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Bill bayer 2013 economic forecast


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This presentation is Bill Bayer's annual economic forecast. In it he walks through the results of his 2012 predictions, discusses the impact of the election on the economy, and paints a hesitantly positive picture of 2013 economy.

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Bill bayer 2013 economic forecast

  1. 1. 2013 Economic Outlook Lighthouse Growth Resources January 17, 2013 By Bill Bayer
  2. 2. 2013 -Calm Before the Storm• Topped with periodic surprises, crises and panic• Stronger growth than in last few years• Unemployment will fall under 7.00%• Housing prices will increase 5-10%• Higher inflation during 2nd half• Interest rates will begin to rise (finally) Copyright William W Bayer 2013
  3. 3. 2012 Forecast Result - OverallForecast Result• It won’t be the best of • It wasn’t. Election noise, times dysfunctional government, fiscal cliff nonsense• But it could start the • President and Congress kicked worst of times the can down the road• Will we muddle through • Slow GDP growth with the Un-Recovery • Stubborn unemployment (75%) • Cautious businesses• Or have a major • Did not happen. But publicity economic crisis with the since the election brought out of potential failure of the control US spending to the world economic system. forefront. (25%) • Will US deal with the issue? Copyright William W Bayer 2013
  4. 4. 2012 Forecast Result – End of2012 ExpectationForecast Result• Un-Recovery will • Correct. continue but a somewhat better than 2011• European crisis & • Correct Election will cause periodic market drops and recession fears• By end of year, expect • GDP grew about 2.3% in 2012. stronger economic • Unemployment fell to 7.8%. growth, higher • Government bond rates rose to employment and higher 2.4% in March but finished at interest rates. 1.8%, same as end of 2011. Copyright William W Bayer 2013
  5. 5. 2012 Forecast Result - HousingForecast Result• Continuation of • Price growth in most markets moderate recovery in but some key markets still not prices improving. Up 4.3% to 5.0%• Forecasts of strong • Existing sales up; New home recovery in housing sales flat. Both far below 2006 starts is wishful thinking peaks. E=(-31%),N=(-72%)• More strength to begin in • Ridgley Woods Indicator had upper part of market fantastic year.• It will increasingly be • Government and most prominent accepted that housing economists have not adjusted to market will not lead the reduced role of housing in our recovery economy. Housing index at 34% of peak Copyright William W Bayer 2013
  6. 6. 2012 Forecast Result-Commercial Real EstateForecast Result• Stronger market than • Slight improvement(up 1.1%) 2011. Expect prices to Vacancies down but still at high be stable or grow slightly level • Apartments very strong• Investment in low- • Opportunities dried up by leveraged cash flow second quarter. positive opportunities will • Long term payoff contingent on have good payoff over US avoiding financial meltdown. next 5-10 years Copyright William W Bayer 2013
  7. 7. 2012 Forecast Result –EmploymentForecast Result• Employment will • Unemployment rate declined continue to grow slowly slowly and ended year at 7.8%• We will not return to • Still true employment levels of 2007 for many years• Businesses will struggle • Still true to find qualified workers• Unemployment rate will • December unemployment rate decline to 7.5% to 8.05 was 7.8% by end of year Copyright William W Bayer 2013
  8. 8. 2012 Forecast Result - EnergyForecast Result• Energy prices will stay in • Range for year was $80-113 range around $100/brl.• If eco growth is strong, • After economy slowed in oil will stay over $100/brl summer, oil stayed < $100• If weaker economy, oil in • True: Range since July was $80 $80-90 range to $100 per barrel• Election will influence • True. Example – Canadian oil energy policy and LT going to China while East Cost energy supply imports oil due to lack of pipeline• High dividend oil stocks • Exxon - $78-93, div = 2.55% still good investment • Con/Phillips – $50-60, 4.47% Copyright William W Bayer 2013
  9. 9. 2012 Forecast Result - EconomyForecast Result• GDP growth of 3.00% to • 2.6 percent through 3rd quarter. 4.00% Probably about 2.4% for year• Core Inflation of 2.00 to • About 1.70% 3.00%• Higher long term interest • Up early in year but finished flat rates to 2011 year-end• Slightly higher short • Still near zero due to more Fed term interest rates Reserve easing programs• Dollar stronger due to • Dollar about the same. high rates & Europe • Euro weak early in year, issues finished strong; ended flat to YE 2011 Copyright William W Bayer 2013
  10. 10. 2012 Forecast Result – US DollarForecast Result• US Dollar will compare • Finished 2012 near 2011 EOY well vs. Euro and other level. Was strongest in summer. more risky currencies• Dollar should remain • True strong as hedge to European debt issues• US Election is key. If US • Too soon to tell. Dollar has not starts to address debt moved since September issues, dollar will remain surprisingly strong. If not . . Copyright William W Bayer 2013
  11. 11. 2012 Forecast Result – The MarketsForecast Result• US will remain the world’s • Still true. Each crisis causes rise in choice for safety since US Treasury Bond prices is still perceived as safe. • US still “safer” than the world• Stock market – trading • Range 12,221 to 13,661. Ended range with upward bias. year at 12,398, up from 12,218 at beginning of year. Range from 10,500 to 14,000.• Interest rates stable • Up a bit early in year. Dropped early, increase late in year slightly after election. Flat year over year• Bond Prices will decline • Flat to up. Not much change year to year Copyright William W Bayer 2013
  12. 12. 2012 Forecast Result – ChinaForecast Result• China will continue to • Grew 7.4%; India grew 5.3%. outgrow US, Europe, • Japan grew 0.5%; US 2.4% India and Japan • Euro area down (-0.60%)• But China’s long term • True. Some social unrest. issues will start to • Demographic issues. become known • Political change coming• Walmartization or China- • Highly automated manufacturing in fying the US will begin to the US is growing. end • Some move from Walmart to Target, etc.• China’s modern long • True term issues will begin to • Ironically, they have their own challenge their culture version of class warfare – culture and system conflicts Copyright William W Bayer 2013
  13. 13. 2012 Forecast Result – ElectionForecast Result• Mitt Romney will win the • Correct Republican nomination • Race will be over by • Correct May 1.• Romney will defeat Obama • Wrong. Obama won 50.6 to 47.8 with 53% of popular vote• Republicans will increase • Wrong and Wrong. Democrats seats in House and Senate increases seats in both houses• Stock market will rally into • Rallied 12% from 1/1/12 until the the election but decline in election November and December • Ended year down 1% from election day. Hit low 4% down from election day in mid November. Copyright William W Bayer 2013
  14. 14. 2012 Forecast Result – SmallBusiness EnvironmentForecast Result• You should be making • If not – fix your business. It is not money in the Un-Recovery the economy’s fault environment• Government interference • True – more nuisance paperwork will increase than I have ever seen in 35 years of business• Business climate in 2012 • True – and 2013 only marginally will be similar to 2011 better although some industries (defense related) are likely to get worse. Copyright William W Bayer 2013
  15. 15. What I missed in 2012• US Bonds remained strong all year due to the continued Impact of European crisis and US recession fears. Markets ignored long term US issues. • US Bonds continue to be the the “Risk Off” alternative despite returns of near 0.00% • LT and ST interest rates stayed relatively low due to US being seen a safe haven vs. Europe • Recession fears in the fall also kept bonds strong • Loss of confidence in US Bonds will be a growing in 2013 and beyond Copyright William W Bayer 2013
  16. 16. What I missed in 2012• Obama won 2012 election despite good Romney campaign• Obama used non-traditional, populist, hip(rock star) tactics. Avoided being seen as traditional Presidential candidate• Obama successfully created huge voter turnout from previously unlikely voters – Youth and Minorities• Republican party must radically change to survive. Its constituency is made up of groups with declining population. Must revise message to women and Hispanics to have a chance of survival Copyright William W Bayer 2013
  17. 17. The 2012 Surprise MostRelevant to 2013• Stock market action, particularly in the second half, suggests that the underlying market is stronger than price action indicates.• Smart money is buying dips during each crisis.• This suggests smart money believes crisis are either going to get solved or real crisis is a long way off.• Reaction to European “solution” suggests that markets believe debt issues will be solved gradually over time without “Shock” to system.• Remember – A crisis that is forecast often will not be a crisis. Crises result from the unexpected! Copyright William W Bayer 2013
  18. 18. 2013 Forecast - Summary• Calm Before the Storm• Periodic surprises, crises and panic• Stronger growth than in the last few years• Unemployment will fall to 6.50% - 7.00%• Housing prices will increase 5-10%• Higher inflation during 2 half nd• Interest rates will begin to rise (finally)• Good feelings going into 2014 Copyright William W Bayer 2013
  19. 19. Possible Crisis/Panic Triggers• Debt Ceiling negotiations• Sequester & Continuing Resolution• European Debt issues – Greece, Spain, Italy• European elections – Germany in particular• Federal Reserve Insolvency Fear• Long Term US Debt concerns• Rising interest rates• The unknown! Copyright William W Bayer 2013
  20. 20. Don’t Overreact• These Crises will cause short term drops in all markets except Treasury Bonds (and oil if Mideast crisis.)• They represent an opportunity to add positions in stocks, gold, commodity related, and oil.• Key is risk control – Set an amount to risk and if short term crisis becomes a major panic, GET OUT FAST Copyright William W Bayer 2013
  21. 21. Key Learning from 2012• European and US leaders were able to address long term issues enough to calm the markets and restore short term confidence.• Each crisis was solved near the last minute• Markets quickly recovered sharply up• Markets were willing to reward governments for partial solutions that postponed the crisis• Markets are not looking for real solutions that cause short term W Bayer 2013 Copyright William pain.
  22. 22. The Crisis Sequence• An artificial deadline gains visibility - Example – the debt ceiling• Airwaves fill up with predictions of potential for new recession, or government default• Rhetoric increases; negotiations break down• Near, or just past the deadline, a weak ST solution is agreed to• Markets recover and look forward to next crisis. Happy to not deal with the pain required to solve the real issues Copyright William W Bayer 2013
  23. 23. 2013 Forecast - General• Economy will be stronger than in the last few years. Resilience in last half of 2012 was impressive.• Short term crises will cause sharp market reactions but market will quickly recover• Short term solutions will give impression that long term issues are being addressed• GDP growth, housing, employment, world economy – all are trending up Copyright William W Bayer 2013
  24. 24. 2013 Forecast - General• Euro-debt progress, fiscal cliff tax compromise, and election results have created ST certainty• Impact of Obama Care will become better known as the year goes on and will hover as a thunder-cloud over small businesses.• Class warfare will increase as the conflict between the Entitled and Tax Payers increases. Expect riots and violence. Copyright William W Bayer 2013
  25. 25. 2013 Forecast - Specifics• Housing – Best market since 2006; Prices up 5-10% overall. Some markets will lag• New housing starts will increase, but still nowhere near 2006 peak• GDP growth about 3.0% for the full year versus 2.20% in 2012. Second half of 2013 will grow at about 3.50–4.00%• Unemployment will drop under 7.0% by midyear and to about 6.5% by mid-year Copyright William W Bayer 2013
  26. 26. 2013 Forecast - Specifics• Inflation will remain low, under 2.0%; But inflation pressures will increase in last half of 2013 leading to interest rate increases• Interest rates will remain low until fall. Crises will cause short term runs to safety of US Bonds when stock markets and other “risk on” assets fall sharply• Markets will be remarkably resilient and drops will be buy opportunities Copyright William W Bayer 2013
  27. 27. 2013 Forecast - Specifics• Stock market will hit new highs on the Dow in the first half of the year.• Market will peak mid to later part of the year as long term issues become greater threat and Obama Care and other government intervention expands its impact.• Reckoning day for US and European Debt will continue to be postponed Copyright William W Bayer 2013
  28. 28. 2013 Forecast - Specifics• Hard assets will have a good year as economic growth increases.• Gold prices will fall into the first quarter and rally in second half of the year to $1800 to $2000 and possibly higher• Oil prices will be in $80 to $100 range until spring and then move above $100 per barrel. If Mideast blows, prices could exceed $130, $150, and up to $200/brl. Copyright William W Bayer 2013
  29. 29. 2013 Forecast - World• China will remain strongest economy – GDP growth of 7-8%.• European economy will improve. Greece, Spain, Italy will slow their contractions.• South America and Canada will grow• Mid-East represents serious risk due to Syria and the probable acquisition of nuclear capability by Iran• US Dollar – Solid (+/- 10%) until mid-2014 Copyright William W Bayer 2013
  30. 30. Forecast – Long Term• 2013 will be the calm before the storm. By mid- 2014, the patchwork solutions to excessive government spending and the continued moderate economic growth will cause US Debt to require an interest rate premium.• Annual interest expense, currently $225 billion annually, will increase and the reality of the debt crisis will be undeniable. Copyright William W Bayer 2013
  31. 31. Forecast – Long Term• Interest expense will move from the fourth highest budget item to third highest after Defense and Medicare.• Overall interest rates will increase due to government sucking up capital, concern about debt repayment, and inflation concerns.• By 2014-2015, inflation and higher interest rates are inevitable. Copyright William W Bayer 2013
  32. 32. Recommendations• Refinance one last time.• Pay down debt.• Downsize if it is in your plans.• Build up cash and liquidity.• Buy stocks on dips and take short term profits when you can. • Don’t worry about long term gains because it is likely the stock market will have a sharp drop in 2014 that will wipe out most gains. Copyright William W Bayer 2013
  33. 33. 2013 -What to Do if CrisisHappens• Sell all stock market holdings• Buy treasury bonds• Identify key employees and cut staff wherever 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 2013
  34. 34. Closing Thoughts• 2013 will be a good, but not great year.• If you made money in 2012, you should make more in 2013.• Actively manage your business. Be alert.• Implement a strong sales and marketing function so you can grow your business – take market share!• Take advantage of the last chance to refinance• Cut marginal people. Copyright William W Bayer 2013
  35. 35. Next Briefing-Obama Care Action Items and Decisions Facing Employers with the Patient Affordable Care Act Chris Hodges Oasis Outsourcing February 21, 2013