It’s the most wonderful time of the year!
It’s the time of the year when all of the big Wall Street banks come out with detailed forecasts and predictions for what will happen in 2014. These calls can frequently be very focused (Top 10 Investing Ideas For Asian Corporate Credit) or very macro. The calls frequently come in notes that are hundreds of pages long, providing plenty for investors to chew on.
These reports will be coming out all month, but already it’s clear what the big idea for 2014 is: The final return to a normal non-crisis environment and the search for growth.
This theme was stated with the most flair by Japanese investment bank Nomura, which titled its 2014 outlook the “End Of The End Of The World.” The idea there is that since 2009, investors have been able to make progress merely by beating back the doomers. Betting against a U.S. financial collapse was a great call. Betting against a Eurozone crash was a great call. Betting against a Chinese hard landing that threatened the whole world was a good call. Betting against a debt ceiling default was the right call.
But the story of 2013 is that all of these fears really did come to an end. Nobody is worried about a big Chinese hard landing or a European collapse. And 2014 might be the first year in a while without some huge fiscal scare if the GOP is smart enough not to go down the same cul de sac it entered into during the “defund Obamacare” fight.
So instead of just betting against doom, investors will have to find real growth, and that will require effort. Nomura is bullish on Japan and Europe, and is worried that the great bull run in the U.S. might finally abate in 2014 due to margin compression.
Morgan Stanley’s outlook for 2014 incorporate similar ideas. They lay out 5 big things that need to happen for sustained global growth, and what’s key is that each pillar is region specific and not crisis related. For example, Europe needs to make progress on a harmonized banking union. China needs to get serious about reforms and a growth model not just based on exports and credit. And the Fed needs transition out of QE to a model more based on guiding interest rates.
But overall the vibe is the same. Investors ought to look at region-specific stories, and not think about the risk of collapse.
Meanwhile, Citi’s top economist Willem Buiter goes so far as to call 2014 a potentially “revolutionary” year for the global economy, precisely because of the end of the age of crisis.
Yet what is revolutionary about 2014 is that the likelihood of severe downside tail events, which could paralyze the global economy, seems to have diminished significantly (though not disappeared). Granted, the euro-area is still work in progress, China presents meaningful question marks, Congressional gridlock in the US could still throw sand in the federal fiscal wheels and geopolitics can always surprise. But, enough progress has been made that all of these issues seem less threatening today than 12 months ago.
More forecasts will be coming out, and surely some strategists and economists will have a different view of 2014. But make no mistake. This is the big theme. The end-of-the-crisis trade is coming to an end. Now you have to really hunt for your meals.
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