Calafia Beach Pundit

Calafia Beach Pundit 1

First, a glance at how last year’s predictions turned out. On balance, calendar year it was a good. Right: I used to be generally optimistic. I thought the economy would continue to develop at a sub-par pace but would beat targets, which at that time were gloomy. Wrongish: I thought that better-than-expected performance by the overall economy would result in higher interest levels. The entire year Nominal 10-yr Treasury produces fell significantly over the course of, but real rates of interest (especially real produces on 5-yr TIPS) increased significantly. This disparity (some real produces up a lot, most nominal produces down) displays reduced inflation objectives (thanks to collapsing essential oil prices) and a more powerful growth outlook, this month as I noted earlier.

So I was half right and half incorrect on this call. The rise in real yields is an important development that, probably, is under-appreciated widely. Wrong: Once more I used to be wrong on inflation, thinking that it could rise moderately. Right: I thought the failure of Obamacare (i.e., Big Government) would lead to important changes in the November election and only smaller government.

Obama’s big-government plan was clearly repudiated, even if Obamacare wasn’t overturned. Meanwhile, Obamacare encounters steep hurdles in the Supreme Court next 12 months, and a Republican-controlled Congress is likely to succeed in dismantling or improving the program significantly. In any event, I believe the political tides have turned enough in market- and business-friendly direction to bolster confidence in the foreseeable future.

Right: The Fed completed tapering QE3 by the finish of the entire year, as I expected. Wrong: But the Fed didn’t increase rates sooner than expected, as I had formed thought they might have, given the improvement throughout the market. Sharply lower energy prices and low documented inflation validate the Fed’s decision, so it’s another happy error on my part. Right: Cash was unattractive relative to almost every other investment choice. Right: Equities would continue to rise even while profits growth slowed because PE ratios would rise, plus they do. Right: I thought real property was very attractive, the year and REITS were one of the most powerful performers of.

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The total return on VNQ was over 30% for the entire year, vs. Right: I thought gold and goods were unattractive investments. Gold was level for the year, while industrial commodities dropped some 7% and food prices were up only slightly. Right: I expected the buck to go up against most currencies, and indeed it did, attaining over 12%, mostly in the second half of the entire year as oil prices collapsed and real yields rose.

The money benefited due to the fact the U.S. From a big-picture perspective, I believe we’re somewhere past the middle of the recovery that is going to continue being relatively sluggish in comparison to previous recoveries for the next couple of years. I’ve worried for a long time that the Fed would be slow to react to a strengthening economy, and that would gas inflation.