Part five of this guest trader series

He has certainly made some interesting calls in this final piece and as a gadget/tech geek myself I’m going to take serious note.

You can check out all his posts starting here.

With fame comes glory….hopefully

Hi everyone! It’s my last day, and it’s been a privilege to be able to write for this community. I’ve thoroughly enjoyed my time here, and I hope you’ve enjoyed my posts.

Considering the time of year, I’m going to do something risky and use this post to lay down my predictions for 2014. I’m not going to try to tell you where the Euro will be at the end of the year, because despite being the first ever Supreme Elephant Troop Commander of the Universe, my performance in that regard has been… less good.

I’m going to try and predict some major themes for next year. Some of them will be (tomorrow’s) conventional wisdom, but hopefully some will make you get annoyed enough to comment. So here goes.

1. The road for the dollar will be bumpy, but uphill

This one’s more or less a given after Wednesday, but one thing that Bernanke said in the press conference stood out to me. When asked to clarify this statement:

<blockquote> “The current near-zero range for the federal funds rate target likely

will remain appropriate well past the time that the unemployment rate declines below

6-1/2 percent”</blockquote>

Bernanke went on to say something quite interesting about how they will look at labour factors going forward. Jobs numbers have a lot of moving parts, and until now they have only looked at the headline figure because that’s all it was appropriate to focus on.

In the future, they will be looking more at the individual numbers like participation rate and wage growth. There will be more pieces of the puzzle, and the markets will figure out quickly that they can profit from it – if they can put together enough of it to see what the picture will be.

My prediction is that the market will be paying ever closer attention to ever finer data points, desperately looking for clues as to when rates will actually start going up. This will cause more volatility, choppier moves, and will muddy the waters.

2. The crisis in the Eurozone periphery will deepen

The rise in the Euro this year has certainly been something. But it’s important to remember that a lot of this is passive flows – cash washing into the EZ because it has nowhere better to be. There are still a great many member states struggling along quietly.

I’m lucky enough to work with people from all over the world. When you ask them, especially those from places like Poland, Czech Republic, even Spain and Italy, why they came to London, the answer is always the same:

“There’s no jobs back home.”

Greece is a prime candidate. So is Slovenia, and possibly a half a dozen more periphery states we don’t even think of as being in trouble. Matthew Lynn at MarketWatch has an article on why a Greek Exit might not be such a surprise next year. He points out that,

“Unemployment has hit terrifying levels: 27% of the workforce in total, and up to a grim 55% among young people.”

That’s insane! Why are we not freaking out? I know plenty of you have shorted EUR/USD, but that’s not quite the same thing. The main point Lynn makes is that Greece couldn’t exit the Eurozone last year – it couldn’t afford to. But now they can and if Syriza leader Alexis Tsipras comes to power, they will.

My prediction is that it’s only a matter of time before a threatened exit of a periphery member, or a bailout or a government collapse or another Bunga Bunga party hits the headlines, and we’ll see a lot more of Angela Merkel doing this:

3. The UK’s recovery will not be as swift as we’ve been led to believe

There’s a lot of optimism about the UK. It’s all over The Times and The Telegraph, and George Osborne has been annoyingly cheerful lately. Do you know where you won’t find a lot of optimism?

On the tube. Down the pub. I live and work in London. I have a good job, but it’s a mid-level position in an education company’s Marketing department. According to the numbers, the average family is far worse off than I am, and I don’t feel like spending money.

You can hear them grumbling about the gas price hikes on the phone when they get on the train. The train’s costing them 10% more than last year, and their wages haven’t increased even as much as the headline inflation figure. Their company can’t pay bonuses again this year.

The average man on the street is still having a bit of a hard time. I know, because I am one. People are getting by but nobody has spare cash. Christmas is lean this year, and I think December retail sales will disappoint.

The housing market may be doing well, but most of that is corporate landlords buying up third and fourth rental homes. The BoE may hike rates, and that will be great for the Pound, but that will just push an extra few per cent of first-time buyers a step below the property ladder. It will stop one guy in ten from starting his own business next year.

Until some of this recovery starts being felt by you and me when we walk into Tescos, we’re in for a rough one.

4. Gold will see what life is like below $1,000, and it will spark an Emerging Market panic

If you think Adam’s bearish on gold, buy me a pint and get me started. I see no reasons, fundamental or technical, why gold should not decline below $1,000. It probably won’t stay there, but it could certainly have a look.

For those who don’t follow gold much, this concerns all of us. There is a line in the sand where gold mining stops being profitable. It’s anywhere between $1,100 and $800 depending on who you talk to, but there is a price at which each gold miner will have to close up shop, because they’re paying more to dig the stuff out the ground than they can get for it.

When a gold mining company gets squezed, it passes the squeeze on to the only place it can: its plant and workforce. And when miners get squeezed, they strike.

There is already huge strain in the mining labour market in South Africa – everyone is on edge because they know their jobs hang on the whims of a price ticker.

If a large enough number of those jobs are lost, that supply will flood labour markets throughout sub-Saharan Africa. The strain on these economies will be huge.

To give you an idea, here’s USD/ZAR:

USDZAR Daily

The Rand is one of the worst performers this year, and a big chunk of that is gold and resources. A weak Rand might be great for exports and tourism. But let me tell you, R10 to the dollar is horrifying for consumers.

Everything gets more expensive. Fuel is mostly imported. So are parts of cars, a lot of food, and any kind of entertainment. Factory input prices go up, but demand drops off. Movie tickets go up, and so does a meal in a restaurant because all the restaurants charge tourist prices. Life gets harder.

It’s not just SA. When I speak to friends from Argentina, Venezuela and Colombia, they are deeply concerned about home. There are protests and unrest, and economies are teetering. The devaluation of any resource they produce would be catastrophic.

My prediction is that gold specifically, and commodity prices in general, will be a major problem for emerging markets in 2014, and this will highlight the need for these markets to get to work diversifying their economies further. In the meantime, it might mess with your Kiwi longs.

5. 120.20 Will be the year’s high for USD/JPY

That’s the only price prediction I’ll indulge in. If I’m right this time next year, I’ll tell you why that number

Now, something a little different:

6. Long Facebook, Short Twitter, and buy Google for your grandchildren

I’m going to massively geek out for a minute, and then tell you why I say this. I hear a lot of people citing stats like, “10-13 year olds now prefer Instagram to Facebook…”

Zuckerberg

So what? Facebook bought Instagram. If something else comes along that’s cool with the kids, they can buy that too. And they’ll run it better than the bearded chaps in plaid shirts who started it ever would.

But Zuck hasn’t been sitting around watching his user base not grow as fast. Graph Search is something you’d be forgiven for not hearing about, but it’s going to change the world.



Google maps out objects in a network – called “nodes” – and it learns about them. Then it counts up the connections between the nodes, weights them for importance, and uses this to do all sorts of useful things like rank them in order of how relevant they are to a search query.

Facebook’s Graph Search approaches massive networks from a different angle. It’s still based on the same graph theory that underpins Larry and Sergei’s PageRank, but it looks at the connections first, and it understands what they mean.

If Chase “likes” Jameson’s, Facebook picks that up. It assigns a value to that relationship, “like”, and then it attaches the information it gathers about the nodes on either end. It sees what other nodes like Jameson’s, and what other things they like in turn, and it learns.

It might be the most brilliant, and potentially influential, piece of software ever written. The internet is beginning to understand us. We’re putting our entire lives there from the minute we wake up until we set our iPhone alarm at night.

This is only the beginning. Graph Search, and other innovations like it, are going to power a new stage of technological evolution, and change how we live forever. It will cause a cultural shift that will make the Industrial Revolution look like changing to the Metric System. And it will happen in our lifetimes.

If you have a child now, by the time they’re 18 the generational gap in technology and culture will be as large as it is between you and your great-great-grandfather. Conservatively. If Google, Facebook (and maybe even Twitter) aren’t still around then, and at the bleeding edge of this wave, I’ll buy everyone who comments today a BitCoin.

What does it mean for 2014? I believe Twitter’s early earnings will disappoint. They will have the same or greater struggle to please shareholders that Facebook had, except their offering is smaller. Their potential for selling advertising is more limited, and they simply aren’t close to the tech powerhouse that Facebook will become in the next few years. It will stay buoyant because everyone loves Twitter, but not as much as the IPO would suggest.

As for Google: they still run this show. The stuff they come out with astounds on a weekly basis. Their dominance of their market is absolute, because they cheated…

They made their product really, really good and they run their company extremely well.

Have you ever been to a Google office? I have, and everything you’ve heard is true. I have used all of their products, worked with their people, attended their events, eaten of the free fruit and drunk of the perfectly-brewed Fairtrade organic coffee from the deluxe espresso machines in every kitchen.

Any dips in their stock should be bought, put away and forgotten about.

One last one, on a related note:

7. 2014 will be the year when useful AI and wearable computing begin to emerge

Google Glass is silly. Have you ever seen anyone wearing it? They look stupid. Siri is the most annoying thing my phone has ever done, and I once had a flip phone that would turn off predictive text if I made a spelling mistake.

But do you remember the first mobile phones? I bet. You looked like an asshat with one of those, too.

The Yuppie years

Now consider this:

The first mass-produced television set was made in 1928. It produced an image the size of a postage stamp and took up half your living room. It cost the equivalent of $1,600, and a radio was extra. It took 60 years for televisions to become good and cheap enough to be a standard feature of rural African villages.

The first mobile phones for use by the general public were available in about 1991, and were even bigger than our friend’s toy up there.

16 years and we still don’t have anything useful to say on them

In January 2007 the iPhone was announced. In 16 years we had gone from a device the size of a handbag that only made calls and was too expensive to buy or use, to one which college kids could afford and was able to do most things a personal computer could do, and plenty besides.

The gap between the leading and trailing edge of technology is narrowing in time and cost. What took 10 years to go from interesting but useless prototype to on every desktop is now taking three.

Next year it will be two. Wearable computing – maybe not as flamboyant as Google Glass – will start becoming a thing. The most practical applications are in medicine and sports science, and the military – and these areas get a lot of funding.

I predict that many of us will have tried a wearable computer by the end of 2014.

As for Artificial Intelligence, we already use “narrow” AI (those designed for a specific task) all the time. We use them when our car brakes for us, or we search the internet, or ask Siri to “Call me a hamburger Putin puck no man”. It will get better very quickly, and if you’re into tech stocks, this is where to start looking.

Which brings us back to Google, who have hired Ray Kurzweil to do… things.

If you like reading about this kind of stuff, get his book The Singularity is Near. But Ray’s been very quiet lately, and Ray Kurzweil never really stays quiet for very long before coming up with something totally nuts. I’m expecting big things this year from the likes of Google.

And by this time next year, we’ll see if I’m right.

That’s all from me. Thanks for a great week, for all your awesome comments and positive feedback, and I hope you enjoyed today’s post.

Have a happy holidays everyone, have a good break, and I’ll see you back in the trenches next year!

Chase