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Macro Watch: First Quarter 2014 - A Synopsis

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Macro Watch: First Quarter 2014

A Synopsis

Macro Watch: First Quarter 2014 has been uploaded and is ready to watch. This week I would like to give you a quick overview of what you will find in this issue of Macro Watch and to encourage you to subscribe. This time, there are six videos.

The first video is a four-minute Introduction. You can watch it by clicking on the link at the bottom of this blog.

The second video takes stock of the current state of the US economy and demonstrates how the Fed has been driving the economy by pushing up asset prices. We look at retail sales, industrial production, capacity utilization, job creation and disposable personal income, among other indicators. Generally, the last couple of data points have shown improvement; but that improvement has been very weak when compared with past economic recoveries. Next, details are provided of how Quantitative Easing (QE) has pushed up the price of stocks and property to create a wealth effect and drive the economy. This video ends with a discussion of how much higher asset prices can inflate.

The third video analyzes the latest trends in credit growth, using the most recent Flow of Funds data from the Fed. We want to know “Will Credit Growth Accelerate?” That’s because credit growth now drives economic growth. What we see is that government borrowing is slowing down quite sharply. On the other hand, there are also signs that momentum is building in household sector debt due to a pick up in mortgage lending. Overall, however, it appears that credit growth (adjusted for inflation) will remain below 2% a year through 2015. That suggests that more QE will be required if the United States is to stay out of recession.

Video four discusses “The Fed & Liquidity”. Last month, the US central bank announced it would begin to gradually reduce the amount of fiat money it creates. This video considers why the Fed decided to “taper” at this time. It also presents the Fed’s tentative “taper schedule” and analyzes what this schedule suggests about the outlook for liquidity over the next two years. This is done through the framework of my Liquidity Gauge, which I believe is very useful in predicting the future direction of asset prices.

The fifth video looks at liquidity conditions in 2014 and the prospects for asset prices. This analysis examines the outlook for liquidity on a quarter-by-quarter basis in 2014. It finds that liquidity is likely to remain excessive and supportive of further asset price appreciation during the first half of the year. By the third quarter, however, it appears that liquidity will become tight and that there will be a significant liquidity drain by the fourth quarter. Should that occur, asset prices would most probably fall, possibly dragging the US (and the rest of the world) back into recession. The conclusion here is that the Fed is likely to continue with QE for much longer than it is currently signaling. This video also looks at the prospects for interest rates, stocks, property, commodities and currencies through 2015.

The final video examines the growing threat of global deflation by analyzing economic conditions and policies in the US, Japan, the UK, the Euro Zone and China. GDP trends, fiscal policy, monetary policy and credit growth are evaluated for each country. The conclusions are worrisome. Should the Fed really end QE in 2014 as it has suggested it would, it would increase the chances that deflation will take hold on a global basis. This is another reason QE is likely to be extended into 2015 and perhaps well beyond.

So, that’s Macro Watch: First Quarter 2014. It is one hour and 40 minutes long and is comprised of 182 charts and slides. I hope you will consider subscribing. The price is US$500 per year, but I am offering the Rich Dad Community a 50% discount. To subscribe for US$250 per year, click on the following link and use the coupon code “richdad”.

To watch the Introduction video, click on the link below:
Original publish date: January 17, 2014

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