5 bold predictions for the rest of 2013
Any of these actions or events could trigger major gains or losses in the months ahead. Here's what to watch for -- and how to prepare.
After a tumultuous half-decade, the world has gone relatively quiet.
Sure, the Chinese economy is slowing, the Federal Reserve is preparing for an end to quantitative easing, and the U.S. government is weighing down the economy with its sequester-driven setbacks. But we haven't seen any catalyzing events, positive or negative, of the sort that can trigger a rapid 1,000-point gain or loss in the Dow Jones industrial average.
Whether it's a tsunami in Japan or a sudden plunge in Europe, market-moving events aren't always foreseeable. These kinds of events caught the markets by surprise, and more surprises probably lie ahead. For example, of the four potential "black swans" I described at the start of this year, one has already come to pass.
Yet we can still identify other events that have a decent chance of playing out, with profits or losses to follow close behind. Here are five themes I'm monitoring closely in this year's second half.
1. U.S. natural gas exports get the green light
In recent years, companies have laid out plans to build huge natural gas export terminals along the Gulf Coast. The move is quite logical: Our gas costs just a fraction of what it costs in Europe and Asia, and the profit gains in terms of exports would be enormous.
But many of those plans remain in limbo, as the Obama administration has not yet delivered a clear directive on the issue. Consumers of natural gas such as electric utilities and chemical companies hate the idea of exports as they may raise the price of natural gas. Energy producers absolutely love the idea, for obvious reasons.
The Obama administration is aware of the heated nature around this debate, and chose to side-step this issue when it recently drafted this set of energy proposals (eenews.net).
Yet the administration is expected to make a decision on the matter in coming months, and a thumbs-up for exports would likely lead to a quick share price boost across the industry.
2. Stimulus in China
The Chinese government has largely stayed on the sidelines during a recent banking cash crunch, suggesting that the era of government intervention has passed. That's a fine stance to take as long as the Chinese economy experiences only a mild slowdown. But if the Chinese economy starts to decelerate quickly, inaction will no longer be a choice, and the government will likely pump funds into the economy. And that would likely give a sharp boost to commodity prices, many of which have been in freefall lately. As I've noted on StreetAuthority before, this is a good time to track the supply and demand dynamics that are impacting commodities, because supply cuts will eventually set the stage for the next bull market in commodities.
3. Europe's pent-up demand finally kicks in
One of the unreported aspects of Europe's malaise is the sharp underinvestment in many industries, as factories get older, vehicles rack up the miles, and information technology systems start to slip behind the global standards. At some point, perhaps later this year, we will see the start of a catch-up cycle in capital spending. It did wonders for our economy in 2010 and 2011, and it could be a very positive catalyst for European economies.
Finding the right entry point for European stocks is tricky. European stocks seemed to have gotten ahead of themselves in the final six months of 2012, when the Vanguard European ETF (VGK) rose 17% (compared with a 6% gain for the S&P 500). Yet in the past six months, the tables have turned, and the S&P 500's 14% gain handily exceeds European break-even results. (I'm still partial to emerging markets, which have sold off sharply this year, yet are showing signs of a bottom lately.)
4. Japan's experiment ends badly
A country that already has the highest debt levels in the world (at 230% of GDP) has embarked on more government borrowings to stimulate the economy. The experiment, which is aimed at triggering a bit of inflation and consumer demand, absolutely needs to show signs of progress in coming months. Global bond markets will become increasingly spooked if they conclude that still-higher debt levels aren't producing much of an effect.
Japan's Nikkei index is up a stunning 50% over the past 12 months (even after a sharp recent plunge), so investors need to closely monitor the Japanese economy if they are invested in that country. The downside is fairly open-ended -- if the new Japanese fiscal policies fail to make an impact.
5. Oil prices drop sharply, aiding consumers and select industries
Even as many commodities have been in a deep slump, oil prices remain firm. West Texas intermediate crude remains near $100 a barrel. However, if the Chinese economy slows, the U.S. boosts its production, and notable energy-efficiency gains are made in Europe and the U.S. (especially in automobiles), then the bias for crude will be lower -- perhaps much lower.
I touched on these issues two months ago and though that call was premature, there's no reason to expect that such a scenario will not come to pass. Any consumer savings from falling gasoline prices could add to the consumer confidence ledger, which may be the underpinnings of a strengthening economy.
Risks to Consider: There's a good chance that the biggest event to affect the markets over the rest of 2013 is not on this list. Other global events, such as the pending hurricane season, could have a major impact as well.
Action to Take: Some of these events will generate early warnings signs, so it pays to monitor Europe, Japan, our energy sector, and any other major factors that could affect corporate profits. The back half of 2013 may well end up being as quiet as the first half, but you shouldn't be complacent.
David Sterman does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.
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1. Obamacare becomes more of a fustercluck than anyone realized. We start getting a couple of stories a day about how unequal it is, how expensive it is, and about how impossible it will be to implement the way it is structured now.
2. Bernanke will talk again of tapering QE in Sept, and due to the violent market reaction, he'll backpedal and say "Just kidding". QE will continue at full strength through Q4.
3. The jobs reports will continue to be mediocre at best, with 200k or less jobs being created every month. We'll continue to see increases in part-time workers and temporary employment, and the labor participation rate will continue to drop. We finish the year with an official UE rate of 7.4%.
4. GDP will continue to lag, with Q2 finishing at 1.9%, Q3 at 2.1% and Q4 at 2.2%.
5. The mindless establishment Repubs will begin their once-every-two-year migration toward the right, in a feeble and pathetic attempt to once again convince their base that they are fiscally responsible conservatives, who are in favor of limited gov. The dumba$$ Dems will make their once-every-two-year migration, also toward the right, in a feeble and pathetic attempt to once again convince the American people that they are just moderates and nothing like far-left progressives who are in favor of massive regulations, higher taxes, gun control, abortion on demand, restricting individual liberty and expanding the size of government exponentially.
My next prediction is that folks who have for decades lied to the American public about things like the Glass Seagall Act and who actually gave China Permanent Trade Status, will continue to lie for the next Decade about it.
Concerning the article, why are we planning to send our critical resources abroad when we need them here? Why does this guy think Europe will improve when unemployment is rising and wages are falling. Why does this guy think we are any better off than Japan when we have our own Bogus Grand Experiment by the Fed? Fact is, the Debt crisis of various countries hasn't gone away and the Nations screaming to them about it are actually worse off.
Barry, we figured you were doing the `running of the bulls`.You`ve got plenty of
The Dow crosses 16,000 and the negative,crybaby,racist,Obama haters will still be crying
in their beer and making up more lies about Obamacare.
Barry, I`m surprised you`re against Obamacare.It`s not a lot different from Romneycare.
Last week I was at a Bar Mitzvah and everyone was complaining how conservative Obama
has become in the last couple of years.Even people who think Obama is too conservative
or too liberal in some areas admit,however, that Obama is a real honest,stand up guy.
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