2019 What Next?

We begin 2019, should be an interesting year. Rink Rats takes a short term and long term view of 2019.

- It’s been a while since the United States has faced a year like the one that we expect 2019 to be.

This year appears as if it will be dominated by presidential scandals — and the question of whether President Trump can survive those scandals. If he does, 2019 could feel a lot like 1998, when President Bill Clinton did indeed survive. If the danger continues to mount for Trump, 2019 could instead end up resembling 1973 or 1974. The presidency of Richard Nixon, of course, did not survive 1974.

Tellingly, some senior Republicans now share these expectations for 2019. The Washington Post recently quoted Steve Bannon predicting that this year would be one of “siege warfare” for Trump. The story ran under this headline: “Republican anxiety spikes as Trump faces growing legal and political perils.”

To prepare for the coming political battles, we recommend some history — of the battles over the Clinton and Nixon presidencies. Three recent hit podcasts have covered this history, and I enjoyed all of them.

Rachel Maddow’s “Bag Man” focuses on Spiro Agnew’s resignation in the midst of Watergate. As she notes, many Americans now have very little knowledge of the Agnew story, and it’s pretty incredible. The other two podcast come from Slate’s Leon Neyfakh. The first season of his podcast “Slow Burn” covered Watergate, and the second season retold the story of Clinton’s many sex scandals, culminating in his impeachment.

All three convey a sense of history-making drama, and I suspect we are about to enter another such period.

Today here we are on a rainy day, in the richest country in the world, in the richest state in the country, in a state as blue as it can be and, in a city, loaded with millionaires, where teachers have to go on strike, declared Alex Caputo-Pearl president of United Teachers Los Angeles.

The 33,000-strong L.A. teachers’ union went on strike Monday as the Los Angeles Unified School District (LAUSD) slouches toward insolvency due to unaffordable labor contracts. Despite a putative $1.8 billion reserve, the district is spending about $500 million more each year than its annual revenues and will be broke within two years, which could prompt a state takeover and bankruptcy.

Los Angeles teachers earn on average about $75,000 per year—about $6,000 less than the statewide average—though compensation including health and retirement benefits exceeds $110,000. One problem is the region’s high housing costs make it harder to retain teachers while more and more money is diverted to benefits and pensions.

Health benefits consume about 15% of the $16,000 or so the district spends per pupil. Teachers can retire as early as age 55 and don’t have to pay a dime for health insurance until they qualify for Medicare and then receive subsidized supplemental coverage. Few government or private employers anywhere provide this perk.

Nearly all California school districts are also being squeezed by rising pension payments that the state Legislature has mandated to shore up the California State Teachers’ Retirement System (Calstrs). School district pension costs have more than doubled since 2014.

Thus, school districts across the Golden State are scrounging to keep the lights on. Last year San Francisco voters approved a $300 parcel tax on each home to fund schools. Sacramento City Unified warns it could go bankrupt this year barring cuts to worker benefits. Governor Gavin Newsom’s budget proposal last week would provide schools with modest relief by making a $3 billion payment to the Calstrs pension fund on their behalf.

But as LAUSD Superintendent Austin Beutner notes nearby, schools can’t spend money they don’t have. LAUSD has offered teachers a 6% raise over two years and to hire 1,300 teachers and support staff. The union is demanding that the district spend more no matter the district’s finances. Once higher pay and spending are in place, the union will then lean on the politicians to lobby for another tax increase via referendum in 2020. The tax-spend-tax-spend union ratchet never stops.

Another 2019 issue, Climate Change, not only a definition of global warming, a problem recognized yeas ago but nothing really being done to deal with fact that our world is changing – the same can be said for higher education. Climate change in the model of providing higher education, the way of doing business in higher education is changing and will never go back to the old models of how education is funded and how the product is distributed, the bubble will burst (college closings, student demands, facility requirements, curriculum's changing, tenure gone). 2019 will be the beginning of change or the beginning of the end.

Winter is coming for stocks - Not a ton of optimism to go around, huh? After some market-churning Fed drama and a late-year slump, many of you think 2019 will bring the same tough love for the markets.

Slight market correction but very volatile swing in stocks...In the longer term, student loan debt will start to become an increasing burden.

Inflation will spike and the market will dive deeper into recession...

The Fed reverses its course and doesn't raise interest rates in the first quarter of 2019. The recession everyone says won't happen comes into play putting a damper on July 4th fireworks.

Disclaimer: Trying to predict the whims of the stock market is about as futile as trying not to laugh at Monty Python's stock market report.

Big Tech troubles are here to stay.

Facebook, Google, Amazon, and others got smacked around by both the public and lawmakers in 2018. But everyone's most worried about Facebook in 2019...

I think we will see the end of Facebook as we know it. The platform is far too large for an all-out collapse, but the controversy around Zuck and Sheryl Sandberg in the Western world will lead to some huge changes in strategy, structure, and possibly even who stays in corporate power.

No way Zuck gets his mojo back. I think this is a snowball that has only just begun rolling down the hill.

And while we're here, let's quickly recap some of the big tech M&A you're predicting for 2019.

Yes, Apple will buy Sony. Long shot: Apple may even buy IBM in order to be a player in the cloud...and also buy IBM's patent portfolio, as well as make a major play into the enterprise market.

Snapchat will be acquired. Most likely by Amazon or Disney, as they seek to gain appeal with the younger teen generation.

Plant-based meats are going to take off in 2019 and beyond. Impossible Foods, JUST Foods, and Beyond Meat FTW.

I wouldn't be surprised to see plenty more scandals pop up over the course of 2019. That being said, I think we might start to see more funding, prominence, and success for companies with a more humanitarian focus. Whether it be by preserving nature and taking care of the planet, or by helping raise the standard of living, companies focused on bettering society will get a lot of headline space, and in turn, hopefully, start to grow and thrive.

Legalization of sports betting brings a new sector of tech boom. Prop bets galore mixed with advanced stats.

Disney's new OTT platform rollout will be more competitive with Netflix than people think. They have the content and brand to generate massive subscriber growth off the bat. Netflix will have to buckle up for a serious battle, as Disney's going to be a legitimate threat.

2019 VOTES - It's a big moment for global democracy. The leadership of roughly a quarter of the world will be decided as three of the seven largest countries by population will hold general elections in the next four months. They follow Bangladesh, the eighth largest, which went to the polls last Sunday.

Nigeria (February): Four years ago, President Muhammadu Buhari swept into power on a surge of optimism, pledging to restore security and stamp out corruption. Since then, his record has been mixed, his popularity has dwindled and his health is poor (he recently had to deny rumors he’d been replaced by a body double). The old guard is clawing at the door.

Indonesia (April): President Joko Widodo is a charismatic reformer, but he’s in a bitter fight fueled in part by misinformation about his faith. He has picked an influential Muslim cleric as his running mate in an attempt to undercut his strongman rival. If he loses, observers fear a rollback of democracy.

India (April/May): Recent setbacks in state elections were a shot across the bow for Prime Minister Narendra Modi, whose BJP party may struggle to win enough seats to form the next government. It's a stunning fall for a leader who, until fairly recently, looked untouchable.

2019 MARKETS - The issues that whipsawed stocks in 2018 — trade and the Fed — aren't going anywhere this year. That leaves few catalysts to push stocks to new highs, despite the jump after January 4 monster jobs report.

Trade: Almost all analysts are optimistic about the likelihood of a U.S.-China trade deal.

The Fed may back off on hiking interest rates as quickly as previously planned. But the central bank won't revert to easing — despite what traders are betting.

Depending on your outlook, these can be opportunities for Chair Jerome Powell to spook the markets, or for the market to adapt to his communication style.

SPACE 2019 - Astronauts haven't launched from U.S. soil since the end of the space shuttle era in 2011. But as Russian rocketry ages and U.S. commercial and military interests grow, the ability to carry astronauts from the U.S. will be key.

On the horizon:

Boeing and SpaceX — both NASA partners — are planning uncrewed tests of their spacecrafts in the first half 2019. SpaceX's first test is scheduled for January 17.

These uncrewed tests will be accompanied by "abort tests" — a key demonstration of the ability of the crew to escape from the spacecraft in the event of an emergency.

A demo test flight of SpaceX's Dragon space capsule, carrying two NASA astronauts, is scheduled for June and the first crewed flight for Boeing is on the docket for August.

The big picture: Successful commercial crew launches would be a prelude to missions aimed at deep space, including a possible return to the moon and an eventual Mars mission. Both of those are probably more than a decade away.

COLLEGE CHRONICLES – Lawmakers inadvertently exempted public universities — though not private ones — from a new 21 percent tax they created on nonprofits that pay their employees more than $1 million.

There are hundreds of million-dollar employees on college campuses, many of them football and basketball coaches. Nick Saban, the University of Alabama football coach who earlier this week lost his bid for a sixth national championship, earned $8.3 million in 2018, according to USA Today, which tracks coaches' pay. Republicans are now trying to correct the snafu, though there is no sign that Congress will act anytime soon.

The University of California has advised students and faculty members not to use the social-media apps WeChat and WhatsApp while traveling in China because of the potential that their messages could be used against them.

BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to Kevin Costner (64), Renee Miller …famous Accounting Professor, James Earl Jones (88), Walter Mondale (91), Howard Stern (65), Betty White (97)

ON THIS DATE - From the annals of British fiscal management: Today marks 450 years since Queen Elizabeth I held the first state-sanctioned lottery in English history at St. Paul's Cathedral in London, as she sought to avoid new taxes or foreign loans in her efforts to keep up England's lofty world status.

SCIENCE - Deaths from cancer dropped 27% over a quarter century, resulting in an estimated 2.6 million fewer cancer deaths during that period, according to a new report from researchers at the American Cancer Society.

For most of the 20th century, overall cancer deaths rose, driven mainly by men dying from lung cancer, researchers noted. But since the peak in 1991, the death rate has steadily dropped 1.5% a year through 2016, primarily because of long-running efforts to reduce smoking as well as advances in detection and treatment of cancer at earlier stages, when prognosis for recovery is generally better.

GOOD READ – Christopher Goffard’s original Los Angeles Times story entitled “Dirty John” dated October 1, 2017. https://www.latimes.com/projects/la-me-dirty-john/

BUFFETTOLOGY – Warren Buffett has a tip for young people: Focus on learning how to write and speak clearly. “If you can’t communicate, it’s like winking at a girl in the dark – nothing happens.” “You can have all the brainpower in the world, but you have to be able to transmit it.”

MARKET WEEK - Amazon closed last week with a market capitalization of $796.8 billion, surpassing Microsoft to become the world’s most valuable public company for the first time. The e-commerce giant jumped from fourth to first in six trading days, gaining $74.1 billion in value in that time span.

S&P 500 companies are expected to post earnings growth of 11.2% for the fourth quarter of 2018, according to FactSet. Based on the average change in earnings growth due to companies reporting positive surprises, it's likely that the index will report growth above 15% for the quarter, but below the 25% growth reported in the prior three quarters.

U.S. long-term mortgage rates continued to fall this week, reaching their lowest levels in nine months. The decline in home borrowing rates in recent weeks has been a spur to prospective homebuyers, reflected in a spike in applications for mortgages. Mortgage buyer Freddie Mac said Thursday the average rate on the benchmark 30-year, fixed-rate mortgage dipped to 4.45 percent this week from 4.51 percent last week.

Gold’s rally since late last year is already facing a challenge: renewed confidence in the U.S. economy and a rebound in stocks.

The S&P 500 sank 14% in the fourth quarter, driving investors into safer assets. Gold reaped the benefits, rallying 7.3%. Prices are currently near their highest level since June.

But looking ahead, many investors remain largely confident that the U.S. economy will continue expanding. That means they will likely opt to ride out the volatility in stocks, rather than piling into havens like gold, analysts say.

Days until the 2019 election: 294

Days until the 2020 election: 658

DRIVING THE WEEK - The North American International Auto Show in Detroit kicked off on Monday, and, well...your town's upcoming 5K charity run is probably getting more press.

There aren't going to be too many flashy announcements, while brands including BMW, Audi, Ferrari, and Lamborghini couldn't be bothered to show up. Next year, organizers are moving the show to June in an attempt to boost its profile, so this will be the last Detroit auto show held in the depths of a Midwest winter.

Of course, there is plenty to talk about in the industry...

Starting with the collapse of sedans in the U.S.

The fall of the sedan has been remarkable, amounting to a "mass exodus out of classic family cars and into sport utility vehicles," writes Bloomberg.

So how bad is it?

Sedan models including the Honda Accord and Ford Fusion accounted for 30% of U.S. auto sales in 2018, a record low.

Sales of passenger cars will sink to 21.5% of the U.S. market by 2025, per LMC Automotive.

What this means for carmakers: They've got too many factories making the wrong product. Remember, GM said in November it would be idling five North American plants and cutting around 14,000 jobs.

So what's the future?

Electric and autonomous vehicles will eventually take center stage. The only problem? Some automakers are finding that developing these new technologies is too big a task to go it alone.

Ford and Volkswagen, for example, have been trying to build a "global automotive alliance" to keep costs down, and they're expected to reveal a deeper partnership this week.

Tesla's still the one with the target on its back, which is why GM is tapping its luxury Cadillac brand to lead its EV push.

THE EMPIRE STRIKES OUT – When did you feel that you had broken their will? ... When did you feel that you guys had complete and total control of the game? These are the types of questions you would like to ask a boa constrictor about the small mammal it just strangled and ate. For a decade, Alabama has been the boa constrictor; Last week in the BCA Championship game, the most dominant college football program of the century was relegated to the role of the deceased mouse. A few freshmen rebels who were in high school this time last year led Clemson to a crushing win over Darth 'Bama.

SWAMI’S WEEK TOP PICKS –

NFL Football Picks of the Week – Sunday 1/20 Noon (PT) Fox; Los Angeles Rams (14-3) vs. New Orleans Saints (14-3), the home field advantage is too much for the Rams (still a good season) Saints win 28 – 24.

Sunday 1/20 3:30 PM (PT), CBS; New England Patriots (12-5) vs. Kansas City Chiefs (14-3), game time weather is predicted be in the single digits, again home field is the advantage here, Chiefs win 24 – 20.  (Season to date 15 - 8)

NHL Game of the Week – Saturday 1/19 7:00 PM PT ESPN+; Pittsburgh Penguins (25-14-6) vs. Vegas Golden Knights (28-16-4), end of a long road trip for the Penguins, Vegas wins the bets 5 – 2. (Season to date 7-2)

College Hockey Game of the Week – Saturday 1/19 7:00 PM ET NESN; #1 University of Massachusetts Minutemen (17-3-0) vs. #8 Northeastern University Huskies (14-4-1) huge Hockey East test for the Greg Carvel (St. Lawrence ’93) Minuteman, Mass wins 4 – 3. Season to Date (3-2).

Season to Date (0 - 0)

Next Blog: January 28 -  Jack Ass of the Month, Word of the Month, the usual.

Until next time, Adios

Claremont, California

January 15, 2019

#IX-17-385

CARTOON OF THE WEEK – New Yorker, Christopher Wehant

RINK RATS POLL –

2019, the year of _____

_____ Weather

_____ Impeachment

_____ Bubble burst

_____ The Wall

_____ Me Too

QUOTE OF THE MONTH – “Good instincts tell you what to do long before your head has figured it out."  -  Michael Burke