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I should point out that I'm an index investor and that I wouldn't “bet the farm” on these insights. All the same, it's kind of fun to see how your predictions stack up against those made by all the “experts” when these end of the year lists come out annually. Without further ado, here is how 2014 is going to bread down:
1) Political gridlock will continue to be the main impediment to the USA truly breaking out.
We hit this one out of the ballpark last year, so I figure there is no need to mess with a sure thing. I’m pretty sure the recent spirit of cooperation in Washington, DC is an aberration and that a surge in right-wing challenges to “moderate Republicans” (the extreme right-wing of the party 10 years ago) in upcoming Congressional Elections will throw a real wrench into getting anything done. Of course it will be tough to top the ability of the past Congress to do almost literally nothing…
2) Pipelines and Housing will continue to dominate headlines in Canada… and I frankly have no clue what the result will be.
*Insert Rob Ford joke about a crazy, overweight, junkie running Canada’s biggest city and stealing the headlines in 2013 here*
In 2014 Canada’s overall long-term economic forecast is going to be determined in large part by two important developments – pipelines and housing. Pretty much everyone around the world, except for Canadian real estate professionals, agree that the Canadian housing market is overvalued. The real question is by how much? This could end very very badly, but at the same time, as long as interest rates stay low (next prediction), interest in immigrating to Canada’s urban centres stays high, and owning a home continues to be a ridiculous North American obsession, I’m not sure prices can’t stay at insane highs for a while yet.
The other major issue my crystal ball is murky on is this whole pipelines thing. Anyone who says they know which way the ball is going to balance when it comes to getting inside Barrack Obama’s head or dozens of land-use court battles is probably just yelling a guess at the top of their lungs. Unlike almost all of the other stuff he gets the credit or blame for, the Keystone XL pipeline is one of the few things the President has direct control over. This makes his choice of which constituency he is going to royally piss off a tough call, because there is really no one else to blame. I wouldn’t be surprised to see him postpone this decision indefinitely to be honest.
The Northern Gateway pipeline appears to be the ultimate showdown of oil money vs new environmentalist money. Sure, the Native American reserves will be the names on the plaintiff side of the ledger when this goes to court a million times, but it is the billions of dollars in environmental activist money that will bankroll the whole thing. I see the combination of big business and oil-friendly government eventually winning here, but it’s going to be a bloody battle.
3) Interest rates will stay low.
Too many people will go bankrupt and then blame the government right before an election if interest rates were to rise. There are simply an incredible number of individuals out there right now that are addicted to low interest rates and I don’t believe that anyone that currently has power or wishes to get power, will be honest with these folks and tell them that they just aren’t making good decisions. Plus, as TM pointed out last year, as long as the US government keeps interests rates low there is no way we are going to raise ours much (especially as the Canadian Dollar starts to sink back to historical norms a little and hopefully revive our dismal manufacturing sector). I’d be very surprised if interest rates change at all, and if they do, I’d be shocked if it were more than .5% given how low inflation rates currently are.
4) We will see a 2,000 S&P 500 as Dumb Money Finally Begins to Wake Up – Just In Time to Stay Dumb
If you look at the metrics that the smart kids usually use to figure out the valuations of markets, most American companies look slightly overvalued. In a completely rational market things would probably start to level off quite a bit this year with quantitative easing starting and a lack of real deals presenting themselves. We all know that those crazy “animal spirits” tend to distort things in the short-term though; therefore, it feels like this bull market still has some room to run as the talking heads on TV have finally started clueing into the fact that we are out of a recession years after we were out of a recession…
Dumb money will now follow smart money and buy at something close to the top of the market, pushing things higher before we see a real pull back. I think we’ll see a 10-12% gain on the S&P 500 (aka “an average year”). The main way you’ll know this prediction about dumb money is coming true is when you see P/E multiples shoot through the roof.
5) Canada will not increase CPP contributions at the federal level.
Here’s a crazy idea, let’s teach people how to fish instead of creating a massive fishing company that has sucked at almost every other business they have taken on – and that we already are giving a large amount of indentured labour to – in order to give people fish. I’m usually not much for applying Biblical parables to finance, but this one seems to fit quite well. The government has already given us several awesome ways to save for our own retirement, why do they have to have to suck up even more of our paycheques under the guise of “forced savings”. I don’t believe the Canadian public will buy into this and they really shouldn’t. We’re supposed to trust an institution that has shown it will corrupt and boondoggle itself to no end no matter who is in party to handle our retirement? Not for me thanks, I don’t care what the current funding levels are. Spend less than you make, save 10% and do a couple hours a reading in order to plan for the future – the end.
6) Financial education will continue to take baby steps.
If I continue to verbally assault everyone that I meet with a rant about the desperate need to increase financial literacy levels in North America maybe I can contribute in some small way to moving this needle. It appears that most people are finally starting to realize that in today’s complicated world, not having any clue about how money or the economy works is probably a bad thing. The problem now becomes that instead of quickly drafting common-sense curriculums that recommend easy-to-follow guidelines that can be swiftly implemented in our schools, the educational bureaucracy will absolutely cripple any momentum that has been building.
In all likelihood the forces of North America’s financial companies, teachers unions, faculty of education professors, and politicians will take the very simple concept of teaching young people about personal finance and morph into some sort of arcane recommendation that uses the terms: stakeholder, educational outcome, layered curriculum, scaffolding, inquiry-based, and adapted, at least 57 times per paragraph. Despite this bureaucratic insanity, more individual teachers across North America are waking up to the idea that they can do their students a major service by emphasizing basic personal finance in their own way.
7) The Seahawks, Pacers, Blackhawks, and Tigers will be the teams of 2014
Nothing too surprising here. The Adderall-sponsored boys in Seattle will ride their defense and home field advantage to a Super Bowl. The Pacers and their old-school brand of toughness will finally topple the Heat’s reign and signal a major breakup of that mini-dynasty. Hockey often appears so random that any of a half-dozen teams could easily get hot at the right time and dominate the Stanley Cup playoffs, but I don’t see anything so far this season that makes me believe anyone has a better chance than last year’s winner. To be brutally honest I don’t really care – or know anything – about baseball, but I do know that the Tigers don’t suck and that Detroit really needs their sports teams to help heal the collective psyche of that city right now. I was watching an Anthony Bourdain special the other night and the place looked like a third-world country. At least many of the world’s greatest baseball players should feel right at home…
8) After a busy year where we released a book filled with sudsy wisdeom, started a pretty cool podcast, and got our fair share of mainstream media attention, 2014 looks bright for team Young and Thrifty.
More cheers more beers that’s it, that’s all!
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