- Money Morning Australia

What The Economic Indicators, Statistics and Results say About 2014


Written on 16 January 2014 by Nick Hubble

2014 isn't shaping up to be a very nice year for  investors. A number of <b>economic indicators</b> are predicting a tough time. Especially in the US...

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...

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


Categories | Economy, Market News

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

How Money Morning Can Help You Become a Smarter, Better, Investor
Diggers and Drillers – oil rush
Blue Chips
Latest Stock Market Updates
  • ^NDX4158.21+57.574 - +1.40%
  • ^FTSE6546.47+82.92 - +1.28%
  • ^AORD5505.000+47.900 - +0.88%
  • ^AXJO5526.600+50.400 - +0.92%
  • AUDUSD=X0.8799
  • USDJPY=X112.325
Resource sector leadgen
ASI – intercept banner 220
Gold Stock leadgen
NFI Megatrends – birthed stock gains
The last investment megatrend birthed stock gains of 11,095%, 20,621% and 50,760% over 20 to 40 years.

If Kris Sayce is right, gains from this next megatrend won’t just reach those heights...

They’ll SURPASS them..
To see why, click here.
Investing Success leadgen
WWD dvd

World War D was billed as ‘the biggest investment summit of the decade’

It didn’t disappoint…


Absolutely mind-blowing beyond my expectations

– D.A.C. Hall


The BEST INFORMATION available,
contrary to mainstream economic reporting.

– L. Sceresini


Exciting, dynamic, passionate, informative, challenging, so professional... Brain-stretching.

– D Finlay


Click here to watch
the brand new Highlights Reel.

Iron ore leadgen