If you come to think about it, 2014 is just around the corner. Something interesting about it is that lately 2014 is referred to as the “Year of the Boom.” Global economy experts and people working in the finance industry give countless optimistic prognoses. Many of them promise an opulence similar to that seen during the age of The Great Gatsby – the 1920s, or between 2005 and 2008 in Dubai. But are these forecasts justified or are they just aim to encourage investors and traders to stay in the game?
Celebrity economist Nouriel Roubini, for example, is more that certain that 2014 will be marked by a global recovery. He even advises investors to be “marginally overweight in equities.”
Merrill Lynch’s analysts have a similar opinion to that of Roubini. They believe that markets rise across the globe will continue until the recovery get more obvious. The boom will eventually stop only when a liquidity tightening comes, they believe. A point of note: liquidity in the UAE is not likely to tighten any time soon!
- Read more: Overweight or underweight in equities?
Even if this prognosis actually turns up to be true, it will take some time before The Boom occurs. That is mainly due to the political turbulence in the U.S.
However, the current situation does not seem to stop investors, traders and average people from indulging into opulence. People simply like to live well and in excess! Overconsumption bothers only strangers…The sad part here is that it was the exact same opulence that has gotten us to the bottom of the pit last time.
Easy availability of money acts as an opiate to investors. A long as central banks liquidity remains on the loose, investors will be clearly motivated to venture in what they perceive as profit opportunities.
What will actually drives growth? It will come as a surprise to investors in 2014, the asset price deflation will be successful and it will be triggered by five main things. These include a booming real estate market, growing energy independence, major monetary stimulus, unprecedented corporate cash balances and inexpensive dollar.
However, some may have doubts. But if the global economy does not advance in the coming 6 months, it will accelerate later in 2014. Nevertheless, this will only mark the start of the an upcoming collapse by the end of the cycle.
In 2009, the Dow Jones Industrial amounted to 6,547. Not long ago, it jumped by more than 200%, reaching the record 15,676. If this rise is not accompanied by at least a small and temporary fall, it may hit 24,000 over the next 4 years.
The Dubai Financial Market general index was hovering around 1,600 at the end of 2008. Since the beginning of 2013 only, it advanced by nearly 80% to trade today around 2.930. However, there is a long way to go to the highs of 2008.
About four years ago, investors were given a few main reasons why they had to return in the game. These reasons can also be used in the Year of the Boom context.
1. Stocks have high and low tides
Most of the time, there is not much happening on the stock market. Suddenly, when we least expect, it registers a massive loss or gain. Shortly after that, it again falls asleep. But in 2014, we expect a boom.
- Read more: Stock Market and Economic Cycles
2. The stock market can tell you the future
The future of the global economy can be easily predicted by the stock market. About six months before the economy starts to recover, stocks wake up.
3. But some things are harder to predict
Still, financial markets are hard to predict. Usually, there are no logical explanation behind the changes in the movement of the stocks.
4. Popular media experts tend to be wrong
The forecast of experts are often wrong or even extremely wrong. Despite that, they will not stop making predictions even if they keep making mistakes. Many people and companies are handsomely paid to make predictions and to spread them.
5. Renowned experts can also get it wrong
Economy is a hard thing to predict in some parts of the world. Therefore, even the most experienced and informed economists can give wrong forecasts.
6. The U.S. government shutdown has its good sides
The shutdown of the U.S. government cost the massive $24 billion. However, this created a good environment for stocks, because the interest rates stay the same and the economy marks growth. In addition, earnings also jumped. Also, the political confusion in the country will not stop the issuing of cheap money, which flow in all markets.
