TEN THINGS TO LOOK OUT FOR IN 2013
by Chris Beringer
As 2013 gets underway, I realize I have a lot of comments I would like to make about a lot of different topics. In the vein of Byron Wien's longstanding "10 Surprises of the Year," here are my 10 predictions for 2013:
1) Moody's to downgrade U.S. debt. At some point, I believe the saber rattling in Washington becomes too much for Moody's and they join the S&P in downgrading U.S. paper. This will mean that both rating agencies feel that Johnson and Johnson has a higher likelihood of debt repayment than our Federal government.
2) The markets begin to realize the Federal Reserve has no exit plan for its stimulus program. The Fed has done an outstanding job of keeping rates low (short and long), using every tool of stimulus it has available. This has created a tailwind for a burgeoning housing recovery. At this point, I do not know how they stop purchasing longer dated paper as well as mortgage securities without the risk of long dated rates spiking, creating a headwind for the housing recovery.
3) Energy independence becomes a real possibility as fracking becomes a major issue. Natural gas resources appear to be abundant and the United States appears to be on the path to energy independence. However, the environmental consequences of fracking are not entirely known. Resolution to environmental regulations should be a major focus in the second half of 2013.
4) Bad people will continue to do bad things. Whether it is insider trading, cooking the books, or running a Ponzi scheme, there will be a scandal that hits financial markets in 2013.
5) The Republicans stop using the term 'revenue' for tax increases. They replace it with 'government receipts' or some other term. They try to frame higher taxes as a theft from the private sector, where capital is reasonably deployed, to fund the public sector that is saturated in its own fat.
6) Meredith Whitney's prediction does not come true. It is possible that certain struggling municipalities will struggle and possibly default, but massive defaults probably do not occur in 2013.
7) The Euro stays together. I believe that Mario Draghi will be a man of his word and do 'whatever it takes' to keep the European Union together. Of course, if Germany's Angela Merkel loses her election in the later part of the year, all bets are off.
8) The bond bubble is real, but not ready to deflate just yet. As I write this, the yield on a 10 Year Treasury is 1.86%. The Fed's inflation prediction for 2013 is 1.80%. If we believe that inflation will stay muted, an investor is locking money up for 10 years for .06%. This seems, and is, ludicrous. But, do not fight the Fed. See point 2.
9) As bargain shopping continues, companies will be forced to lower their price points. I believe that sustainability will be embraced by public companies, not because it is the moral thing to do, but because managing resources is the sensible thing to do.
10) The best performing asset class in 2013 is not predictable. The sure bet is to go with an appropriately diversified asset allocation model that takes into account your risk horizon and time horizon, while working with a qualified investment advisor who maps out your investment objectives.