Note from editor: As explained yesterday, our predictions for 2014 are rolling ones, but I thought I’d put a gun to Banker X’s head and ask him to tell us what he sees coming…
There’s no lack of excitement on my part when it comes to following the developments from the insiders on Wall Street and the Government. Both have huge impacts on the daily lives of all citizens whether they choose to believe it or not.
1) The biggest debacle and theft from the people in 2014 will be the Affordable Care Act. Most business owners still haven’t realized this but come April 15th, if you’re making good money, you will face an additional tax of 3.8% on your income from this point forward based on how much you make. This tax was buried in the all the hoopla surrounding the new law. And, chances are your health insurance premium will also be jacked up, as your old plan will be canceled because it doesn’t qualify. The solution: invest in generic drug makers like Mylan (MYL) and Teva (TEVA) which will be huge beneficiaries of the hundreds of thousands of new people who will have greater access to health insurance thanks to the Government and your new tax dollars.
2) Wall Street’s bull run could face a significant correction in 2014 at some point. It’s been more than two years since a major correction in the market – a drop of 10% or more. And we’re due for one. Only twice before in history has the market gone longer before a major correction and the last time was 2003-2007. Corrections are healthy and the longer the market goes higher without one, the bigger the ultimate fall. Be ready with stop losses and trailing stops on all of your positions.
3) The social media sector is ripe for a correction. Companies like Twitter (TWTR), already down more than 15% in two of the last three trading days, Linkedin (LNKD), Groupon (GRPN) and a host of other stocks that are trading at 20, 30 and even 50 times sales will see their fortunes correct in 2014 as investors begin to see the lunacy of investing in companies that have years of performance already built into the price.
4) Interest rates are going up…but they won’t rise as quickly as you might think. There might be a spike or two here or there but rates will likely remain under 4% and possibly close 2013 not much higher than they are today. Economic growth, while strong, right now is focused on areas that benefit from Federal Reserve liquidity – that is, loose monetary policy. The Fed, despite what people think, is still printing money by engaging in massive quantitative easing through their purchase of bonds and other fixed income securities. Their last action was to reduce that by $10 billion per month. Most focused on the reduction but the real focus should be on how much they are still buying – $75 billion per month. That is not a sign of a healthy recovery but one that is still based on printing money. The result will be continued bubble like behavior for stocks and the potential for significant inflation once this is all said and done. The action to take is to be in the market and also begin to accumulate gold stocks, which are trading at multi year lows.
Despite all of these predictions, trying to guess market direction is often a futile task. There is an old axiom on Wall Street that you should pay most attention to: Markets can remain irrational much longer than investors can remain solvent. In this type of market it pays to invest based on the trends and not necessarily on the fundamentals. At the end of the day, it is the Federal Reserve that continues to dictate the trend in the market, and that is still pointing higher.
To your wealth,
Banker X.
