A comprehensive Global Economic Forecast for 2014, presented in a simple format. Here is what I expect (to the best of my knowledge) to occur in the immediate and the near future. Though quite lengthy, I request visitors to patiently read it to the very end for a complete understanding of my perspective on things to come.
– Rajesh J. Shah
I strongly feel that 2014 will prove to be a particularly eventful year, with many important and lasting changes taking place all over the world. What will be most eventful is the struggle with obstacles and the unavoidable strains in all kinds of relationships, be it personal or national. The changes may not necessarily be good or bad but will surely be very prominent. Trying to forecast a single market is dangerous as today, everything is interconnected on a global scale. Analyzing the World economy and global markets and then forecasting the future turn of events is possible only when carried out on a strong, unbiased and unemotional basis from an international perspective. The truth about how markets move today can only be found in the true understanding of current trends and comprehensive observation of the economy and not in the antiquated theories of control, manipulation and dictatorial policies. Long gone are those days, but when will our governments and central bankers start realizing it? You cannot solve current problems with solutions learnt earlier and also expect to remain out of bigger trouble in the very near future.
2014 will prove to be a gathering gigantic tsunami of forces arrayed to rock humanity – a collection of grave errors come back to haunt the decision makers of major economies, and also inflict extensive pain on the helpless populace. Most of the decisions (irrespective of their final effect) made during 2014 will be about restrictions. Restrictions will be implemented about excesses to bring down consumption, debt, corruption, manipulation, usage or handling of common or natural resources, etc. Distressed people will want relief measures from their national governments, but the sad part is that most of these governments are completely broke, so austerity and more austerity seems to be the order of the day, no matter what. It will not only get more and more difficult for people to find work, but also to remain where they might have found employment due to several influencing factors that I mention here further and more. With European employment at an all-time low and the U.S. Labor Participation rate at a 35-year low – en route to far lower levels – it’s difficult to see how anyone purporting recovery can be taken seriously. All this leads to escalated conflict and discontent and will prod incipient revolts in a massive way.
Simply saying that there could be much turbulence in the global financial markets in 2014 would be an understatement – but that is the simplest way that I could present it. The year will be full of financial turbulence (financial terrorism for many), inflation, vast uncertainties, nervousness and instability for those who fail to be patient and look beyond the past or the displayed present and see the obvious but yet unseen. Previously safe investments will now turn sour, much to everybody’s surprise, and money will seem to slip away in many more ways than one.
The Fed expanding the balance sheet by over $3 trillion has had a significant impact on valuations, market functioning, and asset allocation, so those effects could cause some market turbulence as they revert back to normal. There could even be a temporary upswing in the economy and the US dollar could go up in value. If it does happen, it will probably be short-lived and by the middle of 2014, if there has been an improvement in the economy, it is likely to be followed by a sharp drop later.
How does China’s ownership of the U.S. debt really pose a danger to the American national security?
China currently owns over 7% of U.S. federal debt via U.S. treasury securities. If China were to decide to dump those treasuries, it would greatly increase the burden of servicing U.S. debt. This could lead to a currency crisis forcing the U.S. to raise interest rates. Higher interest rates and higher risk for borrowers will potentially make it difficult for the U.S. to find creditors and will create the conditions for a deep recession.
The conventional wisdom is that China would never dump U.S. securities because an abrupt movement out of U.S. securities would be detrimental to both China and the United States. It would not be rational for China to take huge losses because they would be harming themselves.
The growth in their financial sector has had little effect on the country’s GDP, which they have covered by artificially inflating their GDP growth to a reported 7.8% when in actuality, economic indicators indicate it to be closer to 3-4%. China has pumped extensive liquidity into their internal currency markets and it is easy to assume that the growth of their currencies’ liquidity is a step toward gaining international reserve status for the Yuan. The focal point of the Asian markets is more on Chinese growth and on Chinese political situation and how it’s going to pan out this year, as opposed to worries, that much of the world has about a reduction in U.S. central bank stimulus.
The US dollar has held reserve currency status for 88 years. I truly believe that the US dollar will eventually relinquish its reserve currency status in order to avoid an outright default, now that the US must deal with another debt ceiling debacle. At present, the global financial system is centered on the U.S. dollar. Countries from around the world keep huge reserves of the US currency lying around for the sake of international trade. This reserve currency status that the dollar possesses allows the U.S. to sustain an assertive foreign policy and also gets to receive loans at discounted borrowing costs. Also, commodities are priced in the reserve currency, meaning central banks around the world must hold the currency in their reserves to facilitate trade. When these benefits are lost, a country’s economy becomes stagnant at best, and the value of the currency is depreciated, mainly because the world’s central banks no longer need to hold it.
It is not so very difficult to understand that, if the dollar loses its reserve status, what will that mean to dollar holders? Also remember, it took the UK over 50 years to recover from their loss of the reserve status. And as for questions on the next reserve currency – The real concern today and for some time to come, should not be on speculating about the next currency king, but about the massive global consequences of the US dollar’s lost status! If the dollar were to cease being the global reserve currency, the U.S. government will be much weaker internationally. In addition, the country will have a much harder time financing it’s already difficult to manage debt, and it would be impossible to maintain the economy from collapsing.
Going over to China, when one looks at their trajectory, it is not hard to conclude that China’s long-term goal is to replace the U.S. as the world’s sole superpower. Currency liquidity requires China to have an export market to develop for the Yuan. Over the past few decades, China has become a global manufacturing hub with a near-monopoly on numerous key rare earth resources. China is positioning itself as the key global manufacturing and trade hub for an array of components and finished goods. China now produces 20% of global manufacturing output, rendering the rest of the world dependent on the flow of goods out of the country. The icing on the cake of being the hub of manufacturing and trade would be to have the Chinese Yuan as the world’s reserve currency.
While they have a long way to go yet and a lot to lose by reverting to financial terrorism and dumping the dollar, they may feel that they will come out on top after toppling the dollar. With a weakened America, and the international community relying on the Yuan as a reserve currency, it is not hard to imagine China making good on their belligerence towards their neighbors.
But then, on the other hand……
Global implications of a crisis in China, the world’s second largest economy will be a bigger blow than Lehman was to the U.S. Emerging markets are becoming more of a concern for the global economy as the developed world recovers from the 2008/2009 financial crisis, while China’s slowing economy, which generates more than a third of global growth, has added to the unease. If you agree that China’s current economic model is unsustainable and that any transition away from it will be difficult, the question then becomes when a more serious downturn may occur. Recent events are beginning to show severe stresses in the Chinese economy. Perhaps a sign of things to come! To know why China may witness a hard landing, it’s important to understand how China’s economy got to be so big in a short space of time. First, it’s clear that China is trying to keep the investment boom going to aid GDP growth. The continuing credit binge is why property prices in China have remained strong, even though many have seen a bubble in this space for several years. The problem is that the credit boom is resulting in fewer bangs for the proverbial buck (or yuan in this case). Read more here – 5 Ways To Profit From A China Downturn In 2014
China’s economy probably grew 7.6% in 2013, the State Council said last month. That would tie 1999’s pace as the lowest since 1990 and be just above the 7.5% growth goal for the year. China’s policy makers focus on controlling financial risks and containing debt growth, limiting prospects for economic expansion this year. Sometime over the course of 2014 they will realize the slowdown, the deceleration, is worse than expected and they will loosen their stance a little bit. “Though we don’t expect a nationwide debt and banking crisis, we believe the chance of some bond and trust loan defaults will rise significantly in 2014,” economists led by Lu Ting in Hong Kong said.
Obamacare will be the most pervasive financial, economic, and political factor in America in 2014. Obamacare will produce a kind of national economic double jeopardy of real damage to millions of people, and continued uncertainty for everyone else. Employers have been laying off workers en masse to avoid the upcoming health insurance mandate for full-time employees. With uncertainty about the impact of Obamacare lasting through Q4, small businesses will continue their reluctance to hire. Also the depressing economic impact of higher health insurance premiums will cause the already weak consumer spending to plunge further. A combination of Fed QE tapering, a cooling global economy, and continued Obamacare disruptions will produce a challenging year for Wall Street.
Whatever the official numbers may say, reality is that job opportunities in the U.S. are, by most measures, really no better than they were a year ago. People gradually realize the bitter reality that it is hard to get a job without inventing it oneself. The improving unemployment rate is largely due to people dropping out of the labor force, and hiring hasn’t budged from a year ago. The worst of it is that the longer people stay out of work, the harder it gets to find a new job and even the higher-educated are jobless today. The families receiving extended unemployment benefits are generally in dire financial straits. A National Employment Law Project study says nearly 60% of jobs created in the post-recession recovery pay $13.83 or less an hour and there seems to be more job seekers who are willing to take any job. There are millions of unemployed Americans who stand to lose their extended unemployment benefits in 2014.
Market sentiment was far too pessimistic about the economic outlook in 2013. Despite the apparent slowdown, stock markets enjoyed their best performance since the 1990s. Last year was statistically disappointing with global growth slowing slightly from 2012. But today almost everyone is optimistic. Based on nothing but pure optimism, the market believes that the Fed can somehow contract its multi trillion dollar balance sheet without pushing up rates to the point where asset prices are threatened, or where debt service costs become too big a burden for debtors to bear. The more likely truth is that this widespread mistake will allow the U.S. to drift easily into the next and simply deeper crisis.
There will be a complete mockery of the optimism developed with great difficulty in the last year. After months of angst, investors will see how the U.S. Federal Reserve handles its decision to curtail its policy of easy money, starting from this month. In 2014, the United States economy will remain the main focus given the Fed has finally started to taper its asset purchases. In the U.S. alone, a minuscule increase in the benchmark 10-year Treasury yield – from 1.6% to 3.0% – has already caused new mortgage applications to plunge to a 13-year low. The housing market is bound to crash again. The government itself admits “housing” accounts for roughly half of all GDP growth these days and no amount of BLS, BEA, or other statistical lies will be able to mask the fact that the economy is on the verge of free-fall. More and more American cities will declare bankruptcy. The words – “Prosperity” and “Happy” may not be spoken in general terms for a long time to come, except on occasions where wishing someone may be unavoidable.
An important aspect the US government will need to learn and accept quickly is that when governments actually manage to interfere with private lives in one or other way, their aims will fail and they will regret having done anything at all. Governments need to learn the limits of their powers and accept a great deal of autonomy for their citizens.
So what unexpected developments could surprise financial markets and business sentiment in 2014?
U.S. economic growth will at the most optimism, average below 3% in 2014. Global inflation will also rise to around 3 to 4%. Equity markets in most of the emerging world (especially India) should continue rising while the opposite could be seen in the developed nations. Given that equity valuations are still only slightly above long-term average levels and that companies are flush with cash, there should be scope for considerably stronger gains in many stock markets. Emerging economies have more to gain from robust economic conditions and stronger commodity prices than they have to lose from slightly higher interest rates. Brazil, India, Indonesia, South Africa, and Turkey (all having elections in 2014) have prepared for the inevitable end of the era of cheap money and seem to have adjusted well by now. There will, of course, be exceptions. The biggest problem for the American stock markets will be higher interest rates, since 10-year yields will rise to at least 3.5% as the U.S. economy accelerates. There will be a strong conflict between strong growth and easy money. Eurozone will be dictated by Germany and its Chancellor, Angela Merkel, who was elected for a 3rd term and has retained Wolfgang Schaeuble as Finance Minister in her government. The ECB’s “whatever it takes policy” may well be tested – in an unprecedented fashion. ECB’s OMT, or “Outright Monetary Transaction” program in all probability will be tested in 2014; as the combination of rising rates and an already morbid continental economy could be devastating.
The Federal Reserve will maintain its commitment to zero short-term interest rates however much the economy accelerates, but will be cornered when inflation seems overpowering. Inflation, which is being wished for now by most developed nations, will become a major political problem in 2014. Central banks yet erroneously believe in the antiquated economic theories and that they can stimulate a domestic economy by purchasing government debt in theory injecting cash into the system. The domestic economy today does not get stimulated as these antiquated theories assume a close economy even today, when everything is interconnected on a global scale. Each move has a global impact and is also affected by other global factors taking place elsewhere simultaneously.
Monetary and fiscal policies or reforms will be triggered by panic in the world & in most cases will remain short lived.
World over people will see new laws being enacted quickly to suit purpose and then different ones replacing them just as speedily. Be aware of that and make sure you are not reliant on having the law stay as it is for long. There is a great chance that major Central Banks may again ramp up their monetary stimulus and drastically weaken their currencies in the bargain.
How will Inflation occur when it is now actually being prayed for?
Two thirds of the freshly printed money has not been released into circulation and are being held directly at the Fed in what are called ‘excess reserves. The correlation between an increase in the money supply and inflation beyond a five year timeframe becomes almost perfect. The Fed has, so far, incentivized banks to keep cash there instead of lending it out by paying interest on the reserves. Remember that the amount of un-lent capital held at the Fed is increasing on a year-to-year basis and rising interest rates would cause those reserves to snowball. The Fed will eventually have to cut interest payments on excess reserves, thus releasing a large amount of capital into the financial system, leading to huge inflation if not enough GDP growth is there to accommodate the influx of new dollars. So rising interest rates could bring current levels of excess reserves down and boost inflation if the economy fails to deliver sufficient growth.
The only thing standing in the way of widespread unrest is the inevitable surge in inflation heading our way like a speeding locomotive. We have heard it very often in the past couple of years that inflation is not yet a problem and in fact it’s very low for central bankers to be comfortable. In today’s world it means that prices are not yet high enough to stir revolt among voters. Today, inflation is almost always taken to mean price inflation. Monetary inflation, or increases in the money supply, is generally ignored unless price inflation becomes an issue. Productivity and technological advancements can put downward pressure on prices, thereby masking the effects of money supply increases. As explained above, many major banks have gone into protective mode and left massive amounts of central bank money as excess reserves on their books rather than lending it out under the fractional reserve multiplier. In such cases, low price inflation could mean a ticking time bomb rather than a measure of central bank brilliance.
As for now on – For the average family, putting food on the table will be a more pressing concern than buying luxuries or gifts. Inflation pressures, which have been dormant in Western economies for many years now, have taken a back seat to discussions about the world outlook, but could again come to the forefront given current trends. The European Central Bank, which targets inflation at just under 2%, cut interest rates in November to a record low of 0.25% after surprise news of a plunge in euro zone inflation to just 0.7%. U.S. inflation has also been shown as tame, with the Fed’s favored measure of non-food, non-energy prices up 1.1% in the year to November. It is surely a point to worry that all this could change quickly if growth continues to pick up through 2014, a year that will still see the Fed injecting money into the economy, albeit at a slower pace. The US government has 1 of 2 choices regarding inflation and the CPI: either it can 1 ) mislead its citizens by understating inflation or 2) release accurate inflation data thereby increasing social benefit obligations. This is a lose-lose situation because, unfortunately, both choices only serve to perpetuate an already insurmountable debt problem. Inflation is only “low” because of how it’s calculated. Since the 1980s, the US government has made many changes to how the CPI is calculated. These changes have resulted in an index that no longer accurately represents how expensive it is for people to live. Due to the fact that the CPI understates actual inflation, low and middle income individuals are struggling to keep up with the rising costs of living. As a result, more and more people are relying on the government for support. Inflation is higher than the CPI says that it is and most people are aware of that. It’s a conflict of interest for the Bureau of Labor Statistics (BLS) to calculate the CPI because it’s in the government’s interest to lower social benefit payments. As a result, the BLS’s inflation data are questionable.
A repressed CPI also has many effects on the financial markets.
1) It provides justification for artificially low interest rates and QE
2) It leads to the perception that the USD is holding its value and
3) It leads to overstated real returns in stocks and especially bonds
In conclusion, inflation is the means of a wealth transfer from poor and the middle class to the rich in the end. The rich will get richer, the middle class poorer and the poor…well, forget it and don’t even go there – You may not understand their plight at all. Soon millions of unemployed Americans will be losing their extended unemployment benefits in 2014. Real inflation rate may gradually be shown at realistic levels after this happens. What happens then? Despite all previous efforts by the government to maintain or at least announce (manipulated) lower inflation, it is bound to pop up and show its true effects and colors in 2014. Read more here – Is Inflation Understated? – The Way The Politicians Wanted It
In turn then, taxes will be ruthlessly imposed with a view to alleviate the social disasters of the time leading to the further lowering of living standards, a lot of homeless people and huge areas of vacant real estate. Hard times like these also carry the unavoidable risk of a massive boost in crime rates. When people have lost everything they take desperate measures because they have nothing more to lose, but need to survive at the same time. Unemployment & Inflation triggered crime wave will push the more mentally capable (yet unemployed) to invent more invasive measures and it will be harder to protect your identity online & yourself from cyber crime done using your identity. Think very carefully before you give any personal information to anyone as it could have very serious consequences down the line.
Unemployment, withdrawn jobless benefits, spiraling debt (including credit cards), higher taxes, costlier healthcare and higher inflation will in turn all add the proverbial, requisite oil to the fire in aiding massive civil unrests.
Manual skills like handcrafts, drawing, carpentry, typing, music, healing will become more prevalent. An increase in the trend of people wanting to go back to the native land from large cities to grow fruits and vegetables and become self-sufficient or self-reliant will be seen around soon.
Get ready for a complete Collapse and a Re-set
Central banks have, in the past few years, pulled out all the stops of their magical reality-tweaking machine to manipulate everything, while accounting fraud pervades public and private enterprise. All official statistics are lies of one kind or another; powerful entities manipulate markets at whim and fancy while the regulating authorities sit on their hands. There have been and can be more bouts of Illusions (as currently being seen)- periods of Economic improvements or utter calm. Do not allow yourself to be lulled into such a false sense of security. Politicians & Central Banks are masters of illusion, so don’t allow your thinking to become unfocused.
It’s a pity that today; personal success is regarded as a necessity, whereas compassion is a luxury. If society cannot learn from its past mistakes, then it’s doomed to repeat them over and over. Those wielding power (TBTF private banks and central banks included) seem to have placed staunch faith and are hell-bent on implementing the theories of control and manipulation of markets and thereby also the society at large. The central bank’s moves to manipulate society have brought us to the brink of disaster. These behind-the-scene-machinations have done far more damage to society as civil unrest rises in the wake of such failed manipulations. Currency wars are wearing down the players, conflicts and tensions are breaking out. Both American and European middle-classes are too exhausted financially to let the ongoing massacre to continue any further. The trade imbalances are already horrific and counting. Un-payable debt saturates everything. Sick economies will weigh down commodity prices except for food-related things. The planet Earth has probably reached peak food production. Supplies of grain will be inadequate in 2014 to feed the still-expanding masses of the poor places in the world. Understanding the world financial markets is now essential to our survival and biased opinion is threatening to make Western Civilization of democracy and freedom an extinct species.
As very well said by James H. Kunstler –
At the center of the economic growth question is credit. Without continued growth, credit can’t be repaid, and new credit cannot be issued honestly — that is, with reasonable assurance of repayment — making it worthless. So, old debt goes bad and the new debt is generated knowing that it is worthless. To complicate matters, the new worthless debt is issued to pay the interest on the old debt, to maintain the pretense that it is not going bad. And then all kinds of dishonest side rackets are run around this central credit racket — shadow banking, “innovative” securities (i.e. new kinds of frauds and swindles, CDOs CDSs, etc.), flash trading, insider flimflams, pump-and-dumps, naked shorts, etc. These games give the impression of an economy that seems to work. But the reported “growth” is phony, a concoction of overcooked statistics and wishful thinking. And the net effect moves the society as a whole in the direction of more destructive ultimate failure. Now, a number of stories have been employed lately to keep all these rackets going — or, at least, keep up the morale of the swindled masses. They issue from the corporations, government agencies, and a lazy, wishful media. Their purpose is to prop up the lie that the dying economy of yesteryear is alive and well, and can continue “normal” operation indefinitely.
It must be scary to be a Federal Reserve governor. You have to pretend that you know what you’re doing when, in fact, Fed policy appears completely divorced from any sense of consequence, or cause-and-effect, or reality — and if it turns out you’re not so smart, and your policies and interventions undermine true economic resilience, then the scuttling of the most powerful civilization in the history of the world might be your fault — even if you went to Andover and wear tortoise-shell glasses that make you appear to be smart.
The Fed painted itself into a corner the last few years by making Quantitative Easing a permanent feature of the financial landscape.
The truth is the Fed just did too darn much QE and ZIRP and they waited way too long to cut it out, and now they can’t end it without scuttling both the stock and bond markets.
So, my guess is that they’ll pretend to taper in March, and then they’ll just as quickly un-taper.
And in so faking and so doing they may succeed in completely destroying the credibility of the Federal Reserve. When that happens, capital will be disappearing so efficiently that the USA will find itself in a compressive deflationary spiral — because that’s what happens when faith in the authority behind credit is destroyed…..
My own theory is that an effort was made — in effect, a policy — to suppress the gold price via collusion between the Fed, the US Treasury, the bullion banks, and China, as a way to allow China to accumulate gold to offset the anticipated loss of value in the US Treasury paper held by them, throwing China a big golden bone, so to speak — in other words, to keep China from getting hugely pissed off. Throwing China the golden bone is also consistent with the USA’s official position that gold is a meaningless barbaric relic where national currencies are concerned, and therefore nobody but the barbaric yellow hordes of Asia would care about it.
There have been the now-historic revolts in Egypt, Libya, Syria, and other Middle East and North African (MENA) states. Iraq is once again disintegrating after a decade of American “nation-building.” Greece is falling apart. Spain and Italy should be falling apart but haven’t yet. France is sinking into bankruptcy. The UK is in on the grift with the USA and insulated from the Euro, but the British Isles are way over-populated with a volatile multi-ethnic mix and not much of an economy outside the financial district of London. There were riots in — of all places — Sweden this year. Turkey entered crisis just a few weeks ago along with Ukraine.
Official and security departments throughout Europe are now worried about a rising tide in Europe of Civil Unrest. It is gradually dawning on more and more people across the old continent; the European Union is riddled with fatal flaws and defects. Chief among them is the single currency which, rather than serving as the Union’s springboard to global dominance, could well be its ultimate undoing.
As very well pointed by Don Quijones –
A huge problem with the EU is its acute lack of transparency. Staggering as it may seem, in the last 20 years the Union has not passed a single audit. Indeed, so opaque is the state of its finances that in 2002 Marta Andreasen, the first ever professional accountant to serve as the Commission’s Chief Accountant, refused to sign off the organization’s 2001 accounts, citing concerns that the EU’s accounting system was “open to fraud.” After taking her concerns public, Andreasen was suspended and then later sacked by the Commission. However, by far the EU’s greatest — and certainly most dangerous — structural flaw is its gaping democratic deficit.
This rise in anti-EU sentiment should hardly come as a surprise given the impunity with which European institutions have ridden roughshod over the lives and liberties of European citizens. Since taking off its mask of benignity in the wake of the financial crisis, the EU has pulled off one of the most audacious and ruthless power grabs of modern history — and without firing a single shot!
Instead of using traditional means of warfare, it has employed much subtler — but in many ways no less brutal — forms of economic warfare to achieve its aims. And those aims are by now crystal clear: to slowly, almost imperceptibly, weaken nation-state institutions to the point of total dependence on Brussels; and then have them supplanted with EU institutions. It is the financial equivalent of death by a thousand cuts.
Predictably, privatization has played a central role in this process, despite the fact that the funds thus far raised from state auctions represent a meager fraction of each nation’s total outstanding public debt. That niggling little detail, however, has not deterred the Troika from demanding fire sales of virtually all publicly owned assets and companies in Greece, as well as many in Spain, Portugal, Ireland and Italy.
Under the hammer in Greece are public gas utilities, transport and postal services, motorways, airports, large regional ports and even the country’s water supply — all to be sold off to multinationals for cents on the dollar. Islands and public buildings have also been put up for sale.
Whether the EU is able to pull of this ultimate coup de grace in its decades-long coup d’état will depend on two vital factors: its ability to continue preventing economic reality from impacting the financial markets; and the willingness of hundreds of millions of European people to be herded and corralled into a new age of technocracy.
In Spain, anyone who demonstrates spontaneously in the Spanish Parliament, have to pay a fine of €600,000 euros and thus no free speech. The Spanish are increasing penalties for protesting and threatening anyone who dares to film police officers responding to protesters – meaning journalists, will not be tolerated. This also applies to people who burn photos of the king in public. These laws are also being applied including bankers who are to be immune from any intimidation.
In Italy, the Pitchfork Protesters (Forconi) are gaining in number. In January massive strikes are now planned again in throughout Italy. Even the Telecom employees and the lawyers of the country go on strike. In Portugal, the protests have turned to throwing garbage in front of the banks. Even Goldman Sachs now questions about the survival of the euro-zone.
We should expect the civil unrest to rise and turn more violent in 2014. The US too, will soon have its (lion’s) share of this unfortunate violence. This cycle on civil unrest is turning up with a vengeance. The combination of a Sovereign Debt Crisis and Economics has a long history of creating civil unrest of a grand scale. There are high chances that social stability may crack by the year end.
Balance of payments deficits widened over 2013 in four of the “Fragile Five” emerging economies, highlighting their heavy reliance on foreign capital. South Africa, Turkey, India, Indonesia and Brazil earned the collective name after bearing the brunt of a sell-off provoked by a hint from the U.S. Federal Reserve at the end of May that it could start winding down its economic stimulus.
Measured in 12-month rolling terms the current account deficits widened in all the countries except in India, in the four quarters to September 2013. India’s deficit narrowed a percentage point to 4.35% in the July-September 2013 quarter, due to official curbs on gold imports. The Indian economy and its financial markets could see some positive surprises in 2014. Ongoing strengths, in terms of solid economic growth potential, strong public and consumer finances, rich natural resources and favorable demographic trends that have helped them over the past several years could gain new traction. For the long-term fundamental investors, I believe longer-term developments that look likely to gain traction in 2014 could drive solid growth potential in India.
South Africa’s deficit was 6.19% of annual economic output in the third quarter of 2013, almost a percentage point wider than in December 2012, while Turkey’s widened slightly to 7.18%, the graphic shows. On a seasonally-adjusted annual rate basis, South Africa’s third quarter gap was even larger at 6.8%, official data showed last month. Brazil’s deficit widened by 1.2% to 3.6%, while Indonesia’s increased by 0.8%. Brazil will be hosting the World Cup in 2014 and the Olympics in 2016. As a result, expect to continue to see the country investing significantly in infrastructure. This should help drive economic growth in the coming years as well as improve the basis for stronger sustainable growth in the long-term. It may soon become a leading consumer of products (both non-durable and durable) not only produced in Brazil but also those imported from regional and global markets.
The Mexican market has been benefiting from significant investor interest recently, especially as the outlook for the US, which is Mexico’s largest trading partner, has been improving. A downturn in the US economy may have its unavoidable impact on the Mexican economy. A long period of increased economic and political stability has also allowed the government to concentrate its efforts on long-awaited reforms.
“To some extent the improvement in India is artificial but at the same time their export performance has also been very good,” Christian Keller, Barclays’ head of EEMEA research said. The improved deficit and a flurry of reforms have helped the Indian Rupee to recover more than 10% from record lows in August 2013, Keller noted. The rand, lira and rupiah, however, have continued to weaken.
On the African continent, some companies are seen thriving in Egypt despite some turmoil there, and therefore it has succeeded in maintaining global interest there even though the news headlines have sometimes been alarming. Egypt is a big country with a big population, and is a leader in the Middle East given its strategic and geopolitical importance. Elsewhere, some South African consumer companies have been starting to enjoy solid growth, both domestically and in ventures elsewhere on the continent. Kenya is home to a groundbreaking mobile money transfer system that is spreading to other countries and likely will have implications for emerging markets globally. There are many countries and companies to look at in Africa, which we are excited about in the coming year. We maintain that Africa holds huge potential to be unlocked in the near future.
Those individuals and companies who are in heavy debt will need to acknowledge that this has to be dealt with and cannot be ignored any longer. Expect to see more businesses going bankrupt, more job losses due to this and more people asking for professional guidance on how to sort out their finances. Expect to see issues of morality in the headlines. Moral values will be debated with increased heat and hostility while social conflict escalates. Many young people will be having serious problems distinguishing between virtual reality, fantasy and actual reality. Many might feel their independence is being curbed and their privacy invaded. Conflicting interests and complications will be rampant, but so will constructive effort and hard earned progress.
With force and firmness our world insists on moral values and justice for all – at least in words, though not necessarily in action. World leaders compete in trying to sound the most committed to this cause, and they hurry to demand conformity of everyone – if not to say obedience. 2014 will have a hardened public debate on these issues, with sharply made demands and confrontational politics against those who don’t comply.
Earthquakes and large scale flooding (as forecasted last year) will continue to occur in unexpected places while weather patterns continue to change in a major way. More people will crave a quieter, more peaceful existence while some will make an effort to turn this dream into reality. Rising inflation will bring about its own set of positive and negative outcomes. We might see groups getting together to help and give support to each other rather like the communal living in the sixties but without the hippy element! Friends and families might link up to share work in order to become more self sufficient: tending their own vegetables, setting up their own crèches, swapping one trade or service for another and generally as incomes continues to go down and prices up, we will see people banding together to help each other. By around the mid of May 2014, investors should be feeling a little more confident and consumer spending should tentatively increase too, albeit not too large. Visionaries and inventors could see some impossible dreams come true by the end of Sep 2014 (like a breakthrough in medicine in all probability). Faith and patience will play a vital role and only those blessed with abundance of these will thrive and succeed in this difficult period of 2014. Haste and rashness will have their own immediate adverse or negative effects also. Hopefully you made hay while the sun shone over the first nine months, because you will probably have to draw on your cash and energy reserves from October until the end of the year. The period from October onward unleashes truth-revealing thunderbolts. Most of these revelations could be pretty shocking. By December, most of the people will have to bear up with some austerity measures. Having to be frugal and sensible at this time may actually be a relief and will make a change from the rampant excess that usually occurs during the festive season.
Market analysis has become a play for the manipulators in the recent past. The paper financial markets have become so hopelessly, relentlessly rigged, that the fundamental and technical factors we’ve spent a lifetime analyzing, have become useless over short to medium term periods. Thankfully, the long term yet remains untouched, mainly because of the difficulty in manipulating over an extended or a lengthy period.
Soon enough in the coming years, there will be new games, rules and players entering the global market arena and many of those who dominated there will see their roles diminished. Old ways and plays will cease to function, whereas new structures recreate order of another kind.
In times of uncertainty, we find solace in the arts. The spreading fear of society moving towards some kind of a global chaos inspires the arts and increases the popular need for entertainment. Art in most forms cheers us up, and this will help the segment to profit and grow. There will now be a renaissance of religious themes and art will be pursued as a way to explore the mysteries of life. The time is ripe for daring innovation and originality in arts, music, film and culture in general. Creative arts of all sorts will do extremely well and you should gather the courage to push forward your talents and dedication to your chosen art. If 100 critics rubbish your creations they are wrong! You are simply ahead of your time. Arts and entertainment distributed through proper industry and channels of communication will especially do well.
Silver prices can expect to rise consistently aided by industrial demand as a result of economic growth throughout the year. Price of silver may also get support as it is a major component in solar panels which will see higher demand out of need for an alternate and cheaper energy source. The concerns over the devaluation of the U.S dollar and the potential rise in inflation may have a positive effect on silver rather than gold this time around. Silver prices have declined more than gold prices from their all time highs in April and Sep 2011 respectively. The historic silver to gold ratio also favors silver investment. Another fact is that people would prefer to be safe with whatever little investment capital they may have been left with after the unexpected fall in precious metals and also the startling and extended stock markets rally in the US seen all through 2013. The most influencing factor though would be that all through 2013, gold ETFs (GLD) saw massive withdrawals whilst silver ETFs (SLV) stood steady with only additions seen to the same whenever possible. Silver Exchange Traded Product holdings by investors went up 6% in 2013, whereas gold ETP holdings plunged by more than 30%. If you are looking for the most heavily discounted investment to catch a revival in inflation, you should look no further than silver. India emerged as one of the biggest consumers of silver from almost zero a year ago. Indians bought about 4,800 tonnes of silver in 2013, about 22% of world silver production and 44% of all silver available for investment. India is expected to import over 5,200-5.400 tonnes during 2014.
I am sorry to take the wind out of Gold investors’ aspirations, but gold prices may remain lackluster, especially in emerging economy currencies due to the appreciation of some of the currencies against the US dollar. Gold traded in the dollar currency can find bottoming out at $1090 and may see some firming up, though not as much as the gold bugs may like to see. If silver prices witness any selling pressure, it could at worst see rock bottom at $16. As for the upside, I do not wish to put a cap on it as of now as the potential seems extremely strong. Also a personal disclosure that Silver remains my investment favorite on all dips henceforth.
Crude oil which is another one of my favorites for now, can expect bottoming out at around $82 at worst. If also inflation is expected to hit the roof, oil would remain one of the biggest contributors to the same. Expect an upside breakout in oil prices in 2014. As for copper, bottom formation is expected around $3.100 and I also expect all base metals to do fairly well. Prices of agro commodities could hit new highs on lower production and additional scarcity caused by weather extremities and natural hazards. There will be more flooding, tsunamis and excess water issues especially in coastal areas. There could also be issues with water purity and contamination. An outbreak of large scale epidemics is a strong possibility.
Pharmaceuticals, Water related Industries, Entertainment – Films, Music and Arts included (My top 3 picks), Healthcare, Education, Telecom, Agriculture and Alternate Fuel Industry shares in particular will do extremely well. Steer clear of interest rate sensitive stocks even if prices seem too attractive. I have since 2012 maintained that, Banking as a complete sector is doomed. Spending on real estate, capital goods, new technology and gadgets may be reduced to a large extent on a slowing economy. Logistics, FMCG and Import – export oriented stocks to also be avoided. Also the currency exchange rates will see huge fluctuations. People working in alternative medicine and who deliver alternative therapies will find there is an increasing demand for their services.
I repeat what I said last year in my presentation – “The World at the Edge of an Abyss.”
This is a powerful time for people of like minds to come together to create huge changes on our planet. If enough people believe that we can be prosperous and we can come through our economic, social and political woes, we can create it. The 2013 onward era unleashes the Power of the Mind. Make sure you use it well and to your advantage. There will be formations of several large groups of like minded people who would take it upon themselves to bring about the desired & vital changes to the now decaying Economies, Society & the world overall. Anti-Corruption movements of such groups are sure to pick up Epic sized momentum 2013 onward. These times provide an opportunity for the masses to break out in an uncharted direction which will surely bring about prosperity and fairness for us all.
Look well and deep to the underlying economic trends and you will understand the future.
– Wish you all a Debt Free, Prosperous, Safe & Healthy 2014.
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