Browne vs. Kass 2014 Outlook


U.S. Economy in 2014

On February 7, the Palm Beach Business Group was pleased to host two well known and influential speakers, John Browne and Doug Kass, as part of the 2014 Market Debate Breakfast held at “264 The  Grille” in Palm Beach.  Mr. Browne and Mr. Kass made their projections concerning the economic situation of the country, and how it affects the markets for the balance of 2014. Both speakers shared their uncertainties regarding the problematical economic outlook, which suggests that the stock market is expected to deteriorate during 2014. Additionally, both speakers provided crucial information concerning the behavior of the stock market for the coming year as well as the effect the new tax reforms and Obamacare will have on the U.S. markets.

According to John Browne, former Conservative Member of Parliament, the spinal cord of the U.S. economy today is the middle-class. Furthermore, Browne stated that a strong middle class is the key to freedom. Unfortunately, the middle-class population has plunged considerably despite the fact that the economy is slowly recovering. Indeed, according to a study conducted by Pew Research Center, the number of Americans who identify themselves as middle class Americans has dropped from 53% in 2008 to 44% in 2014 despite the recovery from the recession.[1] In addition, according to the National Employment Law Project, of the 60% jobs lost during the recession, only 22% were recovered.[2] Although the economy is picking up, it remains fragile. Unfortunately the decrease in the middle class has been added to the lower class, instead of moving to the upper class.

The increase in taxes is also a risk for our freedom. Browne stated that under Obama Care, three new taxes have been introduced in order to finance the plan. This will impact citizens of the country for the coming year as Browne predicts that it will be harder to save money in 2014.

If John Browne proved to be gravely concerned about the financial market for the coming year, Doug Kass, CEO of Seabreeze Partners and a highly respected hedge fund manager, was also pessimistic.  Kass shared his few optimistic factors  on the economy with the enthrawled PBBG audience, but his overall 2014 outlook about the stock market was not encouraging.

Kass warned his audience about the uncertainty of the market.  The fact that the media and politicians state that the country has now recovered from the recession does not mean that the stock market is strong. Kass advises Americans not to listen to what investment commentators on television say, as the market clearly is unpredictable. “It’s all about educated guesses,” Kass stated. According to Kass, the fact that investment commentators on television appear so optimistic is because of the effect of quantitative easing which was created by the Federal Reserve. Yet this growth is only superficial. Currently, the Federal Reserved is purchasing $85 billion dollars every month to purchase treasuries, yet it was announced that the Federal Reserve is going to cut this spending on quantitative easing by $5 billion each month. This announcement caused strong negative reactions on the U.S. stock market.

Many factors can be blamed for the current economic situation of the country. In addition to politics, Doug Kass blames monetary policy which appears less generous than before. Furthermore, the S&P will produce fewer earnings, which will cause the stock market to go down and thus companies will have less money. Kass concluded by giving the audience a few specific predictions on the2014 stock market and the U.S. economy. He first predicted a drop of 5%-10% in the stock market. Secondly, Kass expects current emerging markets to actually submerge this coming year. Finally, Kass suggested his listeners invest in bonds rather than stocks. He concluded by arguing that depending on the political evolution of South Africa, the continent may be opening doors to new financial opportunities.

Overall, there are significant economic concerns when it comes to investing, but there is always hope as the global markets and subsequent investment opportunities are continually evolving.


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