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Dark dog energy drinker
Wednesday, April 24, 2013
It is a bit of a relief to be doing a full update on the long term forecast, because at least it is happening a bit sooner than was expected. The full report will follow at some stage in the next few weeks.
This report presents the short term forecasts which, sadly, do not match up with the data and previous forecasts. In both a global economic downturn and high volatility across the globe, we are still expected to head into a further decline. It is an expected continuation of the pattern we have seen since late 2012 and which we can expect to see through this year and into early 2014.
The situation on the high streets is the big news, with several large UK retlers still showing significant losses. While some, like JD Williams and Mothercare have seen some improvement, they are still in a very tough situation. Both have lost more money in the last four months than they have done in the whole of 2012. In some ways, they have not got the credit they deserve for doing as well as they have. If you look at their sales figures, the performance has actually been better than expected. If we include Christmas, they have, on average, had the best Christmas of any UK retler this year.
The big news will be the effect this has had on other retlers. In the year so far, the total combined sales of the UK high street have been below the levels of the same period a year ago. The total sales for April are expected to fall well below those of the same period a year ago, and well below May and June. The difference is around 12-15% and we expect the overall results for 2013 to be similar.
In the UK, we can expect the economy to stabilise between now and the first quarter of 2014. From then, we are expecting GDP to rise, which will see further weakness in unemployment and further increases in inflation and interest rates. This will also be the period when the Government will most likely start the unwinding of the austerity measures. We expect this to start in the second quarter, with a significant rise in borrowing costs and some reduction in the welfare budget. At this stage we expect the budget deficit to peak at around 4% of GDP. We have not seen anything similar in the US, where the deficit has continued to rise and we expect it to peak at 9% of GDP this year. We expect the economic outlook to deteriorate in the coming months. The US is also expected to be involved in the negotiations for an increase in the debt ceiling, but this is more likely to take place in 2014.
I’ve discussed the UK economy at great length in my weekly letters to investors, as well as in my weekly commentaries. I also give it the attention it deserves on these pages in the Financial Times. I would strongly encourage you to do the same.
The US economy has seen an increase in growth over the past few months and this is in large part due to a resurgence in consumer spending. The rise in the US economy has been led by the housing sector, which accounts for about two-thirds of GDP growth, but has continued to be bolstered by increases in spending in other parts of the economy. We are also seeing a rise in consumer confidence, which is encouraging. Growth has been boosted by a rise in oil prices. As a result, we expect oil and gas stocks to continue their rise in value. While the US housing sector has been benefiting from low mortgage rates, the same cannot be sd for the wider economy as these rates are starting to rise.
We expect another rise in unemployment to take place over the next few months, which will bring the unemployment rate back up to 9%. In addition, it will also see a fall in consumer spending as the effects of higher taxes start to appear. It is also likely that wages will rise, which is a result of higher inflation in the economy. If inflation can be contned and wage increases can be avoided, we can expect the economy to strengthen. This could be good news for the housing sector, given that it is a relatively labour intensive industry. If, however, inflation does reach above 4%, we expect the economy to slow and unemployment to remn at its current high level.
The US housing sector is one of the reasons why the S&,P 500 has risen over the past three months. The index hit an all-time high in August, mnly due to the rise in homebuilder stocks. The same is true of shares in homebuilders, which have appreciated more than 90% over the past year. The rise in the value of the housing sector was driven by low mortgage rates, making housing more affordable, which has benefitted homebuilders. However, we expect this to be a short-term trend. We expect the rising rates to lead to a slowdown in housing activity, which will start to result in falls in the value of homebuilders. We think this could see homebuilder shares move into negative territory. It is unlikely that homebuilders will benefit from low mortgage rates for much longer, so we expect these shares to be under pressure.
As a result of these developments, we believe there is a good chance that the S&,P 500 is set to fall in the next six months. However, this could be a good time to sell your shares, since there is no guarantee that the index will continue to rise. However, we are confident that the market will move upwards, due to the strong global economy, which will mean high employment, low inflation and rising wages.
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