompeo’s visit, Lukashenka shook up his military command structure, “installing a new defense minister, a new general staff chief, and a new head of the Security Council“, per rferl.org. What is going on here?

Pompeo offered Lukashenka access to American oil as a replacement for piped-in Russian oil. Lukashenka leveraged this offer into negotiations with Russian President Vladimir Putin this past weekend in Sochi. As widely reported, Putin declined to continue to sell Belarus oil at significantly discounted rates, the status quo for many years. At the heart of this new great game is a push by Russia to follow-through on an agreement in the mid-1990s to form a Union State between Russia and Belarus.

Lukashenka is trying to revive an economy dependent on subsidized Russian energy and preferential access to Russian markets. This allows Russia to turn the screws when it feels it must. Belarus GDP has fallen in recent years, although the country has returned to growth in 2019.


Furthermore, its population is shrinking:


And external debt to GDP remains high, above 60%:


Lukashenka is betting he can stave off Russian annexation pressure with U.S. help. This seems difficult, given how dependent the Belarus economy is on Russia. There is no near-term scenario for the U.S. to replace Russia as Belarus’ primary trading partner. Recent moves to replace key military leaders suggest that he may be losing his iron grip on Belarus. There are no doubt camps in his government and military that support a union with Russia. Putin’s demurral in Sochi raises the temperature here. If the Trump administration dithers, distracted by conflicts elsewhere, Putin may see an opportunity to encroach into Belarus. Depending on the state of the economy, he may meet a welcome party, not protests, when he arrives.

Red Scare 2020

Expect a significant rise in anti-Chinese sentiment in the United States, an echo of post-WW2 fears about Russia. Today’s missile crises are economic, technology, and biological. Already, reports are flowing in here, here, and here.

Fresh on the heels of the arrest of Dr. Charles Lieber, Chair of the Department of Chemistry and Chemical Biology at Harvard University, and the mysterious spread of the coronavirus, expect a major headline case involving national security. Expect more statements like this, from Senator Tom Cotton. From there, expect McCarthy style hearings and testimony in Congress.

Per Wikipedia, US agencies have stepped up their efforts to combat spying. The number of officially disclosed Chinese spy cases in the U.S. spiked in 2018 and 2018. 

In December, the NY Times reported that the U.S. secretly expelled two Chinese diplomats for suspected espionage, the first such expulsion in over 30 years.

The President is not one to waste obvious leverage over an opponent. Expect the Trump Administration to remain firm on tariffs and expectations for trade, especially if China’s economy weakens and/or unrest grows. I’ve written before that the U.S. has a very strong hand in its trade war with China. Major events since then have only reinforced the U.S. position. Not the least of which is the often talked about the weak U.S, position in rare earth mining, something that is quickly changing.

Coming Up Next: The Burning 2020s

While writing my 2019 Year in Review, I was satisfied that my expectations were mostly accurate. But it became clear that the events I predicted were occurring on much longer timeframes, and in fact fell into a single bigger trend, that of Freedom v. Autocracy. I will write a lot more about that in a Decade Outlook, currently titled The Burning 2020s, due by April.

This personal blog and its articles are written because of the author’s passion to advance his understanding of deep learning, complexity science, and major global events in markets, politics, and society. Any opinions or forecasts contained herein reflect the personal and subjective judgments and assumptions of the author only, not those of any organization or entity that the author is affiliated with. There can be no assurance that developments will transpire as forecasted and actual results will be different. The accuracy of data is not guaranteed but represents the author’s best judgment and can be derived from a variety of sources. The information is subject to change at any time without notice.