US growth should accelerate
Q4 2013
US is following a “Classic cycle” after a
housing and credit bust (US is solid line; other countries dashed line)
… after the bubble breaks, the recovery is usually slow.
US can still disappoint if austerity measure kick in
two front loaded in Q3. But BCA expects that congress will strike a watered
down deal. Also state budgets are all balanced now, apart from Illinois.
In 2014 the growth should be strong!
US interest rates: Beware
Fed policy has changed: While the Fed historically
increased rates 6 months before the anticipated closure of the output gap, they
will only increase rates at the time were the gap is actually closed. The Fed
hereby risks consciously an overshoot of inflation of 3 to 4% in 3 to 5 years years.
According to BCA calculations the markets imply in its
forward rate, an increase of 0.14% per Quarter instead of a 0.25% increase
expected by BCA (due to inflation pressure).
The likelihood of a bloodbath in bonds in the coming
years is therefore high.
US Equities:
The equity risk premium has been high in the last few
years. It willl eventually come down because of higher multiples (increased
stock prices) and higher inflation (which will drive nominal bond yields up).
However in 3 to 5 years, when inflation hits its peak
the outlook for equity is bad:
As long as inflation is no problem the Fed can always counter a market shock by throwing tons of liquidity. However, once inflation is here Bernanke's options are limited. The time for the Bernanke Put will be over!
US Dollar
Due to strengthening economy the dollar could move
upwards in the short term. Long term the Dollar will trend downwards, especially against the Euro. However, asked about the crisi in Europe. He ducked the question by referring to his colleagues covering Europe.
Gold
Fair value between $ 600 and 1100. Inflation has to be at 18% for 5 years to justify current gold price.
Gold shot up 2005, and is significantly above inflation
(CPI)
Even when measured against real rates (TIPS yield, displayed on an inverted scale below), BCA
thinks Gold is in dangerous territory, since bond yields could jump suddenly
But… I sat during the presentation next to a senior
analyst of the Swiss National Bank, and he confessed that the bown up money
supply of the worlds central banks is frightening (see chart above. We are in uncharted water and
central banks have no exit plan for QE. This could mean that we have huge
inflation at the end, and rocketing gold prices!!!
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