As we stand on the brink of a New Year, it’s a time for reflection and speculation about what lies ahead. The excitement of 2014 beckons as we ponder the possibilities the year may hold. What developments can we anticipate in the stock market, the economy, and even the environment?
Will the stock market’s stunning rise continue? Can new Federal Reserve Chair Janet Yellen navigate the challenges ahead without exacerbating existing issues? Will the economy finally gain traction, or will unforeseen setbacks arise?
These questions spark our curiosity, even if they remain unanswered. As the famous Yogi Berra once said, “It’s tough to make predictions, especially about the future.” Yet, let’s embrace this uncertainty with a spirited resolve to explore our speculations.
What follows are a few lighthearted predictions for the coming year that we hope encourage thought and discussion…
Global Cooling
First, let’s discuss climate: we might experience a cooling trend in 2014 rather than warming. This shift is already underway. Contrary to the assertions of figures like Al Gore, credible scientific evidence suggests that the Earth has been cooler in recent years.
The concept of a cooling phase is linked to the Maunder Minimum, a period characterized by a significant reduction in sunspots, which corresponded with colder climate periods. Historical records indicate that this phenomenon coincided with the “Little Ice Age” in the 1600s. Some scientists argue that the current decline in solar activity might herald a return to similar conditions in the near future.
While experts tracking sunspot activity acknowledge the uncertainty surrounding the extent and impact of this cooling, the current drop in sunspot activity is unprecedented in comparison to previous Maunder Minimum cycles over the last 10,000 years. Thus, the idea of a new cooling era certainly deserves further consideration.
Moreover, predicting a cooling trend offers an opportunity to challenge the claims of individuals like Al Gore and his controversial “hockey stick” graph, a prospect we find quite appealing. For this reason, we will keep a close eye on this development.
Interestingly, our research revealed several articles linking declining sunspot activity to downturns in the stock market. While this notion seems farfetched, our own predictions regarding global cooling might not be without merit.
Now, let’s delve into the economy and financial markets…
The Economy and Markets
Despite our attempts to provide definitive forecasts, we are somewhat ambivalent regarding the economy’s path this year. It appears that economic growth will continue at a modest pace, with GDP projected to rise around 2%. However, unemployment rates—particularly when factoring in discouraged workers—are likely to remain elevated.
Since the economy began to expand in mid-2009, many individuals have not experienced significant improvement in their circumstances. For countless people, merely maintaining their current status has proven challenging. The burden of excessive debt is weighing heavily on the economy, necessitating a substantial write-down and restructuring process before any meaningful recovery can occur. This transition may manifest in the gradual erosion of the middle class.
Given this context, the stock market, which surged nearly 30% in 2013, may face obstacles before summer. While we don’t anticipate a dramatic crash akin to those of 2000-01 or 2008-09, a 20% decline from current highs could be in the cards.
Nonetheless, after this potential downturn, we expect the stock market to rebound and conclude the year nearly where it started, possibly within a 5% margin. This outcome won’t reflect genuine economic vitality or substantial corporate earnings growth but rather the implications of aggressive Federal Reserve policies. Even with tapering measures in place, the Fed is still infusing financial markets with roughly $900 billion annually. Additionally, the commitment to maintaining nearly zero interest rates for the foreseeable future will further buoy the stock market.
In regard to gold, similar to the economy, it is likely to remain somewhat stagnant, fluctuating between $1,000 and $1,500. While inflationary pressures from the Fed’s monetary policies will eventually elevate gold prices, we don’t foresee significant movement in 2014. For those interested, this may be a prudent time to consider acquiring gold bullion.
This year is unlikely to witness the bursting of the large Treasury bond bubble. Asset bubbles, including those in government securities, can persist for longer than most anticipate. Recently, 10-Year Note yields have risen to around 3%. While we expect a slight increase in yields, they likely won’t surpass 4%. Although an eventual collapse of the Treasury bond market is inevitable, that prediction may be more fitting for 2016-17 rather than this year.
Oil prices are projected to remain elevated, likely fluctuating between $80 and $110 per barrel. Although domestic production in the U.S. is increasing due to fracking, stagnant global output will prevent significant price declines. Simultaneously, an intense interest may arise in unconventional oil and gas exploration and production stocks.
While the domestic oil and gas boom is indeed underway, the inevitable elements of human greed and herd mentality could inflate this sector into a financial bubble. Investors might consider buying these stocks now and potentially enjoying substantial gains before any ensuing panic leads to a crash.
Ultimately, much of what unfolds in 2014 is beyond your control. What matters is how you respond and adapt to these changes. We are determined to make the most of the year ahead and hope you are inspired to do the same.
Happy New Year!
Sincerely,
MN Gordon
for Economic Prism
Return from Global Cooling and Other Guesses for 2014 to Economic Prism
