Forecasts for 2014

Posted on by

Politico asks several economists for forecasts. What ensues is mostly ideological axe-grinding. In contrast, Dean Baker plays it straight, and makes an actual forecast.

There is also some serious downside risk in the stock market. Its valuation is definitely high right now, although I wouldn’t necessarily say it is a bubble. Nonetheless, if people are expecting another year of large gains, then they must be smoking something strong. The real story is likely to be with the social media companies. When you have a start-up with no clear business plan, like Snapchat, that can sell for $3 billion, you know things have gotten nutty. Some of these companies will no doubt survive and be profitable, but it takes a lot of profits to justify a $3 billion market cap, to say nothing of the $34 billion for Twitter or $130 billion for Facebook. These prices will come back to earth, and 2014 is as good a year as any for it to happen.

Pointer from Menzie Chinn.

I am nervous about the stock market also. But my main prediction is for increased ideological axe-grinding.

4 thoughts on “Forecasts for 2014”

  1. Stocks may crash but where is the credit bubble? Kotlikoff points out the big one but I hope that one doesn’t pop in 2014!

    • On second thought, there is the smaller big’un of the fed and treasurys. Why would the fed stop the pumping? Principle? Unlikely. Stupidity? Hmmmm.

  2. I’d say the stock market is due for a moderate correction, rather than an actual bubble bursting. PE ratios and yields are not completely crazy for most equities, as far as I can tell, indicating market prices do still have some connection to underlying fundamentals.

  3. Honestly, I get tired of the pundit echo chamber sometimes. It’s like you can’t be credible in that circle without tying your comments to some sort of political diatribe. I get the impression it’s a very insular ring of groupish professionals that read each other’s journal papers and attend each others conferences, and they’ve all subconsciously bought into the idea that it’s their duty to flex their Harvard credentialed intellect to save the republic.

Comments are closed.