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12/25/2014 US Trust Top Lessons 2014 And 2015 - Business Insider

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Jordan Kessler, son of trader Glenn Kessler, uses his father's mobile phone andbadge on the floor of the New York Stock Exchange November 28, 2014.

The Top 10 Things We LearnedAbout The Economy And MarketsIn 2014

ELENA HOLODNYDEC. 24, 2014, 9:18 AM

Sometimes the best way to understand the future is to look to the past.

US Trust's Chief Market Strategist Joseph P. Quinlan has put together a list of the top 10macroeconomics lessons from 2014 in order to show what investors should watch nextyear.

"We thought it might be instructive to look back, not forward, at some of the lessons of2014," Quinlan said. "It helps to understand the twists and turns of the past when peeringinto the future."



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Check them out.

1. America is back.After all the warnings, the USeconomy ended up emerging asone of the strongest in the worldin 2014. It saw a rebound inhousing, a "rip-roaring"automobile industry, surgingexports, and the adoption ofgame changing technologiessuch as 3D printing.

What to watch in 2015: Thebiggest question is whether theUS can maintain its force whilethere is sluggish Europeangrowth and decreasing demandin emerging markets.

Source: US Trust



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2. The US dollar is not dead yet.The dollar's going great. Sincethe beginning of 2014, it hasincreased by 8% on a nominaltrade weighted basis. And on topof that, many structural factors— such as America's capitalmarkets — underpin the dollar.

What to watch in 2015: Thedollar might actually be toostrong next year, which couldhurt exports and corporateprofits.

Source: US Trust

3. Geopolitics matter.The global order is changing —and not always in the way theUS and the West hadenvisioned. Major geopoliticalepisodes such as Putin'sannexation of Crimea, ISIS'sadvances in the Middle East, andEbola have all contributed tomarket fears this year.

What to watch in2015: Geopolitical uncertaingoing to continue, so US Trustanalysts are long US defensecompanies and US agriculturalcommodities.

Source: US Trust



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4. The US energy revolution is for real.US oil and gas productionskyrockets over the last fewyears — but 2014 was wheninvestors really started to takenotice. The oil supply shock thisyear is directly related to USshale.

What to watch in 2015: Thereare questions about how low oilprices will go in the short term,and whether or not other majoroil exporters will create moreeconomic stress for the capitalmarkets.

Source: US Trust



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5. There's nothing linear about China."...on key takeaway of 2014:China is not an unstoppable,world-beating economicjuggernaut destined for globaldomination. Tot he contrary,China now finds itself at aneconomic crossroads, with realgrowth headed for a range of5%-6% over the next halfdecade," writes US Trust'sJoseph P. Quinlan.

What to watch in 2015: "Lookfor real GDP growth below 7%next year," Quinlan writes, "aprospect that will inflict moredamage on the world'scommodity exporters."

Source: US Trust



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6. Deflation remains a clear and present danger.In the past, inflation was the bigproblem for most economies. But "the battle is now againstdeflation, a pernicious trend that,among other things, exacerbatesdemand weakness byincentivizing slowerconsumption and slowerinvestment in anticipation oflower prices," writes Quinlan.

What to watch in 2015: Thediverging directions of ratescould lead to more volatility incurrency markets and widerdispersions in fixed incomereturns.

Source: US Trust

7. Fed tapering was not the end of the world.By the time Q3 ended, investorshad way more confidence in theUS economy. And the Fedhasn't yet raised rates.

What to watch in2015: Monetary policydivergence amongst majoreconomies. And until the rest ofthe world also starts to grow, theUS dollar will continue to getstronger.

Source: US Trust



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8. Corporate animal spirits are alive and well.M&A activity was finally up in2014, and global deal volumeswere at their highest levels since2007. The increase wasunderpinned by large cashholdings, record low borrowingcosts, and a drive to grow.

What to watch in 2015: Thenext year should continue to see"relatively robust" deal making,with greater participation in theemerging markets.

Source: US Trust



Reuters

9. The commodity supercycle is over."As the commodity markets nowenter their fifth consecutive yearof price declines, it is clear thatthe supercycle is well and trulyover. Relative softness in globaldemand has helped deflate thecommodity boom, but overthe course of 2014, the end ofthe supercycle was alsounderscored from the supplyside, most spectacularly inthe energy market," writesQuinlan.

What to watch in2015: Commodity prices shouldstay low in the near term, butthere could be some majordifferences among prices.Agriculture looks the mostfavorable, and oil should finally stabilize.

Source: US Trust



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10. Emerging markets are not created equal.Emerging markets saw"contrasting fortunes" in 2014,partially due to marco factorsthat impacted economiesdifferently. Indonesia and thePhilippines delivered thestrongest returns, while Russiaand Colombia were the biggestlosers.

What to watch in 2015: EMsshouldn't be considered as asingle asset class, and globalmacro events could continue toimpact countries differently.

Source: US Trust

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