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Saturday, December 29, 2012

2013

 

13

 

The following are my thoughts about things that might happen in 2013. This (Link) takes you to a discussion of my forecasts for 2012. I got a number of things right, and some important things wrong.

 

2013

 

- The bulk of the fiscal cliff issues will be pushed into 2013. This sets up a showdown in March when the debt limit can no longer be extended.

Americans will be exhausted by this process. The poll ratings for the Senate, House and Obama will fall to record lows. The commentary from every segment of society will be against the ineffective government the country has. The ratings agencies will chime in with more warnings that the US credit ratings are at risk. Foreign leaders will speak openly that the USA is losing its position of leadership. The foreign and domestic press will have a field day.

The threat of a government shutdown, and a chance for a “Hoover Legacy”, will force the President to fold in March. The resulting “Deal” will bring modest increases in taxes ($800b over ten-years) and introduces real cuts in both Medicare and Social Security (age eligibility, means testing benefits and changes in inflation adjustments). The debt limit will be extended until January of 2015 (after mid-term elections).

Liberals will hate this result, so will conservatives. The reality will be that the steps taken will have very little consequence to the economy, budget or debt profile in the first few years. A set of future promises will have been made to right the ship, but the “Grand Deal” will be well short of what is needed. What will come will be just another kick of the can down the road.

 

- Frustrated by the lack of results on the economy, Japan’s Abe will push for the ultimate financial measure; he will call for the Central Bank of Japan to “extinguish” 20% of Japan’s public sector debt. This will be the first official step toward the “Platinum Coin” solution to debt. This will be very controversial on a global scale. Liberal economists will love the idea, while conservative thinkers on money will hate it. This defining moment in modern finance will not happen in 2013, but the year will end will the prospect that it will.

 

- Tim Geithner will leave Treasury and join Wilbur Ross. Tim will become a distressed investor in his new private sector life.

 

- The Yen will trade cheap against all crosses and hit a high of USDYEN 98. It will end the year back below 90.

 

- There will be a total of four super-storms that make landfall in 2013. One will hit the USA, the other three will hit Asia.

 

-The European economy will struggle for yet another year. The weak Yen and the overvalued Euro will act as a drag on growth.

 

- The US will not experience a technical recession in 2013. The 2nd Q will have flat growth. YoY GDP will be +2%.

 

- The Euro will remain above 1.30 for the first portion of the year, and then weaken, ending the year at 1.20. The high for the year will be 1.37.

 

- Unemployment in Spain will push 30%. Youth unemployment will rise to over 50%. By the end of 2013 serious questions will be raised as to why Spain is tearing itself apart, and would the country be better off out of the Euro. The conclusion, by many Spaniards, will be that it would be better off leaving versus staying. This would represent a big change in thinking, and set up 2014 as the year of the Euro breakup.

 

-Several states will ban the sale of high energy drinks after more evidence the drinks can cause health problems.

 

- The Chevy Volt and the Tesla will not sell well.

 

- The Swiss National Bank will maintain the 1.2000 peg for another year, but 2013 will be the last year of the dirty float for Switzerland.

 

- There will be more lawsuits and premature deaths of professional football players. The NFL will introduce a series of steps to reduce the incidence of concussions. The new rules will change both the equipment players wear, and establish new, severe penalties for late hits (3 point penalty). Fans will not like the results; critics will say that the new measures do not go far enough.

 

- Around mid-year, the Fed will reduce its monthly POMO buys to $60B per month. Later in the year the purchases will be further reduced to $50B a month. The Fed’s balance sheet will increase by $700B (25%) during the year.

 

- The 10-year bond will trade above 2% by June, and stay above this level for the balance of the year. The 30 year will reach 3.75% at one point in the fall.

 

- Gold will trade in a range, below 1800 and above 1400. Boring.

 

- The US housing market will continue to improve, but at a pace that will be slower than that witnessed in 2012.

 

- Obama will force out Ed DeMarco as the head of the FHFA. The President’s new appointee will attempt to put together a new debt forgiveness ReFi program for America’s underwater home owners. The effort will produce negligible results.

 

- Barge traffic on the Northern Mississippi will be restricted due to low water in February. The drop in traffic will result in higher prices, and spot shortages of raw materials/energy in the upper mid-west. Later in the year agricultural commodity prices will be impacted by higher cost of transportation. The “trains” will be the beneficiary of this.

 

- Inflation will rise modestly in the US. Full year Core CPI will be greater than 2%. When food and energy are included, inflation will push north of 2.5%. At one point during the year Bernanke will refer to the higher rates of inflation, and suggest that this is a sign of “success”. He will be widely criticized for this, as there well be evidence that higher inflation is having a negative affect on the bottom 20% in the country.

 

- Tiger Woods will win a major.Rory McIlroy will not have a good season due to new equipment. Jason Dufner will win the FedEx Cup.

 

- Denver will beat Green Bay in the Super Bowl. In the NBA, the Miami will lose to Oklahoma.

 

- The Mars explorer will find carbon.

 

- The US unemployment rate will fall from 7.9% to 7.1% during the year. The widespread conclusion will be that the Fed’s effort to reduce unemployment was only marginally successful, and that structural problems in the economy are the real reason for high unemployment. Taken together, these results will undermine the Fed.

 

- Jack Lew will replace Geithner as Treasury Secretary. This choice will be driven by Lew’s knowledge and experience with budget matters. But Lew knows nothing of the capital markets and this will be a problem when a non-budget crisis emerges. Lew will say something about the currency markets that causes a big flap. There will be calls for his resignation as a result.

 

- There will be no meaningful gun legislation in the US during 2013. But the threat of new restrictions will keep gun store shelves empty. Gun violence in America will, of course, continue.

 

- The S&P will hit a low of 1,250 and a high of 1,500. It will be an “okay” year for stocks, but nothing special.

 

- China’s GDP will grow by 7%, a rate that is near stall speed. China will continue to create growth through infrastructure spending; more empty cities and trains to nowhere.

 

- China’s new government will crackdown on corruption. The immediate consequences will be a drop in luxury goods consumption and continued capital outflow. There will be arrests and trials of government officials caught with their hands in the jar.

 

- There will be large losses for Chinese citizens who have invested in “Wealth Management” investments that promised returns of 10% a year. The widespread losses will result in social protests.

 

- Merkel will be re-elected as the German Chancellor. But the election results will raise the question of Germany’s political willingness to stay in the EU. The election will be a turning point for the Euro FX rate. The EURUSD will weaken after the election.

 

- Greece will not leave the Euro in 2013. The economy will continue to suffer. In the fall of 2013 the pressure for Grexit will rebuild. The final exit will not come until 1st Q 2014.

 

- Spain will resist a bailout from the ECB for as long as possible. By the end of the summer the pressure in the Spanish bond market will rebuild. The actual bailout will occur at about the same time as the German election. This will hurt Merkel.

 

- When Spain is forced to accept an ECB bailout, the conditionality that is attached to the request will be cosmetic and of no significance to Spain in 2013/14. The “conditionality” will be on future years, not the present. The ECB’s Mario Draghi, will deliver “Unlimited bond buying”, as promised. The IMF will be a reluctant participant. The markets will end up wondering, “Who’s next?” The surprise answer is that it will be France, not Italy, that will next come under the market’s gaze. (Mario Monti will stay in the political picture in Italy)

 

- French and German politics will worsen further. Socialist France, and Capitalist Germany will move father away from each other. The squabbles between the counties will go public.

 

-Switzerland will fail to get tax treaties with France and Germany on the issue of illegal accounts. Switzerland’s refusal to give up the “names” will result in economic penalties imposed by the EU.

 

- Brazil’s inflation rate will push 10%. The country will blame the USA and the Fed’s cheap money policies.

 

- Argentina will default on some of its external debt.

 

- On average, 2013 will be a colder year than 2012 for the globe. Arctic ice melt will be less than that experienced in either 2007 or 2012. La Nina conditions will reoccur in September.

 

- The Mid-West drought will abate somewhat, but annual rainfall will still be below normal. US crop yields will be higher than in 2012. Weather related problems in China, Russia and Argentina will limit crop production. As a result, the global cost of basic food stocks will rise another 10% for the year.

 

- In a complete blow off to his political base, Obama will green-light the Keystone Pipeline and approve “safe” fracking on Federal land.

 

- Faced with new production sources and a generally weak global economy, crude oil prices will drift lower in the early part of the year. But Saudi Arabia will cut production to adjust supply. The low for WTI will be 78. The high will be next fall, at $95. The WTI/Brent spread will widen from $20, to $25.

 

- The cargo shipping industry will continue to struggle with excess capacity and slow growth in global trade. Several public companies will be forced into a restructuring by lenders.

 

- North Korea will fire more rockets over Japan. Iran will have military exercises around the Straits of Hormuz. The US will spend tens of billions on naval costs in the Straits. Israel will talk tough about Iran. But there will be no major hostilities in 2013.

 

- Although there will be no new wars, there will be several periods during the year where the prospect of something happening will look very real. When this happens, there will be spikes in crude. One spike will occur in early summer; Obama will open up the Strategic Petroleum Reserve to stabilize prices.

 

- There will not be another major “Flash Crash” in 2013. However, during the year there will be thousands of examples of individual stock names that suffer from Algo Attacks that last for only a few seconds. The Wall Street Journal will publish numerous articles that describes the Attacks. The SEC will promise a review of market practices on the topic of HFT, nothing will come from that. There will be numerous “fat finger” trades. One of which will cost the firm behind the finger more than $1B.

 

- The Exacta for the Kentucky Derby: Balance the Books & Power Broker.

 

- In the baseball playoffs, the California Angels will beat Tampa Bay, the LA Dodgers will beat Cincinnati. This will set up the first ever “All LA” World Series. The Angles go on to win, but no one outside of SoCal cares, the TV audience is the lowest in years.

 

- The 2012/2013 Hockey season will be completely lost. Pregnancy rates will increase as a result.

 

- Apple will spend a fair bit of next year below $500, but will end the year close to $600.

 

- There will be no financial crisis in 2013 that undermines bank stocks. However, the question will be, “Where’s the upside”. The big move in bank stocks will not be repeated in 2013.

 

- FB will not trade above $31. This busted IPO will continue to be a drag on other tech IPOs.

 

- Daniel Day-Lewis will win Best Actor for Lincoln. A nine year old, Quvenzhane Wallis will get Best Actress. Lincoln will get the award for Best Picture.

 

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Comments

  1. I watched about the first twenty minutes to half hour of lincoln and that’s all i could take.

    The movie is nothing but a wet dream from liberals about how they wish history would have been.

    Pure propoganda.

  2. Bruce,
    What is your definition of a superstorm? Historically that was a Cat 4 or Cat 5. Keep in mind that we haven’t been hit by even a Cat 3 for over 5 years.

    On the drought, you have to watch that one. We are already slipping into La Nina, which means wet Texas and dry mid west. We could have another drought.

    Also, don’t put “safe” in quotes for fracking. Fracking is 60 years old. If there were problems with it, we would have found out maybe 40 years ago. Fracking is not new. The journalists glommed on to cool sounding industry jargon and got confused. The “new” technology was combining (old tech) fracking, multi-zone fracking, and directional drilling. THAT was the new tech. As far as problems on the surface, that is ALWAYS the result of a poor cement job.

    • Like I say, “Safe” is what it will be called.

      Just a poor cement job you say? It’s more complicated than that.

      • Really? Like I said, this is old tech. Problems at the surface come about because of poor cement/ surface casing. There has been a lot of rush on drilling (dying off in natural gas), and people were sloppy. Actually considering all the wells drilled, the record is pretty darn good.

        Bad cement is what took out Macondo. Fracking occurrs about 8 – 15 empire state buildings stacked on top of each other below the surface. Puts things into perspective. The bad name for fracking came about because journalists who don’t know anything about oil started reporting on the “new” tech of “fracking”. Probably because the name “fracking” has a sexy sound to it. Well, it was bogus reporting. The breakthrough came about when companies learned to frack 4,000 ft. lateral runs in multi zones (e.g. ball/sleeve). That was the breakthrough, but it was easier for reporters to say “fracking”.

  3. Also, something your readers might want to follow are the new crude pipelines going in, which might tighten WTI/Brent. You have West Texas Gulf, Longhorn, and Permian Express pipelines. A great free energy blog I follow is rbnenergy(dot)com

    So the bottleneck at Cushing is slowly being relieved. The spread will continue thru 2013, but a lot of pipeline capacity is coming online, which will tighten the spread.

  4. I find it a little difficult to believe Wilbur Ross, or anyone, will hire Tim Geithner post Treasury. Bob Rubin’s $15 million “consulting” gig at Citigroup as “Thank You” for pushing through the end of Glass-Steagal poisoned the well.

    Where ever Geithner goes, there will be screaming (justified) that it is unethical Wall Street CEOs paying him back for rather crooked bank bailouts. Geithner’s reputation is mud, right up there with Jon Corzine and Dick Fuld… or OJ Simpson.

    According to the courts, they are all “innocent” (in quotes). According to anyone with common sense, not innocent. Even if one ignores the glaring ethics problem, there is also the matter that Geithner did not fix a thing. Lots of new debt. Lots of accounting rules changes (aka “fibs” or “lies”). Underwater mortgages are still underwater, and so are the banks that hold those NPAs on their balance sheet.

    The last thing a financial firm needs right now is added (and unnecessary) controversy. There were/are thousands of investment bankers being laid off in 2012 (and 2013). Those bankers have production numbers that beat Geithner, less controversy, and they actually restructure things.

    The one and only thing Geithner offers is political connections — and one has to ask how generous Obama can afford to be given Washington’s own spending / debt problems.

    Why would Wilbur Ross (or anyone) want that headache? Why sully one’s reputation to bail out a guy that looted the Treasury and ultimately fixed nothing?

    Former Treasury Sec Henry Paulson is now working for himself, for pretty much the same reasons. No one with any integrity is going to hire Geithner either.

    The Paulson, Geithner, Fuld and Corzine Fund… investing in MBS debt after FHA shifts 100% of the risk to taxpayers. Financing provided by Goldman Sachs and the estate of Al Capone

    • Why would Wilbur Ross want Geithner? I’m not sure. But Ross is hiring and he has bucks. He hired James Lockhart, the former head of the FHA and the guy who was supposed to be watching after Fannie and Freddie.

      If Ross can hire Lockhart, then he can hire Geithner. Anyway, I like the idea that Tim becomes a distressed debt investor. It would be a fitting end. No?

      • Wilbur Ross “has the bucks” because he is a smart guy — smart enough to know good value. There are loads of investment bankers who print more business and have great industry/government connections. They would bring in more business without burying Ross & Co with unnecessary compliance problems. Ross would also need to be concerned with loss of his own reputation — people are known by the company they keep, and anyone hiring Geithner is going to have to explain why to customers and investors; Wilbur Ross already has a full time job doing something he enjoys, what makes you think he wants every dog and pony presentation to be sidetracked with “why would you pardon Nixon?”

        There has been lots of circumstantial evidence, but decades later there is still nothing concrete linking Nixon to Watergate. Not a thing. But how many people believe Nixon was actually innocent?

        Yes,weI heard Congress exonerated themselves from any “Friends of Angelo” below market rate mortgages / ethics violations. We also know that both Barney Frank and Chris Dodd (the former Congress members who received cut rate mortgages and wrote financial “reform” law named after themselves) were forced into “retirement” by fed up voters. Congressional incumbents do not voluntarily “retire” — lame early campaign fund raising and lack of support made them suddenly decide to retire. Having co-authored “financial Not-really reform” and spending decades on the House Banking committee, Chris Dodd got a new job as CEO of the Motion Picture Association of America. Extra points if you can figure out what movies have to do with banking. Dodd’s first “accomplishment” at MPAA was failing to get Congress to pass PIPA/HOPA anti-piracy legislation. Extra points if you can figure out how working full time for the movie industry has to do with retirement… The guy got fired. Barney Frank is now “voluntarily” cleaning out his desk, and hoping to get YouTube to take down all the videos of Frank saying (on the floor of Congress) that FNMA was solvent and wouldn’t get a taxpayer bailout anyway. Maybe Frank can get a job as CEO of Dairy Queen? I’m sure ice cream has as much to do with banking as movies; Warren Buffet has the bucks too.

        We have all heard that Geithner’s tax evasion was just an honest mistake. And AIG wasn’t bailed out at 100 cents on the dollar to benefit Goldman Sachs (even though AIG was not a bank). And Geithner recused himself without actually telling anyone at the Fed or Treasury (or AIG or Goldman). And Geithner’s unilateral decision to stick taxpayers with all of FNMA/FHLMC’s losses did not overstep Congress’s authority to appropriate US government funds — who cares if the US Constitution says otherwise? Like Nixon and OJ Simpson, Tim Geithner is “not guilty” in the eyes of the law. But how many people believe Nixon was actually innocent?

        Why would Ross or any competent banker want to take on that headache? Does Ross want to do distressed investing deals, or spend his whole day on compliance oversight?

        Geithner should offer a reward for information leading to the economy’s “real killer”. Maybe OJ Simpson can help structure the deal

      • Obama bin Biden says:

        Fortress Investment Group is a hedge fund that buys up tax liens held by municipalties with abundant property tax delinquencies. Fortress picked the former head of Fannie Mae Daniel Mudd to be their CEO. There is a certain symmetry to all the madness. Since arrogance on Wall Street is without boundary, Geithner will land a cushy gig somewhere.

  5. great predictions bruce…….sort of.

    Only one problem: All the predictions in the world don’t help average citizens. So, keep writing and warning but notice it falls on deaf ears. I’ve said this many times, but, you are wasting your time. The sooner you join me on a “strike of the mind” like John Galt, the sooner this thing collapses. You and the Fed, and Zerohedge, and bankers, and wallstreet are all still trying to “fix” this………it’s over.

    Join me in Colorado where the snowshoeing, rockclimbing, and complete aversion to anything related to finance/politics/economics is so REFRESHING. Being on a strike of the mind and still having wealth while you live everyday free and not debt-enslaved is so 2013 and the “next move”. Why are you wasting your time with these people caught in the left vs right paradigm? Why are you wasting your time with these people who pay social security taxes and fund their 401K when you and I know damn well what is happening? Why are you still “hangin” around the same people? You should know better.

    Are you a glutten for punishment or just enjoy futility?

    Anyways, when you are ready, galt’s ranch is waiting for you. Just don’t tell anyone about it. We don’t want the dregs of society to follow you.

    • Galt Ranch is a state of mind, not a place. Have you noticed that GDP growth (and commerce) is basically at a stand still? Subtract out 10% of GDP that is really deficit spending, and its a flat out loss.

      We didn’t build the USA — some government fuck ups did. So says the glorious leader. Fair enough — let the glorious leader do some work and actually build the stuff he takes credit for. Let the cost of living climb through the roof, while decent paying jobs go overseas. Mindless burger flipping jobs are more suitable for government run public school graduates anyway. Protect the NEA union at all costs. Protect government employee unions at all costs.

      And watch the mindless voters go on TV and argue passionately for their own demise. That’s America

      • Rob: DUHHHHH!! No doubt fool; only I am talking to Bruce who gets what I am saying and can do something about it. If you are a debt-enslaved robot, you wouldn’t understand. If you are retired at 38 like me, then your comment contradicts your life. Either you are replying to me in ignorance or your comment makes no sense……either way: thanks for adding nothing to the conversation.
        This ROB character is exactly why I am on a strike of the mind and suggest Bruce, you do the same.

        I guess ROB didn’t even read the first sentence of my comment: people are losing! He thinks I don’t understand the GDP numbers……well, guess what ROB:

        I have forgotten more than you will ever know!! Think about that before you comment.

        Know your place, shut your face, back to work, robot-debt-enslaved.

  6. Nice predictions Bruce.. I also stopped predicting spashy things that never happen. I agree another year of unnoticed macro decline hidden by official reports. We’ll see how long Spain and Japan last– these are messes too big to paper over.

  7. A few comments on the following prediction:

    Switzerland will fail to get tax treaties with France and Germany on the issue of illegal accounts. Switzerland’s refusal to give up the “names” will result in economic penalties imposed by the EU.

    There will be another fight in tax world. The US Justice Department and IRS will attempt to get the “names” of US Citizens(often Canadian Citizens too) living in Canada who don’t file with the IRS and thus have by the IRS definition undisclosed account foreign Canadian accounts through the FATCA program. There will be great resistance to this in Canada by both the people effected(close to 1 million account holders) and the old school anti american Canadian left. US Canada relations drops to a low point akin to Jean Chretien 2003 Iraq War as the US Justice Department and law enforcement establishment is greatly angered by Canada’s recalcitrance in this matter. Talk of economic sanctions between the two countries will rise. It will also muddy the water vis a vis Switzerland, Germany, and France. Canada and Switzerland BFF.

    These videos below discuss exactly what I am talking about.

    https://www.youtube.com/user/fatcaforum

    https://www.youtube.com/watch?v=Bn_hbJHIEuY

  8. “On average, 2013 will be a colder year than 2012 for the globe. Arctic ice melt will be less than that experienced in either 2007 or 2012. ”

    Here is a good reason from NOAA why that may not come to pass:

    “The current prediction for Sunspot Cycle 24 gives a smoothed sunspot number maximum of about 72 in the Fall of 2013.”

    Your prediction for La Nina may offset some of the increased warming if we get more sunspots, but I would bet on a hotter 2013.

  9. No way the NFL would award points for a late hit. Instead they will institute mandatory suspensions and team fines. Make the $fines big enough: end of problem.

  10. Hi Bruce; you have a “wrong” in your “right” list; the Chevy Volt did not have numerous battery problems; there was a single problem caused by an antediluvian test procedure; i.e. an electric car tested like a gasoline car, and then not post-tested like a gasoline car. When a gas car is crash tested, the fuel is drained out promptly after the test. To crash an electric car and not discharge the battery for a week after would be like…leaving gas in a crashed gas car.

    Keep up the good work!

  11. Lots of wisdom Bruce.

  12. Nice comments. I like a guy who makes takes a clear position and is unafraid to hang it all out in unambiguous words.

    One question – how will Spain both receive a bailout and leave the euro? One reason Brussels is so enthusiastic about bailing countries out is it binds them more tightly into the European Union, and damn the financial costs. It gives Brussels more control and weakens home-government sovereignty. Just ask the Greeks and Italians.

    Would the bonds be redenominated in Peseta or stay in euro? What about other contracts (e.g. Private sector contracts) in euro – how would a Peseta-earning Spanish company pay in euro if EUR/ESP goes through the roof? (along with EUR/GRD?)

    A knock-on question is what would be the impact of a grexit – how big, which direction, for whom, how long?

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