Our Insights

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January 11, 2014

Why the US economy will be better in 2014 than in 2013

It appears that the missing link to the US recovery has just arrived. One of the key indicators that we follow is the growth of bank loans outstanding. In the last few years, growth of bank loans outstanding has been disappointing and it is therefore no surprise that overall growth of the US economy was lagging. Basically today total bank loans outstanding are still below the levels seen pre-crisis.

However, in the Fed‘s H8 report published early December 2013, we could see a material $25bn pick-up in the week-over-week increase of bank loans and leases. While growth rates were falling in summer this year, we are now seeing a reversal of this trend. This is a very positive sign for the US economy and a significant improvement on what we could observe previously.

If this trend continues, investors need to carefully monitor the duration risk in their portfolio. We already have seen in 2013 a steepening yield curve with a concomitant sell-off of interest-rate sensitive assets but this could continue in 2014. Signs to watch out for in 2014 include employee wage gains and further credit creation.

If you would like to know how to position your portfolio in 2014, please contact us on info@ipanema-capital.com

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