Larry Berman's recap of 2019 and what he sees for 2020

By Larry Berman

Larry Berman's 2019 recap and outlook for 2020

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Larry Berman

Berman's Call

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The tradition on Berman’s Call has been for me to use my last show of the year to forecast what I expect for the coming year and address any mea culpa for bad Berman Calls in 2019. I got the volatility outlook for 2019 all wrong. That’s why forecasts are more of a fun bar bet than anything you can take to the bank.

1. We suggested a very defensive approach to markets in 2019 as recession risks were high for 2020. Most of that weakness we expected in 2019 came in the days following our forecast in December 2018. We said that the recession would not likely hit Main Street until 2020, and that remains our core view. We now think the biggest risk that is not priced in is the re-elction risk of U.S. President Donald Trump. Recall that the average recession induced bear markets historically is 29 per cent for U.S. large caps. This one will likely be higher and last longer than the typical 10 months from peak-to-trough when it plays out.

2. We suggested that low volatility and high quality (balance sheets) would out perform along with covered call ETF portfolios will weather the storm better than other styles. We were right on with the high-quality call, but the more defensive high dividend and low volatility positions underperformed the S&P 500. Given that my recession risk forecast has yet to play out, I continue to believe that these lower risk plays make the most sense. And I HIGHLY recommend put protection and specifically option collars.

3. The Canadian dollar will likely dip back below 70 cents US under the weight of recession and general market weakness. This has not played out yet and I still have this view.

4. WTI will likely head back to the low US$30 or upper US$20 rane once the recession fully plays out. We expect stability around the US$50s for now. We hung out in the low US$50s for most of 2019, so we got this one right. The trend is lower for a retest of the 2016 lows as the recession plays out.

5. Canadian banks fall at least 25 per cent from current levels. We know that no one wants to hear this, but in a recession, it should be your base minimum assumption.

6. The S&P TSX should test support around 11,000 – 12,000 (currently 17,000). These are recession bottom targets for some time in 2020. The bottom for the S&P 500 is possibly in the 1600-1800 range. International (Europe and EM) markets likely perform better than North American markets in a recession scenario given better valuations.

With the benefit of foresight, here’s wishing all BNN Bloomberg viewers a happy, healthy and (“sleep-at-night) 2020. Berman's Call will return Monday, Jan. 6 2020.

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