Another year approaches. Speculation about the state of the U.S. and even the Global Economy in 2013 brings far more questions than answers. Another election has now been decided and so the policies of the past four years will continue. Entitlements are the name of the game, with larger government and the majority of Americans looking to the Executive Branch for answers. Jobless numbers are hanging around 7.9 percent with signs of mediocre strength and not much prospect for College Graduates to attain employment in their chosen professions. I personally know of more than a dozen graduates who have resorted to working for half what their chosen field would have offered just five years ago. So what do I foresee as we step into 2013?
1. The Defense Industry is about to take a massive hit. Sequestration in January. Half a trillion cut from the Defense Budget is no small sack of potatoes. Preemptive layoffs will absolutely cause the jobless numbers to suffer.
2. The overall markets appear to be rounding off from a technical standpoint. The monetary principles used by the Fed this past three years may have held off the inevitable for a while, but the time is fast approaching where those practices will become overburdened by market dynamics. In short, I see the overall markets leveling off as a best case scenario and experiencing turbulence. Worst case we see a decline of 25% across the major indices as investors cash out.
3. Inflation. If the beginning of this next four years marks the stagnation of the recovery, the end will gradually be predominantly compounded by inflation. Text book inflation.
4. Last month the International Monetary Fund predicted a lower growth forecast for 2012/2013 with any revisions holding a likelihood of lower than the 3.3 to 3.6 percent prediction already on the table.
5. Tax the rich. The current idea floating around the administration is that those with wealth should be taxed more. Think about it this way: If you were the J.P. Morgan, or Rockefeller of this generation and you faced the prospects of losing capital, where would you go? That's right, it won't be here in the good old U.S. Those who create jobs must have the flexibility to compete boldly in their respective industries. I foresee more of our market makers jumping ship to safe havens. Although the definition of safe haven has drastically changed from ten years ago.
6. Global confrontations limiting global markets. Asian dominance and confrontation among along the Pacific Rim will complicate and thus limit market fluidity. At the same time we have continued turmoil as the middle east situation becomes one of greater extremist influence. Loss of Egypt's prior balancing influence and an Israel that feels forced to act more unilaterally will embolden Iran.
7. New technology? There is some hope, but mainly from areas in the Tech world that have years to see fruition from their efforts. Commercial Space industry promises to foster improvements in worldwide transportation as we test ourselves against the very fringe of our own atmosphere. Satellite deployment and worldwide travel should eventually benefit (read more like the next ten years as the pioneers of Com Space innovate) all of us. Which airlines will get wrapped into the new tech? Sir Richard Branson may be on to something... I foresee him continuing to drag the transportation industry outside of their comfort zone.
8. How many new cell phones do we really need? I see a decline in cell phone technology. We are at a near supersaturation already. Those markets succeeded in holding the overall markets steady when less of the population had the cool new cell phone tech. Just as laptop computers were blazing hot in popularity then faded with saturation, now cell phones will. Even tablets only have so much leg to travel on.
9. Energy. Fuel costs are going to increase more. If you'd asked the average consumer five years ago how they'd function with 4 dollar per gallon gas, they'd say it would nearly break their bank. Try 5 to 7 dollar a gallon fuel costs. Natural gas could be a ray of hope here if industry giants make it happen. Even so, infrastructure is not robust enough to effect that change in 2013.
10. Entertainment and Alcohol. As economies falter, entertainment and alcohol will (contrary to popular belief) thrive or at least hold steady. The average blue or white collar worker will always find an outlet during a downturn.
11. Legalized marijuana. Several states are playing with the idea they can legalize the drug and tax it. One problem. How has that worked overseas? Google it. Not the catalyst to thriving free market economy once thought.
12. Agriculture will absolutely be an anchor in the storm. Why? The world population is still growing despite our ability to support it. Growth with limited resources equals greater demand ration and thus strength as an industry.
13. Precious Metals will be your reflection of the inflationary equation. Rather than speaking in tongues let me put it simply: Invest on the dips. Watch the charts. Be wary of ETF's. Physical anything is always more tangible than digital nothing.
14. Obamacare. Nothing in this world is free. If someone tells you it is they are likely a politician, lawyer, or used car salesman. The promise of health care for all comes at a cost to all. With deficit spending at an all-time high, the timing for the health care overhaul could not come at a worse time. Ripples will echo across the country as the full impact of Obamacare becomes evident.
15. Housing Market. Discretionary spending, and the American Dream as it has existed, are in question. More college graduates, high school graduates, unemployed citizens out of work and surrendering to the realities of the job market will lead to at best a gradual increase of the housing values in key areas. Look for investment in areas (primarily near urban centers) where employment is more plentiful. Rural home values will likely level off and depreciate.
There is one key note I would add at the end of my forecast. It is this: the American spirit to innovate can persevere despite another decline. The question is not if we can still lead in the Global Economy, it is where should we focus our effort to more boldly lead and foster growth? Rays of hope for the year? I say energy, agriculture, travel industry (although the offset from fuel costs may cause detriment), dividend yielding equities, bonds, and one of my favorite investments - real estate. As brutal as it sounds, the successful capitalists will be those prepared to enter the markets when there is blood in the water. Fortune will indeed favor the bold in 2013.
King of All Trades Financial Media
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