December 31, 2013

Ten global market calls for 2014

Posted in Global Economy · 68 comments ·

Today, as there will be lots of commentary on Ireland, let’s go large, gain altitude and look at the broad global economic canvas, to see what is likely to happen in 2014. Making forecasts is risky business, but so too is life – and as return is the opposite of risk, you will hardly get one without the other. So let’s take a plunge and outline my top ten global financial/economic forecasts for the year.

1 The background noise in 2014 will be one where the US – and maybe Britain – tries to reverse the monetary easing of the past five years.

While this may point to higher interest rates in Britain and the US, it will certainly mark the end of the free liquidity which drove prices of everything from Francis Bacon paintings, expensive footballers to upscale apartments in Knightsbridge through the roof. We know that liquidity squeezes are to trophy assets what open goals are to Francisco Torres; they don’t like each other.

2 Countries with large current account deficits don’t like liquidity squeezes either, particularly emerging markets countries and currencies. So at least half of the former BRICs – the Brazil and India bits – will have a torrid time.

3 The other bit of the BRIC equation – Russia – is likely to have a very interesting year. The greatest leading indicator to wobbles is always supreme confidence and Putin’s release just before Christmas of Mikhail Khodorkovsy, the former oil tycoon who was imprisoned for ten years, was a sign of unassailable self-confidence. But next year’s Winter Olympics in Sochi are likely to be dogged by riots in Ukraine, the impact of falling energy prices and dramatic deterioration of relations between Moscow and Berlin.

4 Speaking of oil prices, lots and lots of new oil production will come on stream from shale in the US to increased output in Libya and elsewhere. This will drive down the price of energy. Normally Saudi Arabia would respond to too much supply by cutting its own production to keep prices high.

This won’t happen this time because it feels very threatened by the US overtures to Iran – because the one country the Saudis dislike more than Israel is Iran. We all know how family rows can be much more vicious than most and within the Muslim family the Sunni/Shia row, being played out in the civil war in Syria, is as bad as its ever been.

5 France heads straight into recession, which it has been threatening for some time, driven by faltering industrial production.

With an ineffectual president, a growing problem in its current account and unions which render the country incapable of sorting itself out, the French budget deficit will expand rapidly, shoving it up against EU ”fiscal compact” constraints. France will kick out against Germany. This spat will undermine the euro, which was already heading down against the dollar based on interest differences anyway.

6 Draghi’s bank stress tests all over the eurozone will throw up all sorts of ugly and nasty surprises as the balance sheet legacy of the euro’s first seven disastrous years becomes exposed. If you want to see how much cash will have to be shipped into certain peripheral banks, look no further than the bucket of capital KBC Belgium had to ship over to its Irish operations in late November.

The bank stress tests may force another bout of wobbles on the periphery, but the most likely outcome is that the ECB will have to spend money.

Up to now Draghi has kept the bond markets on side by threatening to intervene to prop up any peripheral in danger. With the stress tests and ongoing deflation in most of the eurozone, it is likely that the ECB will have to begin a QE type policy of actually rather than pretending to buy government bonds. This will put it on a collision course with Germany, as is typical in these events. I expect Draghi to win whatever battle ensues.

7 In Japan, the economy is likely to splutter because its simply too old to grow vigorously.

This forces the government into a massive dose of monetary stimulus again, forcing down the yen and pushing up the stock market. The yen ”carry trade” is the dominant source of financing for international financiers (borrowing in yen and investing elsewhere). This materialises in Dublin in the price of top end real estate on the docks because this is precisely how the big foreign guys are financing their hoovering up of Dublin’s property.

Because interest rates here remain low, the property market in swankier Dublin addresses will move upwards with the steel, glass and chrome end of the market out-performing.

8 Staying global, but with a local angle, 2014 will be the year when some of the more ludicrous valuation on social media companies and the like, fall back to earth.

As liquidity dries up, so too does speculation and therefore, the notion of a company being valued as billions with no profits will become anachronistic.

Expect large falls in the share prices of some of Dublin’s newer technology tenants.

9 Even though China’s Shanghai Composite index has fallen for the fourth year in succession, the fact that unlike India, China can fund itself easily means it might be better able to deal with its wobbly banking system than other places.

10 Finally, for the thousands of our brothers, sisters, sons daughters and cousins living in Australia, the Australian economy is slowing, but a massive expansion in the budget deficit will keep it creating jobs this year. The Aussie dollar is defying gravity despite the best efforts of the finance minister to talk it down. But surely it can’t remain the lucky country indefinitely?

And one last thing – sterling is likely to continue strong against the euro, which is good for Irish exporters.

There you have it. Happy New Year.

David McWilliams has just lunched a new daily global economics newsletter globalmacro Sign up now for your free trial

  1. DJR

    Who is Francisco Torres? Is he to football what you are to jokes?

  2. Paul Divers

    Can you hear the drums Fernando?

  3. redriversix

    This whole financial War is a Ponzi Scheme..nothing more..nothing less.
    Debating Garbage is really becoming boring..not to say I find anyone here boring..its just that we,as a people must move on.Concentrate on the positive things in life.
    Some days I get really annoyed..the next day I am wondering “what the fuck am I giving away my peace of mind for”?
    Depression can still hang around,you don’t go through a major life event without some scars..but its not here today,…and thats all that matters.
    Saying all that,I do enjoy studying History,Economic History & Military wife refers to it as my “light reading”…
    its not negative..knowledge is matter how bleak or “real” the subject..take negative information and make positive decisions from it to protect yourself & your family.
    We are living through truly historic times..Things are gonna get worse & thats ok…better to be prepared and accept the worst,anything after thats a bonus.
    All Ponzi schemes end in disaster as this one will…the powers that be will hope they will have taken control of as many real assets and Natural resources as they can before their worthless paper money scheme collapses around them…..if they have to fight for them…they will…or , or your children will…
    A Ponzi Scheme….
    1/ exponentially increasing Liabilities or in plain english,rapidly mounting debt
    2/ Crappy non-existent or inadequate assets
    3/Deceitful..or non-existent accounting
    4/feeble/enert or toothless regulators
    5/get rich quick culture,salted with a whole array of inappropriate incentives
    6/ Stupid,ignorant & Lazy Investors
    7/ A astonishing capacity for self delusion.
    These are the ingredients for Ponzi schemes…any of the above seem familiar ?
    Have a great day
    A very happy New year to all here and the best of luck for 2014….
    Remember,fuck the begrudgers..stick with the winners…..finally….
    Shit Happens !

    • michaelcoughlan

      Hi Barry,

      The good news to be taken from your post is that at the bottom of every ponzi scheme collapse is a collection of Benjamin Graham style value investors who will clean up. Read the intelligent investor. Riches will abound to those of us with discipline, courage, patience and skill.

      Focus on the positives Barry and get up on the bike and not the couch. Really helps the mood and much cheaper than a therapist. Best of luck for 2014.


    • Spot on Barry, Happy New Year.

    • Paul Divers

      A light tonic for these long shortening evenings

      Kenny Ball – The Green Leaves Of Summer

      Keep thy head up Barry. Happy New year.

      • redriversix

        Morning Guys.Thank you.. A very happy new year to you too….

        Hope things are good in Canada,Chicago & Sligo

        The Heavy rain this morning washes away the dirt & despair of 2013 for many……….good job God doesnt have a power hose…!

        When I look back on 2013 funny how i only seen to remember the funny,ridiculous & sublime……..

        Another timely reminder of what a utter waste of time worry,anxiety & stress is…..

        My son sleeps after celebrations with his girlfriend,My daughter snoozing as her friends lay scattered around our sitting room in various states of repair….Honey needs to go out so we pick our way gingerly through the twisted limbs trying to quietly get to the back door..she shows her disgust at the rain and reluctantly goes out…………

        As I boil the kettle,trying to be quiet..Honey sits at my feet..looking up at me with big brown eyes.flitting between watching me and the lead hangin on the door……..

        I gaze out the window at the does Honey

        What more could I want or need..?

        Happy New Year

  4. bonbon

    TIMES OF LONDON NAMES VLADIMIR PUTIN “INTERNATIONAL MAN OF THE YEAR.” The paper’s editorial announcement begins: “It has been a good year for the judo sixth dan Vladimir Putin, who has hip-flipped President Obama on Syria, wrestled the EU to the ground on Ukraine, tripped up the opposition at home and rescued weaker team players such as President Assad of Syria and Edward Snowden, the NSA whistleblower.”

  5. bonbon

    Is this what DMcW calls a “wobbly” ?

    Wahhabi Terror Attacks Against Russia Escalate

    Time to get off the bubbly, this is much too serious.

  6. bonbon

    Khodorkovsky makes Madoff look like an amateur. And the other wobbly riot crowd pardoned at the same time make Madonna look like, well, a runner up.

    • Ryu Hayabusa

      Putin is getting very magnanimous in his old age! Then again he does suffer from ‘Little Big Man’ syndrome.

      • bonbon

        The “little Napoleon” with the raggle-taggle Grand Armee led by that boxer (who took one too many to the head it seems) Klitchko, the EU has learned nothing from 1812 and 1941.

  7. michaelcoughlan

    Hi all/David,

    Thanks for the opportunity to post on your site in 2013 and thanks to all for your insights.

    Best regards for 2014,


  8. Pat Flannery

    You predict that the two leading horses in the Euro team will start pulling in opposite directions due to France’s faltering production and growing current account deficit.

    However, according to your theory of current account surpluses in one country automatically spilling over into countries with current account deficits, will not a German surplus counterbalance a French deficit much as a surplus in California or Texas flows into less productive States internally, without undermining the Dollar? Is that not the logic and strength of a single currency like the Dollar or the Euro?

    And one last thing – you could not end the year without one last “Rule Britannia” for sterling.

    So there you have it – from a Euro perspective. Happy New Year.

    • bonbon

      There is no such “logic” for the Euro – there is no political union, no U.S.E, and now not even the banking union, merely a huge bureaucracy.
      DMcW has a “put” on Draghi “actually rather than pretending to buy government bonds”, winning on the collision with Germany. There is the definitive ripping sound – a collision with reality.

      • Pat Flannery

        Precisely. Which explodes David’s theory that Germany’s current account surplus AUTOMATICALLY enables periphery countries to run current account deficits.

        He called me “silly” in an earlier post for questioning this “automatically” aspect of his theory. He said I did not understand current accounts.

        He believes that German savings “automatically” flows to periphery Euro member states with current account deficits – BECAUSE OF THE EURO.

        I believe such flows are a function of the markets (if not interfered with by the ECB). I believe that Germany/Germans can invest its/their savings (surplus) wherever it/they please because a monetary union is not a political union. I believe that is both the great strength and the great weakness of the Euro. David sees it only as a weakness.

        Here in this article David predicts that a growing current account imbalance between France and Germany will “undermine” the Euro – without explaining why. Obviously he truly believes in his “automatic” current account theory.

        I believe a French current account deficit may “undermine” France, but it will not “undermine” the Euro.

        • bonbon

          As usual monetarists have no conception of physical economics. There is some hope though, DMcW does refer to France’s “faltering industrial production”, a hesitant over-the-shoulder glance at the reality of the Motor of Europe – France and Germany. A currency like the Dollar or Euro with a wrecked physical economy gives us Cyprus and Detroit and not automatically but deliberately. And make no mistake about it, that is discussed at the highest levels.

  9. Happy New Year David.

    Competitive currency devaluations are the order of the day , month, year, foreseeable future.

    The Lucky Oz dollar is already in retreat against the US by 10% the last 3 months, Canadian dollar by 5%.

    No country will allow too much of a gain against any trading competitor/partner. All central banks will have orders from governments to PRINT, PRINT, PRINT.(Produce DEBT, DEBT, DEBT)

    China will continue to hoover up all the gold in the world on its way to being the supreme being in strong currency. The only country that can continue to exercise restraint in too fast a currency run up but it will allow to happen. China’s economic power grows as it invests US dollars surpluses in trade for hard assets everywhere it can.

    Physical supply of bullion will dry up as gold goes west to east. The Shanghai and Hong Kong bullion exchange pricing in physical bullion will out muscle the London and New York paper markets as the real price of bullion is re-established in the world. Price of bullion in currency will begin to reflect value.

    Markets will overcome the price fixers. The Gold War fiercely rages un-noticed by most.

    I go now to Sail to Montague Harbour to ring in the New and out with the Old with a few friends. Then an Early start to the Hot Rum Race out in the Ganges Harbour to celebrate life, love, luck and well being.

    “Life’s prizes don’t always go to the faster or stronger man but sooner or later to the one who thinks he can”. (cribbed from memory from “Think and Grow Rich”-Napoleon Hill, c.1920′s )

    Best wishes and blessings to ALL.

    • Forgot to add that the 4% gain of the Euro judged against the US dollar adds up to a 15% devaluation of the Oz dollar v. the Euro. Harder now for Emigrants to Oz to come back for a visit or to send cash back to home!!

  10. ex_pat_northerner

    David, I believe you’re mistaken with regards to Shale Oil. and access the report from Hughes who has analysed the output of Shale oil wells and shows that the Bakken has already peaked in per well output – so drilling more wells for ever decreasing returns is currently mode of operation. True this ‘mirage’ may continue into 2014 but falling oil prices mean much of the Tar sands/Shale at anything less than 100 dollars a barrel becomes uneconomic. Similarly problems for Saudi and other Arab states requiring high prices to bring in social programmes to enable rebuilding/keep power.
    Another interesting report on Shale from University Texas released recently looked at the decline and flow rates from Shale wells in general.
    “But I think that you just raised a far more important point. The destinction between resource and production. See, we don’t care about resource, the resource can be infinite. But if we cannot produce it at a high enough rate it doesn’t matter to us. So, if I were dripping oil from a reserve well for a thousand years one bucket a day, it would not be of great utility to me”
    The message on Peak Oil has changed from actual availability of the stuff, to the ability to get it out economically (EROI Energy returned on Investment) and in an environmentally and energy efficient manner (EROEI – Energy return on Energy Invested). eg Tar sands currently using cheap US gas to steam the bitumen so EROEI is actually less than one – more energy being used to create the crude than the barrel of oil contains.
    Oh.. my prediction on Shale for 2014 – expect more of the same bluster and playbook from US to be employed in UK, with similar outcomes (less regulation etc.) As Berman said of Shales, its a retirement fund for the industry.

  11. bonbon

    Patricia McKenna of the Peoples Movement scythes through the spin following the Red C poll on the euro system – Those willing to accept such cuts were from the higher social classes and more Dublin-based.

    After Ireland, the most indebted, prostrated itself before before, 2014 will see a population-based vote with Ireland falling to 1%. 69% have no clue this is about to happen.

    • whatamess


      “The other key finding of the Red C survey found that despite two referendum campaigns, 69pc of Irish people are still unaware of the most significant political change introduced by the Lisbon Treaty, which is that in 2014 voting in the all-powerful EU Council of Ministers will move to a population-based system, giving a significant increase in voting power to the big states at the expense of small states like Ireland.

      From later next year, under the new population-based system, a qualified majority for the purposes of making EU laws in the Council of Ministers will require 55pc of the states — which means 15 out of the 28 — so long as that 15 comprise 65pc of the total EU population.

      WITH Germany and France between them having one-third of the EU’s population and half the population of the eurozone, this gives these two countries a blocking minority on any issue if they can get one or two smaller allies, as well as a powerful say in pushing through whatever measures they want.”

  12. Ryu Hayabusa

    The gap between Ireland’s have’s and have not’s has increased measurably according to analysis by SJI.

    Ireland’s poorest decile have had 18.4% of their disposable Income eroded away since 2008.
    Ireland’s richest decile have had a corresponding decrease of 11.4% over the same period

    This is the truest year end message anyone needs to see about where this society is headed.
    No amount of Bulls**t, Obfuscation and Bladder from FG/Lab. can alter this fact.

    Under their stewardship (and that of the previous Cabal) the country is on a desolate road to nowhere in 2014 and beyond. Of course this doesn’t dovetail in very nicely with their happy happy feel good bunkum.

    Take Home Pay of TD’s has risen by €848
    Take Home Pay of Minister’s gone up by €1543

    Someone should run that by Little Richard!

    2014, Bhliain don Béal Bocht.

    Not trying to bring the tone down on New Year’s celebrations… but there’s no escaping reality, is there!?

  13. Paul Divers

    A wee present for the Irish Brothers on this New Years Eve.

    Scotland the Brave. In the charts during the 1982 world cup.

    I was 17 and it was when I learned the real meaning of the phrase ‘bs’.

    Soooo unlike 67 when we walked the walk on the world’s greatest arenas.

  14. Paul Divers

    A proper foot tapper for anyone who knows what it’s like to wear a kilt.

    The Corries The Roses o’ Prince Charlie

  15. Paul Divers

    The Corries – The Shamrock and the Thistle

    A sentimental account of Irish immigrants landing up the clyde not far from Clydebank and Lanarkshire. These were the true heartlands of the thousands who wore the green and contributed massively to modern Scottish culture.

    It is my culture and your culture and took two bloody world wars to get us accepted. Screw your gold and your bonds. There are more important things in life :-)

  16. bonbon

    The British Diktat: De-industrialize and Perish

    British Imperial Policy Has Succeeded in Drastically De-industrializing Europe Over the Last Half Century.

    Look what has happened to emloyment since the death of JFK.

    As well as much more, a calculation, based on Eurostat’s own statistics, shows that real unemployment in Germany is not the official 5.3%, but at least 12%; in France the official rate is 11%, but real unemployment if 17.4%; in Spain, official unemployment is 27%, but real unemployment is 40%. And Portugal, Italy and Ireland all have real unemployment rates in the range of 20-30%.

  17. Paul Divers

    Here is an interesting historical account of the skulldugery western nations use in Africa. It mentions two Irishmen.,1709634

    If you dig deeper and look at who owns the world’s uranium supplies then it is no wonder that they want to promote nuclear energy. Anything for a profit.

  18. Paul Divers

    Booming Britain?

    Last week, Tory MP Esther McVey, Iain Duncan Smith’s deputy, insisted it was “right” that half a million Britons be dependent on food banks in “tough times”. Around the same time, the motor racing heiress Tamara Ecclestone totted up a champagne bill of £30,000 in one evening.

    • bonbon

      “An America today people with power are no longer accountable. This means citizens have become subjects, an indication of social collapse.”

      Correct, SUBJECTS. He gets very close to the point, and dithers. The last time that happened (general warrants) there was a war, as Edward Snowden said in his recent interview.

      Let’s make it clear, subjects of crown which Obama serves.

  19. bonbon

    Over at the Indo : “2014 looks brighter — but another banks crisis could derail recovery”, DMcW mentions yet again the bail-in likely to hit as the next banking landmine goes off in 2014. As usual no effort whatsoever to propose a solution, but a fence-sitting Tiger, at a safe distance of course somewhere in Dublin, watching the fireworks destroy any “slow recovery”.

    Glass-Steagall is now more urgent than ever. The landmines must be defused

  20. bonbon

    Stark reminder :

    Beware the ‘Thucydides Trap’
    Harvard’s Graham Allison, the director of the Belfer Center for Science and International Affairs at the Kennedy School of Government :
    “When a rapidly rising power rivals an established ruling power, trouble ensures. In 11 of 15 cases in which this has occurred in the past 500 years, the result was war.”

    Allison concludes by “betting” that a Great War in 2014 is not likely, but with a note of caution, warning that claims that war is “inconceivable” are “not statements about what is possible in the world, but rather, about what our limited minds can conceive.”

    General Dempsey, JCS :
    “There is hubris in the belief that war can be controlled,”
    “War punishes hubris. That’s actually worth remembering.”

  21. bonbon

    The Dirty dozen tax hikes about to hit now. Savers are among those to be hardest hit, with the tax on interest paid for deposits set to shoot up from 33pc to 41pc from January 1.

    Will they first tax savings before simply stealing them with “bail-in” ?

  22. joe hack

    1 to 10 what happens after the 10th of January oh great and mighty soothsayer.

    This defiantly written on the dart after a night on the town…

    If theses prediction are 51% right the soothsayer is successful???

  23. joe hack

    1 to 10 what happens after the 10th of January, oh great and mighty soothsayer.

    These predictions were defiantly written on the dart after a night on the town…

    If these prediction are 51% right the soothsayer is successful???

  24. joe sod

    With regard to france why the negativity. I looked at the current account figures and france had a current account deficit of 2.1% in 2012, however Britain had a deficit of 3.7%, canada 3.4%, australia 3.7%. So the big natural resource exporting countries still had larger current account deficits than France. Also France has a bigger industrial economy than either Britain(services) , Australia/Canada (resources). Also if the euro is to weaken and sterling appreciate surely this would benefit France in relation to Britain. I know France has high unemployment and restrictive social laws. But surely some reforms in this area would have big results.

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