Officials in the U.S. can't quite figure out why they don't have any inflation with all the cheap money their central bank has floating around. That most beloved shiny stuff - gold - is where it was around four years ago (currently trading at $1,225 per ounce), the Canadian dollar is around $0.93 versus the U.S. greenback (down from around par last year) and all of the stock markets (especially the U.S.) are pretty much up.
So what does this mean for 2014? That is a very good question and I'm not certain what the answers might be - but here are a few ideas to ponder.
There are lots of theories as to why there is no inflation in the U.S. Remember, they would like inflation to some extent (especially in the housing market) as it makes the country feel richer (and spend more) and makes the cost of their debt lower in real terms.
So why is there no inflation?
My best guess is that there is quite a bit of room in the economy; lots of labour, reasonable levels of inventory and moderate demand, so prices aren't going up.
This is good for most of us because with no real inflation, interest rates are unlikely to rise any great amount.
Gold has always been like the weather to me; almost impossible to predict.
I remember one of my economics professors joking that economists were invented to make weathermen feel good. Gold is emotionally driven and right now the equity markets seem to be in a cautious state of optimism about the U.S. economy and the stock markets. Gold likes fear and right now no one is buying.
The Canadian dollar, otherwise known as the "commodity dollar," is simply reacting to lower commodity prices and confidence in the U.S. economy. You may not like the lower dollar because it impacts your sunny winter spending, but just remember that a lower dollar should help Canadian exports with our largest trading partner.
The U.S. markets were up for 2013 and look for that trend to continue in 2014.
I commented on an article I read in the fourth quarter of last year titled "Party like its 1999," but it is worth repeating. The author was creating a comparison between November 1998 and November 2012.
If the prediction is somewhat correct, it would imply that 2014 could be quite the year for the markets (especially the U.S.).
There are a great many theories as to how the markets will move through the year. What they do in the first day or month of trading, what year of the U.S. presidential cycle we are in, if the groundhog sees it shadow. . .
What I do know is that the trend is your friend and right now the trend is up. Just remember (once again), that the higher things go, the greater they may fall.
Les Consenheim is a senior wealth adviser with ScotiaMcLeod - Consenheim Wealth Management and can be reached at 250-372-8117 or firstname.lastname@example.org. ScotiaMcLeod is a member of the Canadian Investor Protection Fund. This article is for general information purposes only. The views of the author do not necessarily reflect those of ScotiaMcLeod. Individuals should seek professional advice prior to acting on any information referred to herein.
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