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2012 Economic Outlook

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Economic Outlook for 2012 composed and presented by Bill Bayer, CEO of Lighthouse Growth Resources, for the January 12th ACA St. Louis Speaker Series. …

Economic Outlook for 2012 composed and presented by Bill Bayer, CEO of Lighthouse Growth Resources, for the January 12th ACA St. Louis Speaker Series.
http://www.lighthousegrowthresources.com
http://acanetwork.org/club-list/

Published in: Economy & Finance, Business
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  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Copyright William W Bayer 2012
  • Transcript

    • 1. 2012 Economic Outlook
      • Lighthouse Growth Resources
      • January, 2012
      • By Bill Bayer
    • 2. A Tale of Two Forecasts
      • It won’t be the best of the times
      • But it could start the worst of times. Will we:
        • Muddle Through with the Un-Recovery
        • Or have a Major Economic Crisis with the potential failure of our economic system.
      • More in a few minutes
      Copyright William W Bayer 2012
    • 3. 2011 Forecast Result - Housing Copyright William W Bayer 2012 Forecast Result
      • Stable prices but still large supplies of foreclosures still coming.
      • No price growth in top 20 markets in last year
      • But no longer declining
      • Lower end market stronger
      • Reasonable activity at lower end of market
      • Prices on large houses will be slow to recover
      • Very little activity in upper market
      • No recovery in prices of larger houses. Deals available if have cash.
      • LT investment value of housing to be questioned
      • Apartment rentals strong. Less desire for everyone to buy a house.
    • 4. 2011 Forecast Result -Commercial Real Estate Copyright William W Bayer 2012 Forecast Result
      • Stable prices with some development coming
      • Prices stable with slight improvement
      • Expect moderate growth
      • Growth less than we expected getting better. Retail poor.
      • Consider limited investment in low-leverage cash flow opportunities
      • Excellent year to buy single family homes & rent them for a LT investment with positive cash flow.
      • Check out REITS; but be careful what you buy
      • Good REIT’s yielded 6-12%. Beware of niche and risky REIT’s
    • 5. 2011 Forecast Result -Banking Copyright William W Bayer 2012 Forecast Result
      • Industry will improve – expect less problem banks
      • Nearly all surviving banks are actively engaging in lending
      • Fed will continue to slowly address problem banks
      • Fed has slowly worked through the problem banks. Closures down versus 2010
      • Steep yield curve will re-capitalize the banking industry
      • For most banks, earnings are good and capital base has improved
      • Paperwork and higher rates will increase cost of loans
      • Paperwork brutal
      • Interest rates low due to European crisis
    • 6. 2011 Forecast Result - Employment Copyright William W Bayer 2012 Forecast Result
      • Employment will improve slowly
      • Gradual improvement in last half of 2011
      • May take rest of decade for employment to return to 2007 levels
      • Gradually the “experts” are starting to understand employment is LT issue in US
      • It will be hard to find qualified workers
      • Many can’t find workers despite many looking for jobs
      • Many looking for jobs that no longer exist
      • True. Best example is construction industry
      • Unemployment from 8.5% to 9.5%
      • Dec rate – 8.5%. Average for year about 9.0%
    • 7. 2011 Forecast Result - Energy Copyright William W Bayer 2012 Forecast Result
      • Energy prices to remain high
      • Oil prices started at $90, rose to $114, and ended at $103
      • Supplies are down due to government policy and higher demand
      • No new drilling- due to environmentalist and Presidential policy
      • Weak economy constrains demand
      • Invest in energy stocks on dips; esp. those with high dividends
      • Exxon rose from 75 to 87 with 2.20% dividend yield
      • Conoco Phillips – 68 to 73 with 3.62% dividend yield.
    • 8. 2011 Forecast Result - Economy Copyright William W Bayer 2012 Forecast Result
      • GDP growth of 3.00% to 4.00%
      • Annualized GDP = 2.5% for 3 rd Qtr. 4 th Qtr GDP est. > 3.0%
      • Core Inflation of 1.50% to 2.50%
      • Core was about 2.2%
      • Overall inflation = 3.40%
      • Higher long term interest rates
      • Ten year Treasury bond declined from 3.39% to 1.98%
      • Higher short term interest rates
      • Declined from 0.43% in Jan, 2011 to 0.20% in Dec, 2011
      • Dollar stronger due to high rates
      • Started 2011 at 80.5; Dropped to 72.55 in April. Rose to 81 in December.
    • 9. 2011 Forecast Result – Inflation & the Deficit Copyright William W Bayer 2012 Forecast Result
      • Pockets of inflation – grains, cotton, energy, copper, metals
      • Corn up, wheat & soybeans dn.
      • Copper up; Silver flat
      • Oil and Gold up
      • Deficit growth will be in the news and begin to influence policy
      • Emergence of Tea Party
      • Huge D.C. fight over deficit reduction
      • Key issue is 2012 campaign
      • Long term inflation will become an issue
      • Entitlement promises at risk in 2012 election. Inflation concerns are political issue
    • 10. 2011 Forecast Result – Stock & Bond Markets Copyright William W Bayer 2012 Forecast Result
      • Dow in trading range from 9,500 to 12,500
      • Ranged from 10,500 to 13,000. Ended at 12,300.
      • Buy quality stocks on dips and take profits when you can
      • Purchasing blue chip stocks with high dividends on dips was one of best strategies in 2011
      • Expect ST reactions due to potential crises in Europe
      • Numerous quick and scary drops. Those who bought dips made money
      • Avoid bonds. Expect interest rates to rise and bond prices to fall
      • European crises supported the dollar and US interest rates fell due to demand for “safe” US Treasuries
    • 11. What I missed in 2011
      • Impact of European crisis on US Bonds
          • Markets ignored long term US issues such as deficit levels, potential inflation, and the conflict between those who work and the entitlement class
          • LT and ST interest rates went lower due to US being seen a safe haven vs. Europe
          • Long term US issues were ignored by the market. Loss of confidence in US is a huge risk in 2012 and beyond
      Copyright William W Bayer 2012
    • 12. 2012 – Conflicting Forecasts
      • It won’t be the best of the times
      • But it could start the worst of times. Will we:
        • Muddle Through with the Un-Recovery
        • Or have a Major Economic Crisis with the potential failure of our economic system.
      • 25% probability of disaster
      Copyright William W Bayer 2012
    • 13. 2012 – Most likely
      • It won’t be the best of the times
      • Expect continuation of the Un-Recovery but somewhat stronger
      • Election & European crisis will cause periodic market drops and recession fears
      • But, by the end of year, expect stronger economic growth, higher employment and higher interest rates.
      Copyright William W Bayer 2012
    • 14. 2012 Forecast - Housing Market
      • Continuation of moderate recovery in prices
      • Popular forecasts of strong recovery in housing starts will prove to be wishful thinking.
      • Upper end of market will start to show more strength
      • But it will be increasingly accepted that housing market will not lead recovery
      Copyright William W Bayer 2012
    • 15. 2012 Forecast - Commercial Real Estate
      • Market performed better than expected in 2011
      • Prices will continue to be stable or show slight growth
      • Investment in low-leveraged cash flow positive opportunities will pay off over the next 5-10 years
        • Prefer single family homes with 25-35% down and positive cash flow.
      Copyright William W Bayer 2012
    • 16. 2012 Forecast - Employment
      • Employment will continue to grow slowly
      • We will not return to employment levels of 2007 for many years.
      • Continued challenge in finding qualified workers for open positions
      • Unemployment rate will decline to 7.5% to 8.0% by end of year.
      Copyright William W Bayer 2012
    • 17. 2012 Forecast - Energy
      • Energy prices will remain in range around $100 per barrel oil.
        • If economic growth strengthens, energy prices will stay over $100 per barrel.
        • If economy is weaker, oil prices will be in $80-$90 range.
      • Election will influence energy policy and long term energy supply.
      • High dividend oil stocks are still a good investment
      Copyright William W Bayer 2012
    • 18. 2012 Forecast - Economy
      • GDP growth of 3.0 to 4.0% (versus 2.5% in 2011)
      • Inflation at 2.00% – 3.00% Core inflation a bit lower
      • Long term interest rates will be higher than in 2011 (They can’t keep going down without serious crisis)
      • Short term interest rates will rise – slightly.
      Copyright William W Bayer 2012
    • 19. 2012 Forecast – US Dollar
      • Us Dollar looks good compared to Euro and other currencies that are seen as more risky.
      • The continued European crisis supports the dollar as the US looks stronger than it is.
      • The US election is key. If the US starts to address deficit, dollar will remain surprisingly strong. If not …
      Copyright William W Bayer 2012
    • 20. 2012 Forecast – The Markets
      • US remains the world’s choice for safety when crisis’s occur
      • US is still seen as safe – despite our high deficit and long term inflation issues
      • Stock market will be in trading range with upward bias. Range from 10,500 to 14,000 on the Dow
      • Interest rates will be stable early in year but will increase by year end.
      • Bond prices will decline
      Copyright William W Bayer 2012
    • 21. 2012 Forecast – China
      • China economy is powerful and will continue to outgrow the US, Europe, India and Japan
      • However, it will become increasingly clear that China has long term issues.
      • The “Walmartization” or China-fying of US retail will begin to end
      • China’s issues with its huge population of seniors, growing inflation, and increased consumerism will begin to challenge their culture and system .
      Copyright William W Bayer 2012
    • 22. 2012 Forecast – US Election
      • Mitt Romney will win the Republican nomination.
        • Republican race will be over by May 1st
      • Romney will defeat Obama with 53% or more of popular vote
      • Republicans will increase their seats in the House and the Senate
      • Stock market will rally into the election but decline in November and December
      Copyright William W Bayer 2012
    • 23. 2012 Forecast – Small Business Environment
      • By now, your business should be making money
        • If not, the economy is not the issue – your business is sick and needs action to fix it.
      • Government interference will increase but will be when the Republicans win the election
      • Plan on business climate similar to 2011
      Copyright William W Bayer 2012
    • 24. 2012 Forecast Alternative – Economic Crisis (25%)
      • If Europe fails to address debt crisis, confidence in world economic system will be lost
      • The result would be crisis worst than 2008-2009.
      • Result
        • Severe recession/Depression
        • Deflation
        • Extremely difficult business environment
      Copyright William W Bayer 2012
    • 25. 2012 Forecast Alternative– How to Spot the Crisis
      • Spreads for the debt of Italy, Spain, Greece, Ireland and other problem countries will expand. Rates to 10+%
      • Germany will refuse to defend the Euro and causing European Economic Union to fail
      • US Treasuries and T-Bills will be very strong – Negative ST interest rates
        • US Dollar and Japanese Yen very strong
      Copyright William W Bayer 2012
    • 26. 2012 Forecast Alternative– What to Do if Crisis Happens
      • Sell all stock market holdings
      • Buy treasury bonds
      • Identify key employees and cut staff where-ever possible
      • Preserve cash
        • Cash is king in a crisis
      • Reduce life style expenditures
      • Act quickly and act quickly again to reverse positions if crisis passes.
      Copyright William W Bayer 2012
    • 27. Closing Thoughts
      • I expect 2012 to be a good, but not great year. (I do not expect Crisis.)
      • If you made money in 2011, you should make more in 2012.
      • Actively manage your business. Be alert.
      • Implement a strong sales and marketing function so you can grow your business
      • Take advantage of the last chance to refinance
      • Cut marginal people.
      Copyright William W Bayer 2012

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