Predictions for 2014

[dan_s]

The Surprises of 2014 by Byron Wien at Blackstone My thoughts in [ ]

[As you read these predictions keep in mind that Bryon was only right on 2 or 3 of his predictions for 2013. Prior to that, he had a good track record, right on about 70% of his predictions. - Dan]

1. We experience a Dickensian market with the best of times and the worst of times. The worst comes first as geopolitical problems coupled with euphoric extremes lead to a sharp correction of more than 10%. The best then follows with a move to new highs as the Standard & Poor’s 500 approaches a 20% total return by year end. [We already had a significant pullback in energy sector stocks in December. I do see weaker oil & gas prices in Q2 that could cause more selling. I see very strong demand and higher oil prices in the 2nd half, especially if the markets rally like this.]

2. The U.S. economy finally breaks out of its doldrums. Growth exceeds 3% and the unemployment rate moves toward 6%. Fed tapering proves to be a non-event. [GDP growth of 3% would be very bullish for crude oil prices.]

3. The strength of the U.S. economy relative to Europe and Japan allows the dollar to strengthen. It trades below $1.25 against the euro and buys 120 yen. [A stronger U.S. dollar is bearish for oil prices.]

4. Shinzo Abe is the only world leader who understands that Dick Cheney was right when he said that deficits don’t matter. He continues his aggressive fiscal and monetary expansion and the Nikkei 225 rises to 18,000 early in the year, but the increase in the sales tax, the aging population and declining work force finally begin to take their toll and the Japanese market suffers a sharp (20%) correction in the second half.

5. China’s Third Plenum policies to rebalance the economy toward the consumer and away from a dependence on investment spending slow the growth rate to 6% in 2014. Chinese mainland traded equities have another disappointing year. The new leaders emphasize that their program is best for the country in the long run. [China is the primary driver of oil demand, so any decline in their growth is bearish for oil.]

6. Emerging market investing continues to prove treacherous. Strong leadership and growth policies in Mexico and South Korea result in significant appreciation in their equities, but other emerging markets fail to follow their performance.

7. In spite of increased U.S. production the price of West Texas Intermediate crude exceeds $110. Demand from developing economies continues to outweigh conservation and reduced consumption in the developed world. [WTI should move rapidly toward Brent if Washington approves exporting of crude.]

8. The rising standard of living and the shift to more consumer-oriented economies in the emerging markets result in a reversal of the decline in agricultural commodity prices. Corn goes to $5.25 a bushel, wheat to $7.50 and soybeans to $16.00.

9. The strength in the U.S. economy coupled with somewhat higher inflation causes the yield on the 10-year U.S. Treasury to rise to 4%. Short-term rates stay near zero, but the increase in intermediate-term yields has a negative impact on housing and a positive effect on the dollar.

10. The Affordable Care Act has a remarkable turnaround. The computer access problems are significantly diminished and younger people begin signing up. Obama’s approval rating rises and in the November elections the Democrats not only retain control of the Senate but even gain seats in the House. [I find this one very hard to believe. I think the "truth" about Obamacare's higher cost is going to do significant political damage to the Democrats.]