Philosopher George Santayana said, “Those who can’t remember the past are condemned to repeat it.”
That’s maybe truer now as we enter a new decade and look back at the decade we’re leaving.
From 2010 through 2019, something monumental happened every year, even sometimes some things, that rocked financial worlds and are harbingers of what we’ll see this decade.
Let’s Break Down the Decade’s Biggest Events Year by Year
2010 witnessed the frightening downside of the “rise of the machines.” Not that computers hadn’t been ascendant for years; they just hadn’t crashed the stock market as they did in the May 2010 Flash Crash.
On that day, in a matter of minutes, for no apparent reason, the Dow Jones Industrials Average dropped 1000 points. It climbed back quickly, ending the day down 3%, off the lows plumbed in freefall.
A September report by regulators claimed the cause was a $4.1 billion sell order by a mutual fund.
The only way a market can freefall is if there are no bids, if there are no buyers waiting to buy cheap assets as prices fall.
That’s what happened and what will happen, again and again, maybe so badly there won’t be a recovery the same day, or the next day, or the next quarter, or decade.
Modern markets operate that way now, without standing orders or without investors bidding in line for assets as their prices fall. They send down orders when they’re ready, not because they’ve been waiting.
That’s the structure of markets, and it’s going to result in more flash crashes, probably even a death spiral. We know it’s possible, it can happen. It happened, a lot more than once over the decade.
Also, in 2010, global financial markets reeled from the stench of debt laden PIIGS: Portugal, Italy, Ireland, Greece, and Spain.
As if they’ve cleaned up their acts. They haven’t, and that’s why their stench still lingers. That’s why what happened in 2012 had to happen. And what’s happening now with negative rates has to happen.
2011 was reminiscent of 1960s protests, only on an infinitely smaller scale. The Occupy Wall Street movement saw the rise of millennials and 2008 financial crash refugees conducting sit-ins and sleepovers near Wall Street to protest the ever-increasing income inequality gap between rich and poor.
Only now, this first year of the new decade, protestors of all ages who might vote are being riled by hatred of the 1% and of investors who own stocks even if they’re not 1 percenters into potentially electing socialists who, instead of wanting to occupy Wall Street, want to spill its money onto main streets.
2012 heard European Central Bank president Mario Draghi say loud and clear, “whatever it takes” to save faltering European banks, the PIIGS, the euro, and the European Union.
The new president of the ECB in 2020, same as the old president, has to keep on keeping interest rates low, negative in fact, to keep the stench of still fragrant PIIGS from giving the rest of the EU a financial swine flu.
Make no mistake, that can has only been kicked down the road.
2013 saw gold, which had been on a tear since the financial crisis, getting up to almost $2000 an ounce in 2011 as a go-to safe harbor, crashed 40% when it fell to $1200 in 2013.
It wasn’t done there. Gold bottomed at less than $1100 in 2016. It’s ending the decade on an uptick, having risen to near $1550, settling around $1515 most recently yesterday.
What does that tell you about gold? Not much. Only that it’s a speculative vehicle, a go-to trade in times of uncertainty and then discarded like tarnished fears when good times return.
That’s how you trade gold, as history has taught us, over and over. This decade won’t be any different.
2014 was the year of fracking, meaning the fracking of oil stocks prone to the new technology’s black gold rush. Oil prices came down, oil company stocks came down, and the United States became a net exporter of oil and the world’s top producer.
That changes geopolitics, forever. The new decade will be about the demise of “oilogopolies,” trust me.
2015 was the year of the goat for China, as in goat to get out of the market, the Shanghai Composite that is. China’s biggest market dropped 35% in 2015, falling from 4600 in May to 3000 by September.
It’s still barely above 3000 going into the new decade. And no, the leverage that drove it to 4600 hasn’t been fully wrung out of it yet. Keep that in mind as the new decade unfolds.
How the Last Half of the 2010’s Faired for Your Finances
2015 also witnessed the ECB, after declaring it would do whatever it takes back in 2012, have to do more, a lot more, as in start buying copious amounts of EU countries’ sovereign debt and corporate debt, all for good measure, and to get interest rates into negative territory.
The unwinding of negative rates in Europe is going to make this another lost decade for Eurozone economies. Stock markets, not so much, just keep an eye on fundamentals and leverage.
2016 saw the election of Donald Trump. That was a financial gift to the U.S. and the world, no matter what you think about the man. When it comes to markets, he is Da Man.
Will he be in the new decade? We’ll find out starting in November 2020.
2017 was another reminder about speculative bubbles and the fallacy that central banks aren’t omnipotent.
Bitcoin, which had never traded above $1000 a “coin”, skyrocketed to almost $20,000, a 2100% jump.
Too bad it closed the year down 27% at $14,500.
Today it’s trading around $7,250, almost half of what it fetched two years ago, and 64% off its highs.
As if a cryptocurrency anywhere would ever be able to replace the central bank fiat money fractional reserve systems that powers banks and governments, for however long they hold power, would ever be threatened by something as made up as a decentralized ledger known artfully as blockchain, really?
2018 was rosy and warm for financials, until that is October through Christmas eve. Stocks got pummeled by three rate increases, thanks to a clueless Fed, with the Dow closing the day before Christmas down 653 points.
Not to worry, the Fed quickly reversed course and markets recovered; and have been making new higher highs ever since, as if interest rates are going to be lower for longer.
Of course, they will be. The Fed has no choice. Now they know it and we know it.
And then we had 2019, the year cannabis stocks went up in smoke and the year a U.S. president was impeached without a smoking gun anywhere in sight.
That’s how we ended the decade: in a haze.
But not stocks. They ended the decade spectacularly with spectacular gains.
And that one simple fact portends well for this decade, unless, of course, the warnings we got last decade come home to roost and ruin this decade.
You’ve been warned, as Santayana said.