mtitative easing program, but will notice that the Federal Funds rate begins to rise. Few people will know, however, what the Federal Funds rate is. Economic pundits who hyperven- tilated on TV about how the Fed was debasing the dollar and de- stroying the nation when it cut in- terest rates and started its program
of quantitative easing will begin to
hyperventilate in absolute despair
because the Fed is raising interest
rates and reversing its quantitative-easing policy. The average person
will have no idea what economists
are talking about, but many will
have strong opinions, nonetheless.
The Tea Party will continue to
dominate politics as it attacks both
the Democratic and Republican parties. Even though he isn’t running
for re-election, the 2014 mid-term
elections will be a referendum on
President Obama. The result will be
inconclusive and divided government will continue for the foreseeable future. On a brighter note, the
current sitting Congress, the 113th
Congress, will break records for being the least productive legislature
of all time.
The rising tide floats all boats and
continued steady economic growth
will make even the crummiest
credit officers seem like geniuses.
Industry credit losses will remain
moderate for lenders that don’t dip
into the punch bowl of unsecured
debt. Expect industry losses to be
less than 0.25%.
I predict industry leaders will
continue to complain that competition is fiercer than ever and there
just aren’t enough good deals to go
around. CEOs will accuse others of
“flushing credit and pricing down
the drain” and more than one sales
manager will announce that he is
getting out of the business because
his competitors have no sense of
decency or propriety (not to mention, brains).
In short, I predict that the industry consensus on competition in
2014 will be exactly the same as it
was in 2013, 2012 and for almost
every other year over the last 20
However, companies that provide
differentiated products to their
borrowers will find that 2014 is just
like 2013, i.e., there are plenty of
good deals and borrowers. The key
to finding good deals with strong
pricing and low advance rates will
be to do more to help the borrower
without taking on more risk.
Absent a material geopolitical event,
in 2014 the economy will grow at a
slightly faster rate than in 2013.
Democratic and left-leaning economists will complain that government budget-cutting is constraining growth. On the other hand,
GOP and right-leaning economists
will complain that out-of-control
government spending is constraining growth. The average person will
have no idea whom to believe.
Most people won’t notice that the
Fed begins pulling back its quan-
ark Sunshine of Veritas
Financial offers his 10
Predictions for 2014.
Many years ago I asked my wife whether or not I should respond to a media
request for an article with my macro
predictions for the upcoming year. As
she wagged her finger at me and told
me that I was an idiot, she warned: “He
who peers into the crystal ball will eat
much ground glass”. I did what most
men would do and ignored her. The
article was mostly right and I didn’t eat
too much glass that year. My career as
a “predictor” was launched.
However, I am not unique. Whether
you realize it or not, everyone in our
industry is in the business of making
predictions. Only in the commercial
finance industry predictions are called
“credit judgments,” and our careers and
companies live or die based upon how
many times we look into the crystal ball
of credit, only to realize it is broken.
I have found that it is a lot easier to
make good credit judgments if I have a
macro view of the future through which
I can make individual credit decisions.
After all, if I think that the economy is
about to crash I will have a very different view of risk, than if I believe the
economy is going to grow by 5%.
My 10 most important macro views
on 2014 are the subject of this column.
Hopefully, these predictions provide
a framework for your own decision-making.