The Light at the End of the Tunnel…

After five years of sluggish US economic growth, last spring, we here at Sachem Rock believed we were seeing a “light at the end of the tunnel”.

Our view that we were seeing “sunlight” at the end of the tunnel, was the result of the increasing strength of the US energy sector, the recovering US housing market, and the strengthening of the domestic manufacturing sector, especially autos and aerospace, in 2013.

We now realize that the light we were seeing at the end of the tunnel was not sunlight.  It was something far more ominous to the ongoing US recovery toward normal rates of economic growth and employment.  The light we saw this spring was the headlight of the ObamaCare Express.

After the last few weeks, it is becoming increasingly clear that this massive new Federal program is going to have a significant effect on US economic growth over at minimum the next two quarters.  Consumer confidence has been recently headed south, and it is likely to continue this trend as millions of Americans are getting significant health insurance premium increases; if not losing their existing plans altogether.  Factor in the anemic growth in personal incomes, hours worked, and a declining net savings rate, and yes, you have a “train wreck”.

It now appears that after several years of high increases in health insurance premiums, this trend will reach a crescendo for 2014.  When you adversely affect the disposable income of about 85 to 90% of the US population, and the income of virtually every company in the United States, nothing other than a significant deceleration of economy can result.  The only question we see, “Will it be if it is enough to tip the US economy back into recession?”

While lower oil prices have been forecast by many economists and energy sector experts, we do not see that much gas price relief will find its way to US consumers due to the continued decline in the US dollar through this winter.

As a result, we are downgrading our expectations of economic growth for the next two quarters from 2 to 2 1/2% to less than 1% growth.  Most importantly, we see a flat to declining US equity market through the first quarter of 2014 with an increasing possibility of a US equity market correction of up to 20% during this period.  We see no Fed “Tapering” at least through June of 2014.

We see ObamaCare as having a more significant deceleration effect on the US economy as the tax increases levied on high income Americans effective last January 1st.  What we cannot understand is why, thus far, we seem to be alone or “out front” on this forecast.

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