Tags: stocks | tech | gold | cash

Surprises for 2014: Tech Melts, Cash Stays Trash

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Wednesday, 08 Jan 2014 07:02 AM Current | Bio | Archive

Welcome to 2014! Congratulations to us all for making it here.

Since we're in "annual forecast" season, here are mine:

1. Stocks Melt Up. Despite a few hiccups, the U.S. stock market had a fantastic 2013. Will we get a repeat performance? No, but it will still be a good year. That is what history suggests. Great years give way to good years. The secular uptrend may weaken, and it will eventually break but not this year.

2. Cash Will Stay Trash. The reason stocks are climbing is quite simple. The Federal Reserve and other central banks are making all the alternatives less rewarding. This will not change in 2014.

Short-term interest rates near zero attract no one. In a similar way, excess cash on a corporate balance sheet deleverages the company and practically forces boards into repurchase programs. This is economics 101: Rising demand plus static supply equals higher prices.

3. Technology Will Correct.
The prime exception to the above will likely be the U.S. technology sector, which faces two headwinds.

The first is that the Edward Snowden National Security Agency revelations are incentivizing other nations to build their own Internet infrastructure and applications. The second is that much-hyped social media stocks like Twitter (TWTR) cannot sustain their current valuations as compared with other sectors.

4. Something Big From Apple (AAPL). With nearly $150 billion in idle cash on his hands, Apple CEO Tim Cook needs to invest. Corporate raider Carl Icahn is pushing for a massive buyback. Cook and the board are resisting because they "need" the cash to implement their strategy.

What kind of strategy change costs $150 billion? Your guess is as good as mine, but I feel very confident the company is brewing something significant. Whatever it is might not help the stock price, but it will be big news.

5. Gold Retreats. Precious metals had a brutal 2013. Lately we see some signs of stability. A few analysts are calling a bottom around $1,100 to $1,200 because that represents average global production costs. They may have a point. My answer is that stocks will keep sucking all the air from the room regardless. Gold is appealing long term, but I'm in no hurry to buy more.

6. Crude Oil Crumbles. Unless the Obama administration makes the mistake of re-entering the Middle East maelstrom, the geopolitical risk premium will keep shrinking from world oil prices.

Growing shale production in North America and Australia are already cutting into the Organization of the Petroleum Exporting Countries' monopoly. The Saudis cannot stop other cartel members from breaking quota, so supplies will grow faster than the global economy. I think we will see $80 crude by year-end.

7. Currency Wars. Japan's Abenomics experiment is working out well for them. Other nations will have to respond with their own fiscal stimulus and currency devaluations. We will see wild exchange rate swings this year.

Those are my seven surprises. I'll own up to any mistakes when we reach January 2015.

Happy New Year!

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PatrickWatson
Since we're in "annual forecast" season, here are mine.
stocks,tech,gold,cash
502
2014-02-08
Wednesday, 08 Jan 2014 07:02 AM
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