1) The USA Economy Will Continue to Surpass Expectations
Most of the talking heads on the tube claim that the USA is supposed to grow around 2-2.3% in 2013. I made the mistake of underestimating the recovery last year, and I won’t repeat that error. I believe the USA economy will end the year with GDP up 2.7-3% (after an initially rocky start). Jobs growth in multiple sectors, wars winding down, and a little more stability will also bring unemployment below 7%. While China and the other BRICS countries might be gaining more relative importance, it is still the American economic machine that is responsible for turning the world’s markets.
Looks like the talking heads might win on this one. The USA is growing and most economic indicators are looking good (lowered unemployed, improved buyer sentiment, merger activity etc) but it now looks like 2.7% growth for 2013 will be a real long shot. Most experts now claim to be looking at the 2.3-2.4% target which is still slight higher than most were predicting.
2) Political Gridlock Will Continue to be the Main Drag on the Stars and Stripes
The housing market is up, businesses are more competitive, and sentiment is gradually improving, so what could keep Uncle Sam down – only itself of course. It’s absolutely amazing to be how these legislators and the extremists that control the USA political system have been able to grind the country to a halt the past couple of years. Without getting too partisan, I’ll leave it at the idea that there is plenty of blame to go around. The fact that I find the most interesting (and telling) about American politics right now is that while the approval rating for congress as a whole is terrible and in the single digits most of the time, approval ratings for “your” congressman/congresswoman are still quite high. Which number do you think matters more to the guys/gals in charge? With the vast majority of representatives facing more serious threats from their own side of the aisle in primary races than in the general elections, I don’t really see how they stop this trend. When you add in the continuing huge influence of money and lobbyists within the system, it all looks even more bleak. I believe that when either side says they want compromise, what it really means is, “I want the other guys to come 90% of the way to my position.” For many reasons this continues to be the biggest factor holding the USA back.
Check, check, check. This is the most serious problem the USA currently has in my mind. Gun control couldn’t get passed, immigration laws are now DOA in Congress, campaign finance remains a massive albatross around the necks of the electorate, and there is considerable pressure from some to start one, or even several new wars in the Middle East… Scary stuff.
3) Canada Will Continue to Tick Along
Sure, our treasured natural resources might be losing a little value right now, but Canada has several other things to feel good about. The housing market remains pretty robust outside of Toronto and Vancouver, the Keystone XL pipeline will almost assuredly be approved now that electoral posturing is over with (now if only we could get that Northern Gateway one going), and our banks are still the envy of the world. On top of all of these advantages Canada is currently enjoying the relative calm of a majority government that has proven to be a pretty good economic steward regardless of how you feel about their other policies. While the TSX won’t blow away the world in 2013, I believe that steady growth slightly below that of our big trading partners (in the 1-1.5% range) is in order. The best news for us indebted Gen Y’ers is that interest rates will remain untouched until 2014 due to American policies and low inflation numbers (somehow we will have to learn to survive without our economic rockstar – Mr. Carney).
No raise of interest rates in sight thanks to Mr. Bernake and The Fed. That’s great news for me and my mortgage. Speaking of mortgages, Canada’s housing sector might actually be on the brink on the soft landing that so many countries have tried and failed to engineer. I still believe Vancouver’s market is built on speculation, and Toronto’s condos are going to see a steep decline, but it looks like Canada’s thriving West will cushion any large blow. Keystone XL continues to get campaigned against even though hundreds of coal-burning plants fly under the radar in a prime example of terrible logic. The Northern Gateway looks like a long shot at best at this point (despite the obvious massive advantage of having a semi-direct pipeline to massively expanding Asian markets). Despite those pipeline setbacks there is still hope thanks to innovative new West-East energy thinking and intensive lobbying for final approval of Keystone XL. We’ll continue to muddle along up here in the Great White North.
4) MERs Will Continue to Get Slashed – Much to the Chagrin of the Financial Sector
By far our most popular and commented on articles in 2012 had to with Investor’s Group, and the broader issue of compensation for financial advice (well, that and the wedding ones anyway). With index-based investing and couch potato portfolios gaining in popularity, mutual fund providers will have no choice but to cut costs in order to appeal to fee-conscious investors. This is especially true for Canadians who have the most to gain from falling MERs, and with Vanguard moving in, these savings are almost a guarantee.
This has been one of my favorite developments to watch over the course of 2013. With more and more media scrutiny of just how financial advisors get compensated, as well as more recognition for the fact that Canada indisputably has the highest MER fees in the world, we are bound to see these percentages tick down. On the ETF front Vanguard continues to be a leader in offering low-cost options and I’m becoming a bigger and bigger John Bogle fan every day. As more people learn about ETFs and become interested in those products (at the expense of mutual funds) providers should become even more competitive in trying to chase business and one-up each other.
Related: Read our eBook on ETF Investing
5) Fossil Fuel Prices Fall
Blah Blah, Peak Oil Blah Blah. That pretty much sums up the conventional thinking on fossil fuel dependence over the last few decades. Yes, one day we will run out of liquid gold and that will mean many things – but that day is definitely not today or tomorrow. Several of my friends in the world of geology tell me that all the recent research coming in on fracking reveals that it is relatively safe and almost assuredly does not produce earthquakes of any kind, nor does it directly pollute groundwater. With the recent developments all over North America, a return to relatively cheap oil and natural gas looks to be around for a while.
While prices at the pump have only dipped moderately, the price of crude oil is set to trend downwards for the foreseeable future. As more and more Bakken oil hits the pipelines, supply is set to outpace demand for the first time in decades. Advances in natural gas technology at both the extraction and consumer points is also nibbling away at demand for liquid gold. Fracking seems to remain controversial in geological circles, but then again David Suzuki is pretty controversial these days too.
6) The NHL Lockout Cancels Season… Suckers Fans Come Back Anyway
I recently wrote a rant/article about this situation that is worth reading if you’re a hockey fan, or just confused by this whole mess. Hockey players are pretty unique in the world of professional athletics (I like to think this is a result of our wacky Canadian influence) and if you back them into a corner they will make huge sacrifices in the name of pride. Many of the owners couldn’t care less about their hockey teams since they are glorified hood ornaments for billionaires and consequently it is the fans that get to suffer – but only because they allow themselves to. The only reason these guys are still fighting is that they are calculating that all of us will be crazy enough to come back and buy their product again like we did after the last lockout. Not this former fan. I’ll stick to watching the World Junior Tournament, international hockey, college/junior hockey, local high school games, and maybe JUST the Stanley Cup Finals to get my hockey fix. Please take note of this advertisers.
*Editors Note: TM made these predictions a couple of weeks ago. He is already wrong… so great start to 2013 predictions eh? At least the part about fans coming back anyway seems to be true.
The fans came back in droves, giving owners a strong signal that they are ok with being taken for granted and completely disrespected by the billionaires that run the show. Three cheers for bread and circuses everyone!
7) The Heat, Blue Jays, and Patriots Will Be The Teams of 2013
Lebron is historically good, and with him at power forward the Heat are able to reach a level that no one else can touch right now. The Patriots are another predictable pick, and admittedly one that is heavily influenced by my fan bias (aka bromance with Tom Brady). Their experience and focus on execution will propel them into the history books. Finally, in all of my patriotic pride I am jumping on the Blue Jay’s bandwagon for the first time in years. I know that teams put together through free agency rarely win championships their first year together, but this rotation and lineup, as well as the fact that their division actually appears winnable for once, makes me think this is the year for our team! Joe Carter forever!
Well, the Heat went on a 27-game win streak and won their second straight title. The Patriots came up short in the Super Bowl, but certainly no one would say their season was a bust (their current offseason has been disastrous, but that’s another story). The Blue Jays are once again trending toward mediocrity despite making all kinds of waves in the off season. I’m not sure which way the Jays will go, but they may as well go for broke right now because in two years they are in real trouble again thanks to a non-existent farm system and one of the most competitive divisions in sports.
8) The S&P 500 Breaks All-Time Highs in 2013
The last time the S&P 500 broke 1,575 was in 2007. That ceiling will be pushed through in 2013. For all of the reasons I listed above, the American economy will do just fine. I actually see potential for a major rally if congress were to work together and get a long term deal done that seen several compromises made, including entitlements, tax bases, and simplification of the tax code. Of course in theory there is potential for pigs to fly as well, so as vague predictions go I’ll temper my expectations and say that the index finishes right around 1600 in 2013.
And boom goes the dynamite. At publishing time the S&P was crashing through new all-time highs at 1680. If Bernake had pulled the stimulus funds off of the table, I think 1600 would have been pretty close at the end of 2013. At this point it seems like the complete decoupling of the general USA economy and the stock market will continue for at least a little longer (side note: great news for Canadian consumers who continue to cash in on our dollar’s relative strength to the USD as long as The Fed keeps printing dolla dolla bills).
How are your predictions doing for 2013? Is the year playing out how you figured it would? What have been the biggest surprises in your mind? For me, I continue to be shocked by the absolute inability of the US government to get anything done. I’m not sure what the solution is there, but it does not bold well for the World as a whole.