Nick McDonald: Market Predictions for 2014

This article has been reproduced from Nick's column in the New Zealand Herald.

In trading it's important to get things wrong. Many new traders are so immensely scared of failing that they never begin. Yet the only thing worse than being wrong is never trying in the first place and when we talk market opinions there are only two possible scenarios 1. Right, or 2. Wrong.

So here are my predictions for 2014.

I could be miserably wrong when 2015 rolls about but hey, the only thing worse than that would be not having a view in the first place!

For the record I tell people what I see as the mostly likely scenario. I am an independent trader with no one's money but my own to manage. Unlike the broker selling you stock, I don't tell you what you want to hear and unlike the analysts on TV I don't tell you the message my company wants to pump out to suit them.

This is the way I see things for the year ahead.

Prediction 1 - World stock markets will rally higher

The decline we are experiencing in stock markets right now is, believe it or not, the best possible start the bulls could have hoped for in 2014. While stock investors might prefer movements upward in a straight line, the reality is that that never happens. Markets move up, and they move down, people buy and people sell. The definition of an uptrend is simply that each period of buying is stronger than the previous; pushing the market to higher highs and that each period of selling is weaker than the previous, with the market making higher lows.

We have made higher highs and higher lows on stocks now since 2009 and nothing looks likely to change that. The US Federal Reserve is cutting back the amount of money it is pumping into the markets and while in the short term this is contributing to the selloff, in the long term it is a good thing. It's only a matter of time before the market realises this and stocks begin to rise again.

Nick's prediction = the Dow Jones to hit 17,000 for the first time in 2014.

Prediction 2 - US dollar will decline

I don't know why this prediction gets people up in arms. The US dollar has been in decline for decades and that looks set to continue. The last two years have seen the US dollar mostly consolidate in a sideways range but that looks likely to end soon with a break to the downside.

Nick's Prediction - EURUSD to trade at, or close to, 1.5000 this year. It has not done that since 2009! US Dollar Index to trade at new all-time lows.

Prediction 3 - Kiwi Dollar will rise against the USD (but perhaps not against Sterling)

The prediction above for the decline of the US dollar would not make a huge amount of sense if I did not also predict a rise in NZDUSD. Any rise in the NZ OCR in the coming months will not help matters for those kiwis who insist the NZ Dollar must decline. Until such time as the US Fed follows suit, a rise in the OCR in New Zealand will likely put upward pressure on the NZ dollar.

Note though that Sterling is also staging a comeback of sorts with the Great British Pound looking set for a good year while the British economy continues to strengthen. I would not be surprised at all to see the Kiwi fall against the pound while it rises versus the greenback.

Nick's Prediction - NZDUSD to make a new high versus the high of 0.8843 made in August 2011.

Prediction 4 - Your designer coffee price will go up while the coffee price itself declines

Consider questioning the barista next time you visit Starbucks as to why coffee prices have declined over 60% in the last few years yet the cost of a latte keeps rising. Most likely they won't have a clue or perhaps they will have a logical reason why (such as high quality central America coffee prices not benefiting from the decline) but I thought the 60% decline might be of interest to you as a consumer! At least the stuff on the supermarket shelf should decline, but probably still won't.

Nick's Prediction - If coffee prices decline, expect that to be no excuse for the price of a latte to decline. However if coffee prices rise, expect that to be a damn good excuse for the price of a latte to rise.

Prediction 5 - Oil Prices won't change much but we will still pay more at the petrol pump

This is a bit like the coffee price... because they can! Oil is only sideways however and not 'grinding' lower like coffee is.

Nick's prediction - If oil rises in 2014, expect to see the pump price rise. If oil declines in 2014, expect to see the pump price rise. If oil stays the same in 2014, expect to see the pump price rise.

This article has been reproduced from Nick's column in the NZ Herald: http://www.nzherald.co.nz/personal-finance/news/article.cfm?c_id=12&objectid=11194916