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BAM Intelligence

Financial Predictions to Track in 2014 — Larry Swedroe

Every year, I like to keep track of predictions people make for the upcoming year, the “sure things” for the year. It seems like no one in the financial media holds others accountable, which is a shame since the evidence shows that there are no good forecasters. So I will. Today, we’ll look at the common predictions I’ve been hearing for 2014.

Our first sure thing is that with the Fed announcing its plan to end quantitative easing, interest rates will rise. Thus, investors should limit bond holdings to the shortest maturities.

Our second sure thing follows from the first. With the Fed tightening, emerging markets equities will perform poorly.

The third sure thing is that with the CAPE at 26.17 as we entered the year, about 60 percent above its long term average, stocks should be avoided.

The fourth sure thing is that with all the fiscal and monetary stimulus that continues to be injected into the economy, we’ll see a sharp rise in inflation (Note: This is guru Peter Schiff’s favorite subject).

The fifth sure thing follows from the fourth. The rising inflation will lead to a falling dollar. The dollar index closed 2013 at 80.29.

And the sixth sure thing follows from the fourth and fifth: Gold will reverse the sharp fall it experienced in 2014. Gold closed 2013 at $1204.50.

The seventh sure thing is that the municipal bond market will be hit by both interest rate increases and default problems, keeping investors away.

The eighth sure thing is that the economic recovery will continue its tepid path, with the Philadelphia Federal Reserve’s Survey of Professional Forecasterspredicting GDP growth of 2.6 percent.

The ninth sure thing is that after defying the gurus in 2013, the volatility of the market will rise. The VIX ended 2013 at 13.43.

Our tenth and final sure thing is that active management will beat passive in net returns. Seventy-five percent of advisors believed that, as stated in InvestmentNews, January 6-10, 2014.

That’s our list. We’ll report back to you at the end of each quarter. We’ll check in quarterly to see how things actually turn out.

This commentary appeared January 16 on Larry’s blog at CBSNews.com.

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© 2014, The BAM ALLIANCE

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Chief Research Officer

Larry Swedroe is Chief Research Officer for the BAM ALLIANCE.

Previously, Larry was vice chairman of Prudential Home Mortgage. Larry holds an MBA in finance and investment from NYU, and a bachelor’s degree in finance from Baruch College.

To help inform investors about the evidence-based investing approach, he was among the first authors to publish a book that explained evidence-based investing in layman’s terms — The Only Guide to a Winning Investment Strategy You’ll Ever Need. He has authored 15 more books:

What Wall Street Doesn’t Want You to Know (2001)
Rational Investing in Irrational Times (2002)
The Successful Investor Today (2003)
Wise Investing Made Simple (2007)
Wise Investing Made Simpler (2010)
The Quest for Alpha (2011)
Think, Act and Invest Like Warren Buffett (2012)
The Incredible Shrinking Alpha (2015)
Your Complete Guide to Factor-Based Investing (2016)
Reducing the Risk of Black Swans (2018)
Your Complete Guide to a Successful & Secure Retirement (2019)

He also co-authored four books: The Only Guide to a Winning Bond Strategy You’ll Ever Need (2006), The Only Guide to Alternative Investments You’ll Ever Need (2008), The Only Guide You’ll Ever Need for the Right Financial Plan (2010) and Investment Mistakes Even Smart Investors Make and How to Avoid Them (2012). Larry also writes blogs for MutualFunds.com and Index Investor Corner on ETF.com.

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