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.
http://www.lighthousegrowthresources.com
http://acanetwork.org/club-list/

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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
  • 2012 Economic Outlook

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

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