Economic Outlook For Rest Of 2014: Acceleration

Summary

• US households and businesses have accumulated enormous hoards of liquidity. The gradual normalization of risk aversion and liquidity preferences will drive a significant acceleration of spending growth.
• On aggregate, the balance sheets of consumers and businesses - and their liquidity position in particular - are the most favorable they have been in the past three decades.
• The average age of household consumer durables and US business capital stock is at a record high, suggesting that there is significant pent-up demand.
• A self-sustaining cycle of improved sentiment, accelerated spending and higher income seems to have already kicked off.
• In this report, I will briefly outline the impact of accelerated US growth on key investable asset classes, such as the S&P 500, 10Y US Treasury yields and gold.

In the wake of the financial crisis of 2007-2009, the recovery has been the weakest of any sustained economic expansion in US history. However, the US economy seems poised for a significant acceleration for the remainder of 2014.

Consumer Spending To Accelerate

Many analysts are still talking about "balance sheet recessions" and "household deleveraging." The problem is that was yesterday's news. After several years of restructuring, reduced spending growth, increased savings rates and debt-reduction, US household balance sheets are in better shape than they have been since the early to mid-1980s, based on a wide variety of metrics. Whether you look at debt service-to-income, debt-to-income, consumer loan delinquency rates, cash balances as a percent of income, or household net worth, the US consumer balance sheets are, on aggregate, in the best shape they have been in several decades.

Business Expenditure

There are several reasons to believe that the business expenditure cycle will accelerate appreciably in 2014.
First, the age of US capital stock is at an all-time high, meaning that there is considerable pent-up demand to replace equipment, software and the like.
Second, capital expenditures have started to rebound, but is still only at levels associated with previous economic cycle troughs. This suggests that capex must accelerate significantly in order to be able to cope with a normalization of consumer demand.

Risks

As with any forecast, there are risks. I briefly outline some of the major risks below:

• Surging interest rates. My forecast of accelerated economic growth and concomitantly higher bond yields will bring about major risks of a disorderly adjustment by financial markets that could cause a subsequent slowdown in economic growth.

• Instability in oil-producing countries. Surging oil prices have historically acted as recovery-killers. Therefore, instability in major oil-producing nations is always a looming threat.

• China hard landing. The Chinese government has considerable monetary and fiscal leeway to attempt to engineer a soft landing. Having said that, given the enormous magnitude of economic imbalances in China, such an outcome is far from certain.

• Europe relapse. The massive structural problems that beset the EU have not been adequately addressed, and the economic and political situation in many key countries remains fragile. Therefore, although my base case is for continued cyclical recovery, a relapse cannot be ruled out.

• First-quarter weakness. Skeptics can point to the deceleration of economic activity in the first quarter as a negative indicator of growth going forward. However, a number of detailed analyses of regional weather trends and industry data have shown that the bulk of this deceleration has been weather-related. Underlying economic activity has remained solid and point to increasing strength.

Major Investment Implications

In my upcoming 2014 Investment Outlook, I will provide a much fuller overview of the impacts of my macroeconomic forecasts on various asset classes. For now, I will only briefly summarize a few of the implications that flow directly from the economic outlook that has been outlined in this report.

1. The bear market in bonds will intensify. Prices of long-term bonds, including long-term US Treasury Bonds, will probably perform poorly.

2. US equities will become more volatile, but significant new highs likely. Bond market instability could trigger stock market pullbacks and/or corrections. However, the combination of excess liquidity and the normalization of risk aversion and liquidity preferences suggests that equities should remain well-bid. S&P 500 and the Dow Jones Industrial Average should make significant new highs.

3. Continued emerging markets volatility. Accelerating US growth and rising bond yields are bad news for many emerging markets that are dependent on capital inflows. Emerging markets equities and funds, such as iShares MSCI Emerging Markets (EEM) are likely to continue to underperform.

4. Strong US dollar. Accelerated US economic growth and higher bond yields suggest a strong US dollar (UUP).

5. Gold and commodities. The prior four points are all negative for gold and commodities for the remainder of 2014.

To get more information or Regular updates of stock market just join us. You can make your stock market trading more profitable by using Robotic Trading System. This is the fully robotic trading system which allows you to create your your own trading strategies. No need to follow others make your own way to get maximum profit. If you want to check the demo of this system just fill the form given below.

 To get demo of Robotic Trading system just fill these below details