Wednesday, December 31, 2014

2014 in review: "conventional wisdom" predictions that did happen, and fears that didn't materialize

Things that Conventional Wisdom got right about 2014:

1. The Fed tapered asset purchases and ended the quantitative easing program by October.

2. China staged a soft landing, holding growth above 7%.

3. The eurozone's recovery from the recession was slow and uneven. (Here I must say, however, that the majority was positively surprised by Spain's growth, and disappointed by Italy's and France's).

4. Commodity prices, overall, didn't rise.

5. It was a year of "sluggish growth," in the aggregate.

6. Inflation was lower than it's generally been over the past 30 years, especially in mature economies.

7. Fiscal "headwinds" did ease.

8. The U.S. dollar appreciated against the other major currencies.

9. Japanese inflation accelerated. (Although it's not clear whether Conventional Wisdom was factoring in the effect of the consumption tax hike. Excluding the higher tax rate, inflation was actually down.) 

10. A really big iPhone arrived.

Surprises, and fears that didn't materialize:

1. There was no military confrontation between China and any of its neighbors in the South China Sea.

2. Russia annexed Crimea and almost went to war with Ukraine. 

3. The Bank of Japan launched another wave of quantitative easing.

4. Oil prices fell far more than most people expected in the second half of 2014.

5. The Bank of England didn't raise interest rates, despite public utterances by governor Carney near the end of 2013.

6. None of the Fragile Five--nor, for that matter, any major emerging country'-had a financial crisis 
(I exclude Venezuela and Argentina, who were already crumbling in 2013, and are not among the largest emerging markets anyway). Russia has come close, but if a crisis unravels it will be already 2015.

7. Housing bubbles didn't implode, neither in Asia nor in Latin America, Scandinavia, Canada, or Australia.

8. The U.S. unemployment rate dipped below 6%.

9. U.S. long-term interest rates (the ten-year government yield, for example) didn't rise. In fact, they fell.

10. Brazil lost "its" World Cup in the most crushing way, and Spain didn't make it past the preliminary phase.

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