2014 will be better: Tal

There’s good news on the horizon, says CIBC World Markets’ deputy chief economist Benjamin Tal. He spoke today at a Renaissance Investments event.

Advisor.ca live-tweeted the event and we’ve put the best tweets below:

There is some logic to the idea 2014 will be better, Benjamin Tal tells the Renaissance Investments roadshow. The U.S. created jobs last year, manufacturing is up. Obama is happy.

The Eurozone is getting past recession. Merkel is happy, and so is Harper because the global economy’s improving.

The theme that will dominate investing is the tug-of-war between monetary policy and fiscal policy.

Monetary policy is running out of ammunition. You have a generation that has never seen a rising interest rate.

Read: What to do when interest rates rise

Fiscal balance is like heaven. Everyone wants to get there but not too soon.

There are still problems in the Eurozone, but the biggest is unemployment, and particularly youth unemployment. It’s a risky situation and potentially volatile. We could see a European Spring.

Hopefully it won’t be explosive, but the easy money from mispricing has been made. Tal says he likes Germany: It’s well-positioned to enter emerging markets and its real estate market is getting interesting.

Commodities is where it gets interesting. The mega cycle is over, but that doesn’t mean prices will fall. In fact, they’ll rise in response to the global economy improving. But then they’ll stabilize.

Emerging market softness is worrying some people. But we’ve seen that before. They go up and down and those markets react to China, not the U.S.

Read: BRICs lose favour as money pours into Europe

China can achieve a soft landing because they have the political means to do so. They can tell banks to stop lending. The Chinese political system doesn’t have to ask Congress. But the China that emerges will be different.

Young Chinese consumers chase worldwide name brands and that’s good for U.S. manufacturers. The overall economy will slow to 7%. That will be the new normal, as the government shifts from a infrastructure to a consumer focus.

The U.S. is driven by the fiscal saga. They are crazy enough to shut down the government but not crazy enough to default. Whenever they do this, it’s a buying opportunity to go long.

Creditworthiness in U.S. households is good, but people still aren’t ready. We’ll see soft markets and people will question the recovery. If that pushes down things like lumber, then that’s an invitation to go long because the consumers will bounce back.

Read: Choose shorter terms as rates rise

Short term interest rates should be stable. The Fed said they’ll keep thing at pace until 2015 and the Bank of Canada will follow suit.

U.S. financials will do well because of pent up demand. Shale gas will change the picture for the U.S. energy sector. They’ll no longer be importing every drop of oil we produce.

And other countries are entering this market. We’ll sell elsewhere. But Tal thinks oil at 85 is a mispricing.

Manufacturing is less good, especially autos. We’re losing market share to Mexico and U.S. states. We didn’t benefit from the last lift.

Read: Be thankful for pent-up demand

Dividend stocks belong in portfolios but Tal says he wouldn’t be adding them. Rising interest rates will impact REITs and similar instruments.

The portfolio should also take advantage of demographics. Make a grey index portfolio.

Tal summarizes saying the US will improve gradually but the commodity supercycle is over and globals will drive the TSX.