- Money Morning Australia

What The Economic Indicators, Statistics and Results say About 2014


Written on 16 January 2014 by Nick Hubble

What The Economic Indicators, Statistics and Results say About 2014

2014 isn’t shaping up to be a very nice year for investors. A number of indicators, statistics and results are predicting a tough time. That’s especially true in the US, which leads the Australian stock market.

  • The Baltic Dry Index, which measures shipping costs, is one of the few economic indicators I trust, at least a little. As trade around the world picks up, so do the costs of shipping. But the index is off to its worst start in 30 years. Shipping costs dropped 35% in two weeks! If other indicators begin showing a sudden downtrend, this could turn out to be a canary in the coal mine.
  • The stock market’s statisticians are pointing to the old maxim ‘as January goes, so goes the year’. Apparently it holds true for the US stock market in particular. And January isn’t very encouraging so far, with both the Aussie and US stock index down.
  • But investors are at their most bullish according to sentiment indices, and margin lending (borrowing to invest in the stock market) is at an all-time high in the US. As Warren Buffett likes to say, ‘sell when others are greedy’.
  • American corporate profits are unnaturally high too, but job creation just fell to a three year low. High profits might seem good at first, but profits are ‘mean reverting’, so they could be in for a big drop.
  • US corporations as a whole have stopped buying back stocks – a form of dividend where companies buy their own shares back. In other words, on a net basis they are issuing more shares than they are buying. This adds to the supply of shares in the marketplace.

If 2014 does turn out to be a bad year, the question is whether the US central bank will surprise the world by maintaining its stimulus instead of cutting it as expected. Yes, unfortunately the investing world is still dominated by ‘what are the central bankers going to do next?’ When the weekly jobs data came out with a disappointing number, the Aussie dollar jumped a cent in short order. That might reflect bets on more QE than previously expected.

Perhaps the Federal Reserve is managing expectations by threatening to taper and then not tapering. This little bait and switch trick could prolong a rally in stocks, with the market being surprised by more stimulus. It also leaves the Federal Reserve with even fewer trump cards to play. Eventually the managers of our stock markets and economies will run out of such tricks and reality will strike. That moment is far off yet though. For now, central bankers rule financial market prices.

How Australia fits into all this is a little confusing. Our currency numbs much of what goes on overseas, without Australians themselves noticing it. For example, our stock market, measured in Aussie dollars, is nowhere near its highs. But if you factor in the rise in the Aussie dollar, then our market is far higher in terms of say US dollars. Unfortunately for us Australians, that’s little comfort.

The question is if this works both ways. If the US market begins to fall, will our currency protect our stock market by falling too? Or will our shares and the currency both tumble? In short, I don’t know. But even if I thought I did know, it wouldn’t be worth relying on my predictions.

That’s why all the strategies in I’ve devised for my readers in The Money for Life Letter are not reliant on a good economy or stock market. But all of them are still affected by good and poor prospects for both. You can’t avoid that. So it’s a matter of holding onto your hats in 2014, and watching the new Federal Reserve Chairman Janet Yellen.

Regards,
Nick Hubble+,
Contributing Editor, Money Morning

Ed Note: The above is an edited extract of an update originally published in The Money for Life Letter.

Join Money Morning on Google+



Already a subscriber to Money Morning... or simply, just like what you're reading? Then show your support and spread the word...
Share this post on...
Share

Nick Hubble
Nick Hubble is a feature Editor of The Daily Reckoning Australia . Nick has spent the last three years discovering lots of new, exciting and surprisingly simple ways to generate money for retirement. He’s put all these ideas into his investment publication The Money for Life Letter. If you're already a subscriber to these publications, or want to follow Nick's financial world view more closely, then we recommend you join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

Leave a Comment

Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.

If you would prefer to email the editor, you can do so by sending an email to moneymorning@moneymorning.com.au




FREE INVESTMENT REPORT: The Top 5 Oversold Blue-Chip Stocks in Australia


These five Aussie stocks all have something very powerful in common…and it could see them bounce up in the coming weeks and months. For all the details download this report right now.

PLUS you'll get Money Morning every weekday...absolutely free.

Enter your email address below and hit the 'Claim My Free Report' button now.

Privacy Statement
We will collect and handle your personal information in accordance with our Privacy Policy.
You can cancel your subscription at any time

Openx pos2

  • ^NDX4073.678+2.008 - +0.05%
  • ^FTSE6830.66+7.90 - +0.12%
  • ^AORD5648.900+14.400 - +0.26%
  • ^AXJO5651.200+13.600 - +0.24%
  • AUDUSD=X0.9332
  • USDJPY=X103.945

Openx pos3

Diggers and Drillers

After three years in the doldrums…

Aussie resource stocks
are now a raging BUY
 
The last time resource stocks traded this low we saw a two and a half year rally that saw them gain 124%...
 
Now they’re getting ready to do it again. Read on to discover why…and three tiny Aussie miners that could explode up many times higher than that in 2014…click here.

Openx pos4

Openx pos5

Openx pos6

Openx pos7

Openx pos8

More Recommended Reading Below...

The Pursuit of Happiness & The Daily Reckoning

  • The Pursuit of Happiness
  • The Daily Reckoning Australia

This morning the Australian dollar trading for 93 US cents. It hasn’t managed to regain parity since [Read More...]

The government plans to force internet and telco providers to keep your digital information (metadat [Read More...]

So much money is fleeing China…that it is distorting the global economy, particularly in the art mar [Read More...]

The police don’t serve to protect the public…they serve to protect the State from the public. That’s [Read More...]

Are baby boomers getting younger? If so, maybe investing in the medical marijuana business is a good [Read More...]

The government in China can do a lot of things, but it can’t bring animal spirits back. This has gra [Read More...]

Some small-cap investors punt away aimlessly for years and end up without much to show for their eff [Read More...]

Central banks see deflation (and recession) as enemy number one. Since 1980, they’ve used up all the [Read More...]

Civilisation (including the rules we associate with modern democratic governments) makes possible tr [Read More...]

This is ‘controlled monetary chaos’. Central banks are playing a massive confidence game with the ma [Read More...]

TESTIMONIALS

"I think you're fantastic! I love to read what you write...you're so interesting and amusing and I've learned so much" -
Money Morning reader, Chris Gadd

"You guys are brilliant. I feel more relaxed about the future than ever simply because I know what is going on rather than floundering around with smoke screens and mirrors from the government and mainstream" -
Money Morning reader, Helen Carter

"Wow what can I say? I was an economically confused moron until I read your newsletter and even though I've been a subscriber for a short period I can now see how easy it is to understand, if you use common sense and can have the spin translated into everyday language. Thanks for an entertaining read." -
Money Morning reader, John

"Keep up the good independent and well thought out articles offering a view that often debunks mainstream myths." -
Money Morning reader, Craig

"I do admire your straight talking and simple analysis of the situation, I think of you as the Jeremy Clarkson of finance." -
Money Morning reader, Jeffery