Global Cooling and Other Guesses for 2014

Today we break from the past, and leap over the present, to focus our attention on the 12 months ahead.  There’s a New Year in front of us and we step into it with excitement and anticipation.  What will 2014 bring?

Will the stock market continue its uninterrupted trajectory to the moon?  Will the new Fed Chair, Janet Yellen, make an even bigger mess of things than her bearded predecessor?  Will the economy finally shift into second gear?  Will the sky fall?

These are just some of the many questions.  But what are the answers?

“It’s tough to make predictions, especially about the future,” said Yogi Berra.  Nonetheless, we won’t let that stop us…we never have before.  Why start now?

Instead, we grin in the face of our limitations.  We sharpen our pencil and get after it with unblemished curiosity.  We may often be wrong.  But we are rarely without thought.

What follows, for fun and for free, are several simple guesses for the year ahead…

Global Cooling

To begin, the earth will get cooler in 2014; not warmer.  Indeed, it’s already happening.  Despite what Al Gore says, and the junk science behind his Hollywood fiction, there’s real, objective, scientific evidence that the earth has been cooling for the last few years.

The cooling is explained by the Maunder Minimum, which is a period of prolonged sunspot minimum, and coincides with intervals of lower-than-average temperatures.  Most recently, this occurrence overlapped with the “Little Ice Age” in the 1600s.  One leading scientist believes the current rate of decline in solar activity could point to a return of cooling conditions.

From what we gather, scientists tracking sunspot activity can’t predict exactly what is going to happen or how much the earth may cool.  However, the current decline in sunspot activity is steeper than any of the previous 24 Maunder Minimum cycles that occurred over the last 10,000 years.  Thus, the prospect of another little ice age merits consideration.

In addition, guessing the earth is cooling because of the Maunder Minimum affords us the occasion to bet against the bloviating oaf, Al Gore, and his ridiculous hockey stick graphic.  These are sorts of opportunities we relish.  Certainly, for this reason alone, we’ll follow it with keen interest.

As an aside, during our research, we did come across numerous articles drawing correlations between declining sunspot activities and a declining stock market.  Honestly, we find this to be absolutely absurd.  While we may have gone off the deep end with this global cooling prediction we haven’t completely lost our minds…at least we don’t think we have.

Next we turn to the economy and markets…

The Economy and Markets

Notwithstanding our best efforts to make conclusive guesses for the year ahead, we are ambivalent on the economy.  By this, we believe the economy will muddle along.  GDP will increase about 2 percent and unemployment, when including discouraged workers, will remain high.

While the economy’s been expanding since mid-2009, the average person’s lot in life hasn’t noticeably improved.  For many it has been a struggle just to stand still.  In particular, the forces of too much debt are too much for the economy to overcome without first having a massive write down and restructuring.  Currently, this write down is happening, and will continue, in the form of a dying middle class.

Within this context the overall stock market, which ran up nearly 30 percent in 2013, will hit a wall before summer.  We don’t expect a 50 percent crash like in 2000-01 and 2008-09.  But we do expect a 20 percent drop from the current nosebleed levels.

Nonetheless, following the 20 percent loss, the stock market will resume its advance upward and will end the year about where it started…give or take 5 percent.  This will not be a reflection of economic strength, or of a noteworthy increase in corporate earnings, but, rather, an expression of radical Fed monetary policy.  Even with the recent tapering, the Fed is still pumping money into financial markets at a rate of $900 billion a year.  Moreover, the Fed has promised to keep the federal funds rate at practically zero for years to come, which will further inflate the stock market.

Gold, like the economy, will muddle along…rising and falling within a $1,000 to $1,500 range.  Eventually, the inflationary pressures created from the Fed’s money printing will significantly push the price of gold up…but not in 2014.  In this respect, now is a good time to store up some real wealth in the form of gold bullion if you’ve got the stomach for it.

Similarly, this year will not be the year the great Treasury bond bubble bursts.  Asset price bubbles, including bubbles in government paper, can go on much longer than any reasonable person thinks is possible.  Yields on the 10-Year Note have increased as of late to about 3 percent.  We expect yields to rise slightly, but not get much above 4 percent.  Ultimately, the great Treasury bond implosion must occur.  But it’s a prediction for 2016-17, not 2014.

Oil prices will continue to remain high…between $80 and $110 per barrel.  Despite increasing U.S. domestic production from fracking, flat to declining global production will keep prices from significantly falling.  At the same time, look for a mania to develop in unconventional oil and gas exploration and production stocks.

While a real domestic oil and gas boom is taking place, you can always count on human greed, and the herd mentality, to pump it up into a financial bubble.  Buying these stocks now and riding them to the moon, before the ensuing panic and crash, could be a heck of a speculation.

All in all, much of what will happen in 2014 is out of your control.  But it’s what you make of it, regardless, that will make all the difference.  No doubt, we plan to make the most of it.  We hope you join us and do the same.

Happy New Year!

Sincerely,

MN Gordon
for Economic Prism

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