7 Global Macro Themes For 2014

Tyler Durden's picture

In a vacuum, the U.S. is enjoying strengthening economic growth buttressed by a positive feedback loop due in large part to improving household debt dynamics and job creation. Asia seems to be adequately managing economic growth as well; investors remain sanguine on China and the general region’s long-term outlook. While Europe struggles to grow, due to continued austerity, the situation has improved. Taken together, RCS Investments' Rodrigo Serrano notes that these 3 regions illustrate an ongoing global recovery that remains on weak foundations, susceptible to influence by both positive and negative factors. Below are the most important trends investors need to keep an eye out for over the coming year.

7 Key Themes

  1. Europe needs growth, not just stabilization.
  2. Will political and military tensions increase in Asia? (p. 8)
  3. Japan: Are the clouds parting, or is it the calm before the storm? (p. 9)
  4. China: What lies in store for the global economy’s arcanum? (p. 13)
  5. Wave of Uncertainty to come from the Fed (p.16)
  6. Fracking: Revolution or Retirement party? (p. 19)
  7. Re-shoring: Likely or not happening? (p. 22)

In Closing

Taken together, re-shoring and the rise of fracking provide for long-term optimism for America, contradicting pessimistic forewarning of a prolonged period of “secular stagnation.” Long-term reforms in China would strengthen the foundations for a protracted period of expansion, which would benefit the rest of the world. However, investors must first traverse numerous unstable bridges, to make it to the promised land of long-term sustainable growth.

The valleys are cavernous.

A political crisis looms if European stabilization fails to shift into first gear and beyond. Meanwhile, large imbalances within China, dependence on fixed asset investment financed by dizzying credit growth, will make global expansion pivotal as officials attempt to reverse this long-standing trend. Could Fed tapering actually trigger a banking crisis in China? 2014 will mark an important year for the global economy. As I stated in my prior outlook roughly one and half years ago:

“…If world leaders can successfully navigate the treacherous waters of global restructuring over the coming years, eventually today’s seemingly endless period of weak economic performance will lay the foundation for a powerful secular bull market that may last for decades. Until then, investing today will require flexibility, risk management, and a willingness to embrace the fact that buy-and-hold investing has taken a back seat for the time being.”

Full Outlook below:

RCS Investments Global Macro Outlook 2014