The Financial Markets in Year of the Rat 2020


Our New Year is here and we are just a few weeks away from the Chinese New Year, so not too early to share some of my favorite Chinese Astrologer’s thoughts on the coming Year of the Rat, he is famous for his predictions, but not perfect.

The background: The Rat is the 1st of all Zodiac animals. According to 1 myth, the Jade Emperor said the order would be decided by the order in which they arrived to his party. The Rat tricked the Ox into giving him a ride. Then, just as they arrived at the finish line, Rat jumped down and landed ahead of Ox, becoming 1st. The Rat is also associated with the Earthly Branch (地支—dì zhī) Zi (子) and the Midnight hours. In the terms of yin and yang (阴阳—yīn yáng), the Rat is yang and represents the beginning of a new day. In Chinese culture, rats were seen as a sign of wealth and surplus. Because of their reproduction rate, married couples also prayed to them for children.

Recent years of the Rat are: 1924, 1936, 1948, 1960, 1972, 1984, 1996, 2008, 2020.

Paired with the Celestial Stems (天干—Tiān gān), there is a 60-yr calendrical cycle. Although zi is associated with water, the years also cycle through the 5 elements of nature (五行—wǔ xíng).

He offer some incredible food for thought. He talks about the Rat, and he refers a lot to the elements for the year. In Y 2020, Yang Metal, the main element, is cold and can be destructive.

Also, because the Fire Element is totally absent to control the strong Water energy, we may expect to see Water & Fire-related disasters.

For the economy, he says “The pessimistic energy of Water, also the symbolic emotion related to fear has begun. Hence, the world economy has been greatly affected by the trade war talks between the US and China, which generated a lot of fear and uncertainty for global investors.”

Sounds bizarre given the strength of the overall market, but as always we should prepare for anything and everything.

Here are some thoughts for what macro trends we will be watching in 2020, and the only predictable aspect of the market is that it will be unpredictable. That is why I say, “Always take what the market gives.”

Now the market is forward thinking and assumes the economy begins to expand in Y 2020.

And, the Fed and major central banks keep interest rates near Zero or in some cases negative, incentivizing corporations to continue their record share-buybacks, and economic growth.

The astrologer says maybe they will maybe they will not.

Either way, Shayne and I will be able to tell if the economy is indeed expanding is by watching 1 index and 2 Key market sectors.

The Russell 2000 IWM is the best representative of the US economy. The small cap companies in the IWM basket all manufacture or produce goods in the US. To date, IWM has begun to move out of a base, but is still well off the all-time highs made in Y 2018. We look at IWM as the “supply” side of economics.

Transportation IYT, has also lagged the SPY, QQQs and DIA. The “demand” side of economics has a major job to do to prove goods are robustly moving throughout the country.

Brick & Mortar Retail XRT, has been the biggest laggard. With retail sales weak. Therefore, XRT must hold above 44.00 and clear over 47.00 or the Y 2019 highs.

Since Y 1979, inflation has remained muted. And given statements by Dallas’ Federal Reserve President Steven Kaplan that interest rates will remain low and the future of the USD as the world’s reserve currency is uncertain, the best trades for Y 2020 could be in commodities, and commodities currencies.

So, follows HeffX-LTN daily for the latest, in stocks, metals and currencies for the winners in the New Year

Have a very Happy Holiday and Healthy New Year!