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An Outlook For 2014 - From An Austrian Economist's Perspective

Tyler Durden's picture





 

When it comes to forecasts and outlooks for 2014 (or 2013, or 2012, or 2011, etc), there is no way one can't be tired of the endless Keynesian drivel which the sellside bombards its gullible client base, which can be summarized as follows: "this is the year when the central bank strategies, which have failed to boost the global economy for the past 5 years, will finally work and the economy picks up - yes, this time will be different, we promise. Oh, and 'if' we are wrong (again), well just blame it on cold weather in the winter, or warm weather in the summer and if need be, delay the 'recovery" to the following year, while blaming the lack of insufficient stimulus - because $1 trillion in balance sheet expansion per year is obviously not enough." Rinse. Repeat. One would think spinning the same yarn year after year, they would get it right purely by luck at this point. Alas, they haven't. So for everyone tired of listening to the same old broken record, here is a completely different "Austrian" perspective, one shared by Scotiabank's Guy Haselmann.

His full report is attached below, but for those curious what an alternative take on 2014's risk factors, here is the summary:

Market Factors and Risks in 2014:

  • Market liquidity, especially during crisis periods, is the leading market attribute that all portfolio managers (PM’s) miscalculate.
  • Central bank ‘put’ is weakened with tapering, so volatility will be higher.
  • With the surge of equities (right-tail), the greater is the probability of a move down into the ‘left-tail’.
  • Portfolios should increase the overall liquidity of their portfolios, as well as their ability to make tactical adjustments.
  • With asset prices so elevated and distorted and with the initiation of the Fed ‘Taper’, preservation of capital must be a core investment strategy. (Long term wealth accumulation means not participating in the downside, because historically it takes approximately 10 years to return to your high-water mark.)
  • Global capital markets will be more volatile due to capital flows triggered by changing central bank actions. Emerging market economies with current account deficits will have difficulty attracting foreign capital.
  • Chinese growth is a key to the global economy. Chinese housing remains in a bubble. Non-performing loans are on the rise. Ecological challenges are growing. Policy pivot from export-led growth to one of domestic demand will have growing pains.
  • Shale gas, leading to U.S. energy self-dependence, is a major positive for U.S. markets over the next 10 years and has positive implications for a revival of U.S. manufacturing.
  • EU markets are too complacent but investors do not wish to fight the commitment of leaders who implement reactionary ad-hoc fixes to each new crisis.
  • Abenomics will not yet achieve its 2% core inflation objective. There is a paradox: as inflation rises, the yield on the 10-year JGB will be unable to stay near 0.7%. (See strategy note from May 2013). Higher debt servicing will be a problem for a country that already spends 25% of revenues on debt servicing.
  • Protectionism is a great potential risk to the global economy and must be monitored closely.
  • Cyber-crime and cyber-terrorism are real and growing threats. Precautions must be taken where possible. A significant event that impacts markets is likely in
    2014.
  • Other risks include: escalation of Middle East tensions, escalation of Asian tension over disputed islands, EU disunity, civil unrest, election(s) of extreme political parties, and extreme weather or electrical grid problems.

Full 2014 Outlook report (pdf)

 


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Mon, 01/13/2014 - 11:08 | Link to Comment fonestar
fonestar's picture

2014 is going to be another great year for Bitcoin and Bitcoiners, not people stuck in the past.

Mon, 01/13/2014 - 11:20 | Link to Comment idea_hamster
idea_hamster's picture

The Austrian Econ prediction for this (and every year) will be the same until things change at the Fed, and can be summed up in three words:

Crack.

Up.

Boom.

Mon, 01/13/2014 - 16:59 | Link to Comment Scarlett
Scarlett's picture

Xenofrog (Fonestar), please withdraw yourself quietly.

Mon, 01/13/2014 - 18:47 | Link to Comment fonestar
fonestar's picture

Stop calling me that fool Xenofrog.  There's hardly a profile I could less want to be associated with.

Mon, 01/13/2014 - 11:18 | Link to Comment jimijon
jimijon's picture

Yep, I am mostly long 420 penny stocks and bitcoin. 

I have turned into a true speculator, though I view my 420stocks as investments as I will be holding and adding.

Cheers.

Mon, 01/13/2014 - 11:20 | Link to Comment fonestar
fonestar's picture

Bitcoin is not speculation.  Bitcoin is inevitable.  Bitcoin is the writing on the wall.  Bitcoin is.

Expect us.

Mon, 01/13/2014 - 11:24 | Link to Comment jimijon
jimijon's picture

Preaching to the chorus here. I know bitcoin is a paradigm shifter. That I know. But it is still speculation at this point, in terms of value. However, I also feel we are now entering phase II of a bitcoin bull market. I think we need one more downdraft and then a new higher high. Then all bets will be off and running!

Mon, 01/13/2014 - 11:44 | Link to Comment Its_the_economy...
Its_the_economy_stupid's picture

Bitcoin is "disruption" technology. It carries with it all of the risk and gain potential of that ilk.

Mon, 01/13/2014 - 12:31 | Link to Comment Zymurguy
Zymurguy's picture

It's just a whole new look on fiat.  People are mesmerized by the digital currency but it's nothing more than electronic fiat.  Fine and dandy to invest in, just keep in mind our overlords WANT you to get balls deep into digital currencies - it's such an easier step from there to a global digital currency.

Mon, 01/13/2014 - 12:46 | Link to Comment fonestar
fonestar's picture

Bitcoin already is a one-world currency, so there are no steps involved.  People are not "mesmerized" by Bitcoin either because nobody owns it.  And it's perfectly obvious per their own warnings on digital currencies (referring to them as "schemes") world governments are opposed to crypto-currencies.

Any other stupid delusions I can help out with?

Mon, 01/13/2014 - 13:05 | Link to Comment teolawki
teolawki's picture

I'm under the stupid delusion that if my wealth and my property aren't in my direct physical possession, then I don't truly own it. Can you please help me with that?

Mon, 01/13/2014 - 13:28 | Link to Comment fonestar
fonestar's picture

In what may seem like an absurdity to some, "holding" a virtual and ungovernable asset like Bitcoin may help the debt slaves gain control of their physical assets.

Mon, 01/13/2014 - 13:49 | Link to Comment warish
warish's picture

The blockchain is too big and growing too fast. Will not be P2P much longer. And what's up with the mining, what an absolute waste of energy. Something better will come a long.

Mon, 01/13/2014 - 14:13 | Link to Comment Dick Buttkiss
Dick Buttkiss's picture

“In terms of the 9 characteristics of money, Bitcoin (the asset) does a better job of fulfilling them than gold. On top of it, Bitcoin (the protocol) is a payment platform that bitcoins transact on instantly and for free. Bitcoins are like gold bars with wings. That is why I, and so many others, view bitcoin and its network as gold 2.0.”

http://www.thedailybeast.com/articles/2014/01/09/should-baby-boomers-inv...

". . . gold bars with wings."  Beautiful.  And "gold 2.0" situates Bitcoin where it belongs: at the forefront of the Digital Age.
Tue, 01/14/2014 - 00:09 | Link to Comment buyingsterling
buyingsterling's picture

That might mean something if the key element - stability - wasn't such a problem for bitcoin. Yes, the total run is limited, but there are countless substitutes (not so for gold). That means that absent coercive control of substitutes, the value of bitcoin can never have long-term stability.

Mon, 01/13/2014 - 18:38 | Link to Comment Prisoners_dilemna
Prisoners_dilemna's picture

I can appreciate this sentiment.

But I also like how bitcoin is stored. You and everyone else in the world know that this public address; 1prIsONErsDs5apf2has3nvpaHEFQ7498U has spending rights to 50.88238564 BTC. If I have the private key to that made up public address then I can go anywhere in the world with internet access and my money is there.

That being said the private keys that confer spending rights can be lost just as easily as an ounce of gold. Both can be stolen.

I suppose the best analogy is that everyone stores their gold back in the center of the earth. We keep a running ledger of who possessed how much gold, who"possesses" how much, and who gave gold to whom else. That ledger is for all intents and purposes impossible to alter or corrupt. Using this ledger you can now take your gold anywhere in the world with you, and NO person or government can stop you. Plus you don't have to carry the metal anywhere. You lose your copy of the ledger... no problem, everyone else has a copy.

You lose you private keys or gold.... tough luck.

I wish I could carry all my gold wealth with me everywhere I go and remain un-harrassed. With bitcoin I can do that because its pseudo-anonymous. No one knows which bitcoin public address belongs to me.

I know BTC and gold aren't the same. Competing currencies are a good thing and I can't wait to see how this plays out.

I just wanted to address the "direct physical possession" comment.

You physically possess private keys which are a numerical answer to an unbreakable math problem, which allow you to spend your scarce bitcoin globally.

Mon, 01/13/2014 - 11:39 | Link to Comment superflex
superflex's picture

Is today a federal holiday?  

Fonestar is not at work tracking emails and phone calls.

Bitcoin is the NSA.

Mon, 01/13/2014 - 11:53 | Link to Comment mijev
mijev's picture

I met a few guys from the NSgAY when they came begging for my help. Personally I think they are all total fags. Why are you scared of math nerds? 

Mon, 01/13/2014 - 11:52 | Link to Comment Sudden Debt
Sudden Debt's picture

bitcoin is pure speculation.

If it's not speculation, than why are you jumping like a rabit in heat whenever the price rises 1$?

Mon, 01/13/2014 - 12:39 | Link to Comment fonestar
fonestar's picture

Because the price of Bitcoin in dollars matters.  It means somebody bought a real Bitcoin and sold a real dollar.  With silver, it means someone bought or sold a paper abstraction.

Mon, 01/13/2014 - 13:24 | Link to Comment bluskyes
bluskyes's picture

Rather circular.

Someone also sold a bitcoin, and bought a dollar.

All pure currency transactions are speculative. It is only when goods are exchanged for currency, that utility and value is realized.

Mon, 01/13/2014 - 12:20 | Link to Comment mick_richfield
mick_richfield's picture

BitCoin is the latest control mechanism of the Powers, and Fonestar is their shill, or a fool.

Just imagine how cool it would be, from the point of view of the Powers, to release a cryptocurrency that had been compromised from inception.  They would, of course, pay people to go online to fora like this one and tell people how great it is.  And to ridicule the very idea that it could ever be compromised.

Imagine what they could do with a digital currency that tracks every transaction.  And whose first adopters are exactly the people who realize that the current paradigm is doomed.

If you were protecting the current paradigm, would you simply stonewall, and try to hold out as long as possible?  I wouldn't.  I would release a fake alternative into the wild, to trap people who are likely to make trouble for the current paradigm.

I am not smarter than the Powers.

Lately, the Powers have been murdering people who cause too much trouble.  Like real journalists.  Murdering.

Yet they seem to be OK with BitCoin.  

How about that.

Mon, 01/13/2014 - 12:31 | Link to Comment donsluck
donsluck's picture

"I am not smarter than the Powers" I don't know about that, you may be. Is it conspiracy or stupidity? I find that TPTB are frequently stupid. We are all just Joes trying to get by.

Mon, 01/13/2014 - 12:37 | Link to Comment Zymurguy
Zymurguy's picture

Look at not what they do, but what they DON'T do... anyone who distributes anything that only slightly resembles currency in the U.S. gets a WWE smackdown the likes of which is meant to scare the living shit out of anyone else even remotely considering the topic.  People who have made tiny amounts of proprietary coinage - miniscule amounts compared to the amount of FRN in circulation - get trounced by the Federales.

Then, Bitcoin comes around and... wait for it... hmmmm... (crickets, crickets, crickets).

In the famous words of Butthead, "uh, heh, uh, heh, heh, this must mean something."

Mon, 01/13/2014 - 12:40 | Link to Comment fonestar
fonestar's picture

You're an idiot, TPTB are obviously not in favour of Bitcoin you pathetic traitor.

Mon, 01/13/2014 - 12:54 | Link to Comment Ghordius
Ghordius's picture

TPTB? do you have their address and phone numbers, fonestar? if yes, did they tell you what they think about Bitcoin? next time ask them what they think about the EUR, I'd be very curious

meanwhile you can't prove that Bitcoin isn't a "a cryptocurrency that had been compromised from inception". the funny thing about crypto is... math. where a lot of new discoveries change the crypto-landscape quite regularly and radically

further, you might want to admit that "TPTB"'s response about Bitcoin has not been that hard, up to now. which is a bit strange, considering how many people brag about their drug and arms deals with Bitcoin as a payment system.

to this two main thrusts from mick_richfield, you have just answed with an idiot and a traitor. not convincing

Mon, 01/13/2014 - 13:02 | Link to Comment mick_richfield
mick_richfield's picture

Thanks.  At some point, everybody here will learn to recognize an ad hominem attack for what it is: the admission of a weak argument.

 

We don't have the Powers' phone number.  ( Would it be "911" ? ) But we do know what they think.

Just compare the stunning, coordinated media-blitz against gold and silver with the near-silence about BTC.  ( OK, there was some talk about "BTC is bad because it makes crime possible."  But that was such a weak argument that it looked pro forma to me.  You can't make Power endorsement of BTC too obvious. )

Compare the SWAT raid against a guy who makes his own "constitutional silver dollars" to the nonchalant acceptance of BTC ATMs.

Actions speak loudly. 

 

Mon, 01/13/2014 - 13:07 | Link to Comment fonestar
fonestar's picture

We will see whose argument was weak won't we?  Here I am still saying that Bitcoin will be unstoppable and Bitcoin will go to five, six and seven figures.

Somebody is going to be demonstrably right and someone is going to be demonstrably wrong.  So far what I have said is 100% right and it is my assertion that I will continue to be 100% right.

Mon, 01/13/2014 - 13:17 | Link to Comment mick_richfield
mick_richfield's picture

He ignores the points in my posts and writes as though the only question is whether BTC goes up or not.

I didn't even raise that point.

His writing style suggests that he is not stupid, so this would appear to be another deliberate logical fallacy.  This time it is not an ad hominem attack.  This one is called  straw man

 

Mon, 01/13/2014 - 13:31 | Link to Comment Ghordius
Ghordius's picture

lol. I do somewhat like straw man, though. less in a verbal discussion, but in this blog format they are handy

fonestar, the very fact that Bitcoin is expected to change it's price a lot is what makes it less useful as a currency

meanwhile you are still ignoring the two main points

Mon, 01/13/2014 - 14:58 | Link to Comment funthea
funthea's picture

Again, how do you reconcile that 927 people own half of the bitcoins thus far mined. And in your utopia, what does that look like?

Wed, 01/15/2014 - 06:38 | Link to Comment fx
fx's picture

Very simple. fonestar is one of those 927 (if they are 927 different real human beings at all - maybe way less). Can't await to hear the Bitsh!t-admirers calling for government intervention - to protect Sh!tcoin from an invasion of uncountable digital competitors. Now, that would be funny, no? Thinking of it, I may look for another avatar für the coming clone-currency wars...

Mon, 01/13/2014 - 11:18 | Link to Comment prains
prains's picture

clean up in aisle 9, Fonestar....get back to work

Mon, 01/13/2014 - 11:55 | Link to Comment Tom_333
Tom_333's picture

Wadda ya mean failed. NASDAQ is up , bicth.

Mon, 01/13/2014 - 11:12 | Link to Comment ultraticum
ultraticum's picture

" . . . extreme political parties." 

 

How's that middle of the road political party workin' for ya?  Oh, that's right, this is from a banker.

Mon, 01/13/2014 - 11:17 | Link to Comment Dr. Engali
Dr. Engali's picture

The U.S is energy self-dependent now? Does that mean we can stop bombing the shit out of brown people and bring our war machine home? No? I didn't think so. Another banker bullshit piece. Austrian view my ass.

Mon, 01/13/2014 - 11:46 | Link to Comment kridkrid
kridkrid's picture

Our slavemasters will tell us what it means to be "austrian" just as they tell us what it means to be a tea partier. The key is to corral both groups into a thought box that doesn't wander into anything that poses a treat to the status quo. Tea Party - Check. Austrians - TBD (though I'm not very optimistic).

Mon, 01/13/2014 - 14:56 | Link to Comment Professorlocknload
Professorlocknload's picture

  + Yup, seems every commonsensical idea is always commandeered by some group with a personal agenda.

Mon, 01/13/2014 - 11:30 | Link to Comment Spastica Rex
Spastica Rex's picture

And if you believe us, you can have have all the Big Macs you can eat and all the Coke you can drink. Plus, there's a new season of American Idol starting.

DON'T TRIFLE WITH OUR GENEROSITY, AMERICANS

Mon, 01/13/2014 - 11:32 | Link to Comment Al Capowned
Al Capowned's picture

Since investing in Bitcoin I care less and less about the old system and instead concentrate on the parralell economy being built from the ground up without government and banking cronies and there keynesian wet dreams.

 

Mon, 01/13/2014 - 12:42 | Link to Comment fonestar
fonestar's picture

That is the way to go.  Own Bitcoin, physical gold & physical silver and damn everything else.  Totally ignore what they say the price of anything is and ignore any commentary coming from within the old system.

Mon, 01/13/2014 - 11:33 | Link to Comment no more banksters
no more banksters's picture

"People like the economists F.A. Hayek and Milton Friedman, novelist Ayn Rand, mathematician John Forbes Nash and psychiatrist Ronald David Laing, will promote the idea that man is an egoistic being which works only for its own personal interest. Extreme individualism becomes increasingly one of the basic characteristics of the Western man and concepts such as altruism, collectivity and solidarity are dismissed from the central core of his thought. The Western man accepts rationally that these concepts are clearly utopian and that they will never be applied massively in societies."

http://failedevolution.blogspot.gr/2014/01/how-western-societies-lost-th...

Mon, 01/13/2014 - 11:35 | Link to Comment TheAnswerIs42
TheAnswerIs42's picture

Meanwhile Larry Edelson is chooming for DOW 31000 in 2016...

 

Mon, 01/13/2014 - 13:34 | Link to Comment bagehot99
bagehot99's picture

Yeah, I've heard that song before. He might be right-ish, if the Fed simply keeps printing - it could go on for another 15 years (BOJ has in Japan).

The endgame won't be much fun, but there could be another decade of this ridiculous bullshit.

 

Mon, 01/13/2014 - 11:40 | Link to Comment Sudden Debt
Sudden Debt's picture

Europe is looking into it to FORCE companies to invest or risk getting a extra TAX penalty.

GET THAT MONEY ROLLING OR IT WILL BE YOUR HEAD THAT'S WILL  DO THE ROLLING!!

Mon, 01/13/2014 - 11:44 | Link to Comment explosivo
explosivo's picture

This article is very much unlike all of the rest of Austrian economics which I have read. 

Mon, 01/13/2014 - 12:10 | Link to Comment Ghordius
Ghordius's picture

I note how categoric this is: "Protectionism is a great potential risk to the global economy and must be monitored closely."

pure globalization gospel

of course a bank does not have to cope with or care about the hidden/collateral costs of a globalized economy. or the shrinking of middle classes. or the ecological damages. the list is endless

Mon, 01/13/2014 - 12:56 | Link to Comment teolawki
teolawki's picture

The cult of corporatism.

Mon, 01/13/2014 - 12:11 | Link to Comment RaceToTheBottom
RaceToTheBottom's picture

The authors use of the right tail and left tail is very faulty.

His point that stocks are now all on the right tail and will switch to the left tail assumes that nothing else changes and their tail location is entirely dependent to probabilities.

That is nonsense.  His goal appears to be to use a term that others are in hopes of some legitimacy.  I would think that he would achieve more legitimacy if he used terms correctly.

Mon, 01/13/2014 - 12:51 | Link to Comment FredFlintstone
FredFlintstone's picture

It is the curves right/left tail or mine as I am looking at it?

Mon, 01/13/2014 - 12:12 | Link to Comment AustrianJim
AustrianJim's picture

I approve this message.

Mon, 01/13/2014 - 12:15 | Link to Comment ebworthen
ebworthen's picture

I like those Austrian economists, too bad they're not in charge; pretty sure they're all in detention somewhere.

"Shale gas, leading to U.S. energy self-dependence, is a major positive for U.S. markets over the next 10 years and has positive implications for a revival of U.S. manufacturing."

That one made me chuckle.  Not a single thing the U.S. is going to invest in human beings to manufacture other than profits for banksters and profiteers (insurance companies and lawyers).

Parasites don't manufacture, they suck.

Keynesian's are parasites.

Parasites in charge.

Livin' large.

Mon, 01/13/2014 - 12:15 | Link to Comment Ghordius
Ghordius's picture

this one is telling, too: "EU markets are too complacent but investors do not wish to fight the commitment of leaders who implement reactionary ad-hoc fixes to each new crisis."

hohoho! "reactionary"... as in the opposite of progressive? or against the markets?

do I sense a miffed attitude from a bank that hates not being able to short whatever it wishes, while the shorted sovereign is supposed to lie there and not trash, making the whole excercise riskless?

Mon, 01/13/2014 - 12:31 | Link to Comment Winston Churchill
Winston Churchill's picture

I think the writer meant reactionary in the sense they are flying by the seat of their pants.

Not the political variety, more the panic struck, flopping chaos type.

Nobody plans to fail, only fails to plan.The 7 P's;

Proper prior planning prevents piss poor performance.

Mon, 01/13/2014 - 22:08 | Link to Comment RMolineaux
RMolineaux's picture

Err, Winston - I agree with your take on the word reactive, as opposed to proactive.   But it looks like Scotiabank misquoted your namesake.  Churchill's words were that DEMOCRACY was the worst form of government, except for all the others.

Mon, 01/13/2014 - 12:37 | Link to Comment starman
starman's picture

Bitcoin is a bit like a coin, there crying out loud!

Mon, 01/13/2014 - 13:44 | Link to Comment withglee
withglee's picture

The Austrians criticizing the Keynsians is the pot calling the kettle black. Both are clueless about what money is (a promise to complete a trade).

Keynsians employ the printing press with zero connection to traders' promises to complete trades. Austrians dig for gold with zero connection to the traders' promises to complete trades.

The Keynsians have thoroughly soiled our nest and collapse is assured. But then we'll have the Austrians marching in to fill the void. We'll be driven from wild inflation to wild deflation and strangulation.

Get a clue people!

Mon, 01/13/2014 - 14:10 | Link to Comment JethroTull
JethroTull's picture

The date on the top of each page is wrong December 27, 2012 I think the authors mean December 27, 2013. Nitpicking I know but the report is about 2014.

Mon, 01/13/2014 - 15:39 | Link to Comment skbull44
skbull44's picture

"...Shale gas, leading to U.S. energy self-dependence, is a major positive for U.S. markets over the next 10 years and has positive implications for a revival of U.S. manufacturing...."

This one is off base. U.S. energy self-depedence is a myth being propagated by the industry and associated financiers. See these:                             

i.            http://shalebubble.org/drill-baby-drill/

 

 ii.        

http://www.resilience.org/stories/2013-10-21/major-study-projects-no-long-term-climate-benefit-from-shale-gas-revolution

iii.    http://mondediplo.com/2013/03/09gaz

www.odlvuaiblog.wordpress.com

Mon, 01/13/2014 - 15:46 | Link to Comment Bioscale
Bioscale's picture

What is so special austrian in the paragraphs above? I see nothing. And I would never believe anyone who is working for a bank, even more when such guy speaks officially for the bank!

Btw, there is no word about gold there.

Is this a fucking joke?

Mon, 01/13/2014 - 22:45 | Link to Comment RMolineaux
RMolineaux's picture

In my opinion, the title of this item is misleading, since it characterizes the Scotiabank report as being "Austrian."  In fact, the report takes a much broader perspective than that normaly pursued by the Austrian school.   I found the report to be very complete and informative about the current problems facing the world economy, and I urge all my fellow commentators on this board to read the whole thing.

Tue, 01/14/2014 - 02:23 | Link to Comment Econophile
Econophile's picture

This guy is NOT Austrian. The flaw in capitalism is government and the Fed, not capitalism.

Do NOT follow this link or you will be banned from the site!