As one would expect, stock market junkies like myself think about our prospects for 2020. After enjoying stellar returns in 2019, some analysts (not me) worry that the United States could suffer from falling interest rates, slower growth and demographic headwinds. While a 5% to 10% correction can be expected, I do not worry about a recurrence of 2008.

In a nutshell, pessimists point to Japan, whose stock market remains almost 40% below its high reached in 1989. The Nikkei 225 had performed spectacularly from 101 in 1950 to 34050 in 1989.

The meltdown phenomenon is called “Japanification” — the 30-year battle that Japan has waged against anemic growth. Because in 1990 Japan suffered a collapse in real estate and stock market prices, their banks became effectively insolvent (zombie banks). A zombie bank is a financial institution that has an economic net worth less than zero but continues to operate because its ability to repay its debts is shored up by government credit support. Zombie banks are incapable of lending sufficient credit to sustain their industrial companies.

Where are America’s weak spots? Federal Reserve Chairman Jerome Powell expressed concerns about our corporate credit market being heavily leveraged. Investors are particularly worried about CCC-rated bonds, the lowest rating of bonds not in default. Creditors are demanding the highest spread in yield relative to BB bonds (the highest junk bond rating) in many years.

Recently, there have been a number of articles pointing out that banks are reducing their credit exposure to North American oil-and-gas companies. Over the past few years, companies focusing on fracking with a combined $171 billion of debt have filed for bankruptcy protection. Fracking is the process of injecting liquid at high pressure into subterranean rocks so as to force open existing fissures and extract oil or gas. Because of fracking, the U.S. is now the world’s largest oil producer. While the big picture of America being number one is great, many oil companies have not generated sufficient revenue to repay their creditors.

To prevent an American economic decline, certain policies are advisable. The Trump Administration and Trump’s Democratic opponents have both advocated trillion-dollar infrastructure initiatives.

Because we have an aging population, we need to augment our domestic population with skilled immigrants. An aging population has driven up health care and pension costs, slowed productivity and reduced our working-age population.

Fortunately, America is not suffering the same problems as Japan. For 30 years Japan has suffered from either low inflation or deflation. When people expect prices to be lower, they postpone expenditures irrespective of their governments’ stimulus policies.

America was fortunate to have Ben Bernanke as chairman of our Federal Reserve during our Great Recession. The Federal Reserve under his guidance took the following extraordinary steps:

  • Increased its balance sheet fourfold
  • Slashed our benchmark interest rates to near zero.
  • Encouraged Congress to pass the Troubled Asset Relief Program (TARP) that provided a major bailout to our financial system.
  • Launched a broad number of special lending programs
  • Guaranteed the short-term debt of commercial banks and industrial corporations.

There is an old saying that a “stop watch is right twice a day.” Of course, at some point we will experience a recession. That said, for the time being I remain optimistic. The U.S. economic outlook is healthy. Our 2% growth rate is satisfactory, unemployment should stay low, and our inflation rate is close to Federal Reserve target of 2%.

Many of you are too young to remember Mad Magazine. Its fictional mascot was Alfred E. Neuman, a gap-toothed, freckled kid who never worried. On the magazine front he appeared above the caption: “What Me Worry?” Neuman and I remain incorrigible optimists.

Originally published in the Sarasota Herald-Tribune