Archive for December, 2013

Top 10 Predictions For 2014

Tuesday, December 17th, 2013

2014 is shaping up to be a very interesting year- both politically and economically. A few months ago, this did not seem to be the case. But the recent government shutdown, launch problems with Obamacare, the rise of Elizabeth Warren and other events have combined to set-up an intriguing year ahead. So here I go with my top predictions for 2014 (they are in no particular order of importance):

10 – The Republicans will keep the House of Representatives but fall short of capturing a majority in the Senate (although they will pick up net seats). The Republicans should be able to pick-up enough seats to take control of the Senate, but self inflicted primary wounds, led by Tea Party challenges, will hurt them once again.

9 – Riding off of the momentum of the budget agreement, there will be no threats of government shutdown next year, there will be a small increase in bipartisan cooperation, but given that it is an election year, there will be no far reaching immigration reform or gun control legislation passed. The only progress I see next year, and it would be in the Republicans best interest to pursue this course, would be some smaller pieces of immigration legislation. On the gun control side, momentum only seems to be on the side of an overall of the mental health system. The debt limit discussions will be contentious, but will be solved without the US defaulting.

8 – The problems with the Obamacare website rollout will seem minor next year as the reality of the totality of the massive law and its implementation move forward. The benefits of the program will be outweighed by younger people not signing up, choosing instead to pay the penalty, growing anger at not being able to keep doctors, and as the year progresses, the reality that costs will go up in 2015 as insurance companies lose lots of money.

7 – The Federal Reserve will begin to taper in the first quarter, although I don’t think the taper will be significant early on. The overall path of the Fed will remain the same under Chairperson Yellon. (It is a little dangerous making this prediction now since there is a chance that the Fed will begin the taper this week, but I fall in the camp that says they will wait – they may announce something, however.)

6 – The stock market will have an average year. I think the markets have, to a large extent, priced the taper in already, so I don’t think Fed actions will significantly impact the market. Coming off of a banner 2013 (which I did not predict), it is only natural that the market revert to more normal returns. There will be a natural bull market correction during the year, and by next December I see the S&P 500 up a modest 7% – 10% for the year.

5 – Europe will continue to grow modestly and I don’t foresee any large crises within the EU or the Euro bloc. The worst seems to be behind most of these countries from an economic standpoint. No countries will exit the Euro – there won’t even be much or any talk about that anymore.

4 – Hillary Clinton will finally signal that she will run for President in 2016. While it is too soon to make any predictions about how that will go, I think her record as Secretary of State will come under increased scrutiny, and while she will remain the front runner, my only preview of my thoughts on the actual election is that the campaign will be a lot tougher than people think. There is no certainty that she will actually get elected.

For Financial Services:

3 – Elizabeth Warren will continue to raise her public profile and try to “stick it” to banks and other industry participants. This will be part of the Democratic election strategy – along with helping the middle class – that will be utilized to overcome the Republican’s continued slamming of Obamacare. Actual progress on new legislation will be slow.

2 – It will be a good year for the wirehouses as they continue their comeback from 2008. There will be less negative news about them in the press. The RIA and independent markets will continue to grow – but there is room enough for both!

1 – ETFs and retail alternative investments will start to get some negative press. As first ETFs and then alternative investment mutual funds have grown, they have received generally favorable press. I have been leery of both, particularly retail alternatives, and I think the press will finally start to raise some questions.

Finally – sports. (I usually go over 10!). Florida State will win the collegiate national championship, ending the dream season of Auburn. The Seattle Seahawks will beat the Denver Broncos in the Super Bowl – yes, Payton and his pals will choke again.

I would love to hear your thoughts on my predictions. Have a great rest of 2013 and an even better 2014.

How Were My Top 10 Predictions For 2013?

Tuesday, December 3rd, 2013

It’s time for my annual review of my predictions for the year. In a few weeks, I’ll try again to predict what will happen next year. Overall I did okay for the year – the big miss being my negative outlook for the stock market. Who knew? More reason to be thankful that I don’t make my living looking into a crystal ball!

(See bolded comments after each prediction)

As 2012 comes to a close, it’s time to make predictions for next year. With no election, I at first thought it might be difficult to come up with predictions, but as I began to write down some ideas, I found that there is indeed a lot going on worthy of discussion. Unfortunately, I am anticipating a difficult 2013, in large part driven by political uncertainty here and abroad. Here goes:

10 – Regardless of how the current fiscal cliff negotiations end (I am thinking there will be a small deal to get us through either just before or just after Dec. 31), no grand bargain will take place next year – on either tax reform or entitlement reform. Obama’s continued campaigning to rally public support for his ideas has ensured that Republicans will do almost anything to block him next year. Not saying that this behavior is right – it’s just inevitable. I turned out to be right on this one – there was no grand deal, but we got through the fiscal cliff alive with less negative impact on the economy than predicted, and virtually no impact on the stock market.

9 – The one area where we will see major legislation is immigration reform. The Republicans desperately need an image boost here, and so this is the one exception where the two parties will work together to pass something. (Given the events in Newtown next week, there will be some movement on gun control, perhaps a ban on assault weapons, but more far-reaching gun control will be hard to attain.) Half right here – nothing on either front as we had a Congress that did almost nothing (but fight!). We have passed on major reforms once again. Immigration could hurt the Republicans next year – more on this in my 2014 upcoming predictions blog.

8 – The Euro crisis will deepen once again after a relatively quiet 2012. Italian elections could become a farce, and Greece, Spain and Portugal remain trouble spots. I don’t see any exits from the Euro in 2013, but I do expect more dissent from the populaces of the Northern European countries. Kinda right in that no countries exited from the Euro, but overall the crisis did not deepen. I will say, however, it did not get much better! Southern Europe remains a problem, and well Italian politics, what can you say? Greece’s credit ratings were recently raised, providing some hope for the future.

7 – By the end of 2013 Hillary Clinton will strongly signal (if not outright declare) her intention to run for President in 2016. Not sure what to say here – she kinda did and kinda didn’t – but her husbands recent criticism of Obamacare does signal a break from the current Administration – which does signal a run …..

6 – Merkel will win re-election in Germany, but her victory will be very small and her party will be weakened as German voters show their displeasure over the continued drain the Euro crisis is having on the country. She won – and rather convincingly on the public vote – but she had trouble putting a coalition government together, and just did so after months of negotiation; her new government will certainly be weaker than her current one. But she is regarded as the strongest European leader (by far).

5 – The stock market will be down for the year, perhaps by 10%. I think January is going to be a very tough month as realty sets in that the country’s finances are in real trouble. Even if the fiscal cliff is partially solved, it will hit home that tax rates are going to go up (in part because of some of the provisions of Obamacare going into effect) and people will realize that the recovery is not as strong as believed. Encouraging employment numbers will reverse, and the reality will set in that the numbers have been skewed by more people leaving the work force – which is not a positive sign. I was dead wrong here! Despite a still struggling economy, the markets have had a great year. I still am somewhat surprised by this – but luckily I only bucked the trend for part of the year – admitted my mistake and moved on!

4 – The US economy will not go into a major  recession, though it may come close and may even technically experience a minor recession. As stated above, I see growth slowing. I also see declines in consumer sentiment and business confidence, but I don’t think the slowdown will be enough to push us into a major downdraft. We did not go into recession, but overall growth has remained weak – we are stuck in a slow growth economy that still needs Fed intervention to keep it moving. That is and of itself is not a good sign.

Specifically for financial services:

3 – I do see a major deal being announced among the major wirehouses – Bank of America Merrill Lynch, UBS, Morgan Stanley and Wells Fargo. I’m not sure what it’s going to look like – perhaps a bank selling off its wealth management division – but something major is going to take place. This did not happen either. There were no major deals among the wirehouses, although there was quite a bit of movement in the RIA space. Overall, wirehouses have been experienced somewhat of a renaissance, as a lot of the negative press about them has abated. Banks are now the real bad guys!

2 – I see continued consolidation in the asset management arena, with a number of major deals being announced. Firms will continue to find it hard to go it alone, and will benefit from the operational synergies of combining forces. Perhaps it was the good stock market that encouraged many firms to stay independent – nothing like growth in AUM to increase optimism!

1 – RIAs will continue to make news by taking advisors from the wirehouses, but I think the wirehouses will hold their own and have a pretty decent year. The negative news about the brokerage arms of these institutions will continue to abate. This did happen – as mentioned above. 

Those are my top ten – but as I am doing them – I realize that I have to add two more:

11 – While I don’t see major changes to Dodd/Frank, I do think the banks are going to be beat-up on by Elizabeth Warren in her new role on the Senate Banking Committee. Bashing banks seems to be in vogue, and perhaps if my other predictions of other major legislation getting bogged down come true, the Democrats might use the banks as their way to show how tough they are. This definitely happened – and how scary it is to the financial services industry to think of her rise in the party – some even thinking she could challenge Hillary. More on this to come in 2014 and beyond.

12 – Alabama will win the BCS Championship and the 49ers the Super Bowl. You can’t have predictions without sports, now can you? One for two on this one – although the niners almost pulled it off.