TD Ameritrade Institutional 2014 National Conference

The biggest threat to the global economy in 2014

Jan 30, 2014 @ 12:00 am

Runtime: 3:04

Craig Alexander, TD Bank Group's senior vice president and chief economist, identifies the biggest looming threat to the stability of the global economy in 2014.

The annual RIA conference taking place January 29th to February 1st in Orlando, Florida.

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Video Transcript

Well, we think about the red flags that are out there. I think what we've actually seen is that the global risks have diminished. The European financial crisis seems to have been put in check. America found its way around the fiscal cliff. China appears to have managed a soft landing. I think if there's a new red flag on the horizon and the one that's probably having the biggest impact on financial markets right now is increased anxiety about emerging markets. I think the reality is that you can't lump them all together anymore. I think-- I think investors need to differentiate because in some cases these emerging markets are gonna do very well, but in certain cases like India, Indonesia, Turkey, South Africa, Brazil, and more recently Argentina, there's been a lot of concerns that these economies can't deliver what people had previously hoped. And when you have broad-based concerns about a large number of economies, it starts to raise questions about, you know, are we-- are we going to see another crisis like the Asian financial crisis in 1997. I don't think that's the case, but certainly financial markets are feeling increased worry on this front. And a lot of it relates back to the fact the Fed is gonna be tapering. It's gonna be winding down its bond-buying program. One of the concerns is that this could shift capital flows away from the-- away from emerging markets and making things worse on those areas. And I think that's part of the transition that we're seeing at the moment. I think that's gonna be a big part of the volatility story in markets this year. Ever since 2007, the crystal balls have been very cracked and cloudy, right. You look into them and you-- Okay, so, you know, what do you think the dominant themes are gonna be? Well, I think the first one is that after four years of slowing the global economy is actually gonna experience a stronger pace of growth in 2014 and gaining momentum in 2015. I think the story is really a story of two different economies. And this has been what's it's been like since 2008. The only thing is that the roles have changed. So, in the early part of the recovery, it was all about strengthening the emerging markets and disappointment in the advanced economies. Well, what we're now seeing is the tide shifting and now it's the advanced economy improvement that's actually pushing global growth hire. I think the U.S. economy is gonna do very well in the coming year. And in fact, if we look at the second half of last year, were it not for the government shutdown at the end of the year, the U.S. economy would average growth of close to 4 percent in the second half the year. There's a lot of momentum underneath the surface that people often, you know, don't appreciate. And so, I think the U.S. economy is gonna do very, very well. Investors are a little anxious about after a 30 percent gain from the U.S. market keep advancing. I think that from a cyclical point of view, what it's telling us is there is good momentum out there. And so I think U.S. equity is probably-- are going to outperform a lot of international equities in the coming year despite the strength that they've already had. I think the bond yields are gonna grow a little higher, but not dramatically higher. I think we're gonna see a stronger U.S. dollar, but regrettably because of the challenges in emerging markets, I think commodity prices and aggregate are gonna be pretty flat.

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