The Edmond Sun

Business

January 10, 2014

2013: The year that Quantitative Easing bought

EDMOND — In “The General Theory of Employment, Interest and Money” John Maynard Keynes referred to what he called the “euthanasia of the rentier.” A rentier is a person or entity that receives income derived from economic rents, i.e. income from patents, copyrights, real estate, interest or profits.  

Keynes argued that interest rates should be lowered to the point where it secures full employment (through an increase in investments). At the same time he recognized that such a policy probably would destroy the livelihoods of those who lived off their investment income, hence the expression. Published in 1936, little did he know that his book referred to the implications of a policy which, three quarters of a century later, would be on everybody’s lips. Welcome to QE, Quantitative Easing, the Frankenstein monster created by our Federal Reserve and many central banks across the world.

It’s that time of year again when I review my predictions for last year and stick my neck out again for 2014. Napoleon Bonaparte once said, “Never interrupt your enemy when he is making a mistake.” In looking at my result for 2013, someone should have interrupted me. It was a tough year, at least for my predictions.

The problem — the thing I have despised so much — was QE. I have written several times in the past couple of years why I thought the Federal Reserves’ QE program was a mistake. It’s not that the Fed’s ongoing money printing and purchase of up to $85 billion a month worth of Treasury bonds and mortgage backed securities doesn’t work. Oh it works all right. For now. The problem, in my opinion, is that it didn’t solve anything, created other problems and only postponed dealing with many others.

I never believed that the Fed and every major central bank in the world would take QE this far and this long. So much for that thought.

In the meantime, all that money had to go somewhere and it was quite clear that the stock market was a primary destination. With interest rates near zero, investors had no choice but to accept safety and no return on investments, or step out of their comfort zone into riskier assets. As it turned out, the stock market was a nice place to be. All major indices hit record highs by the end of the year. The Dow closed at 16,576 — up 26.5 percent. The S&P 500 hit 1,848 — up 29 percent. If you were heavily invested in equities, you were probably quite happy. If you invested in money market, CD’s or bonds, probably not so much.

So with that as background, how did I do last year? In a word — lousy. The danger in making public forecasts is you occasionally get a little egg on your face. Last year I got the whole omelet. Here’s what I said and what happened:

1. Stocks will finish higher in 2013, but there will be hard work along the way as a classic “sell in May and go away” pattern happens for the fifth year in a row….. up 10 percent for the year. Result: At least I was right on the direction, but we never got the correction and finished up 29 percent.

2. The next leg of the European sovereign debt crisis comes back in the summer triggering the summer downturn. A nasty, public slugfest in Congress over the debt ceiling will further give stock owners ulcers.  Result:  While the problems in Europe are still brewing, nothing much has happened for now and Europe pretty much stayed out of the headlines. The stock market mostly ignored the debacle in Congress and didn’t seem to care.

3. The Fed will use any substantial weakness in the market to launch another quantitative easing program. Result: We didn’t get the market drop but the Fed continued QE anyway.

4. The Treasury bond market has finally peaked but is not ready to pop the bubble yet. Yields will just move to a higher trading range. The range for the 10-year Treasury bond yield was 1.40 percent to 1.90 percent in 2012. We probably move in a new range of 1.90 percent to 2.50 percent. Result:  Partially correct. The 10-year moved up to a 2.40 to 2.95 range.

5. The U.S. government runs another $1 trillion deficit for the sixth year in a row. Result: A $680 billion deficit, the lowest since 2008, mostly due to higher tax receipts and lower government spending — the one positive effect of sequestration.

6. Gold is not dead; it is just resting. Result: Gold is not dead but appears to be in a coma, closing the year at $1,204 — down 28 percent for the year.

7. For the economy, the second lost decade continues. I am sticking with a 2 percent GDP growth forecast for 2013. Result: GDP figures picked up in the second and third quarters to 3.6 percent, but it still looks like less than 3 percent when the fourth quarter figures come in.

8. Forget about employment. I believe that the U.S. has entered a period of long-term structural unemployment. Yes, we may grind down to 7 percent, but no lower than that. Result: Latest unemployment figure was 7.0 percent.

So there you have it. It was a tough year for forecasting and the only negative year I’ve had since starting the annual predictions six years ago. I’ll try to do better this year. This is one more reason why, no matter what we think will or will not happen, we stick with our investment discipline and don’t try to make market bets. You shouldn’t either.

In two weeks I’ll stick my neck out once again with my predictions for 2014. Maybe I should just heed the words of Mark Twain when he said, “It ain’t what you don’t know that gets you into trouble. It’s what you know for certain that just ain’t true.” Maybe I should, but I just can’t help myself.  Thanks for reading.

NICK MASSEY is a financial adviser and president of Householder Group Financial Advisors in Edmond. Massey can be reached at www.nickmassey.com. Securities offered through LPL Financial, member FINRA/SIPC.

1
Text Only
Business
  • Smartphone kill switches are coming

    Smartphones need kill switches. It's a relatively easy solution to the pricey (and irritating) problem of smartphone theft. But who would have thought that the big carriers would team up with Apple, Google, Microsoft, Nokia, Samsung and lots of other manufacturers to voluntarily begin adding the technology by July 2015? The cooperative spirit! It makes so much sense!

    April 19, 2014

  • Biggest student loan profits come from grad students

    This week, the Congressional Budget Office projected that the federal government would earn roughly $127 billion from student lending during the next 10 years.

    April 19, 2014

  • Kaiser joins Thunder ownership group

    Tulsa businessman George B. Kaiser has been approved by the NBA Board of Governors as a new partner in The Professional Basketball Club LLC, which owns the Oklahoma City Thunder. Thunder Chairman and CEO Clayton I. Bennett made the announcement Friday. Kaiser is purchasing the ownership interest of Tom L. Ward.
    “We are honored to welcome George Kaiser as a member of the ownership group of the Oklahoma City Thunder,” Bennett said. “George is a well-respected and important Oklahoma business leader, as well as one of the state and nation’s top philanthropists. His commitment to successful business and community leadership is in true alignment with that of the Thunder.
    “I also appreciate the commitment and leadership provided by Tom Ward as a member of our ownership group from the beginning,” Bennett added.

    April 18, 2014

  • Food Bank’s Leadership Council applications now available

    The Regional Food Bank of Oklahoma invites young professionals to submit applications for the nonprofit’s first-ever Leadership Council. The Leadership Council connects young professionals interested in getting involved in their community and state through engagement with the Regional Food Bank of Oklahoma. These dedicated individuals, aged 24 to 35, will volunteer their time and creativity to raise awareness about the issue of hunger and increase the visibility of the Regional Food Bank and its mission of “Fighting Hunger … Feeding Hope” in Oklahoma.

    April 18, 2014

  • Logan County Health Department observes Administrative Professionals Week

    The Logan County Health Department is recognizing the work of its seven administrative professionals during Administrative Professionals Week, April 20-26.

    April 18, 2014

  • Tractor Supply Company launches spring 2014 Paper Clover campaign

    Tractor Supply Company, in partnership with National 4-H Council, recently announced the launch of its spring 2014 Paper Clover Campaign.
    Tractor Supply Company, the largest retail farm and ranch supply store chain in the United States, raised more than $3.2 million for 4-H programs across the country through the Paper Clover Campaigns during the past four years.

    April 18, 2014

  • U.S Cellular offers device trade-in program, app recommendations

    In honor of Earth Day (April 22), U.S. Cellular encourages people to recycle their old electronic devices and is providing incentives to do so. Customers can get up to $250 when they trade in qualified smartphones — including Apple® iPhones — at U.S. Cellular retail locations through the company’s Trade-in Program.

    April 18, 2014

  • Sun Life Financial accepting grant applications

    The U.S. Business Group of Sun Life Financial Inc. recently announced its Request For Applications for Sun Life Rising Star Awards grants from Tulsa/Oklahoma City Area nonprofit organizations that promote the academic achievement of under-served youth. Applications are available now at sunliferisingstar.com. The deadline for submissions is June 9.

    April 18, 2014

  • Ribbon Cutting - Qdoba (3-26-14).jpg Qdoba Mexican Grill celebrates grand opening on Covell

    Qdoba Mexican Grill recently had a ribbon cutting to celebrate the grand opening of its newest location at 1300 W. Covell Road. The franchise joins nine others in the Oklahoma City and Lawton areas and boasts a wide variety of menu items including gumbos, burritos, tacos, quesadillas and five types of salsa as well as options for children. Each restaurant prepares ingredients fresh daily and is available to cater small or large parties with three types of hot bars: Naked Burrito, Taco and Nacho. “We also offer rewards cards, easy to register from a smart phone or computer,” reports owner/operator David Smith. For more information, call 405-285-0355 or visit www.qdoba.com.Caption header 24 Frtgr Bold Cd

    April 18, 2014 1 Photo

  • Family, friends remember beloved ‘T-shirt man’

    If you have lived in the Oklahoma City metro area during the past 40 years, chances are you’ve worn one of Tony Newcomb’s T-shirts.
    This week, family members and friends have been remembering the “T-shirt man” who died April 15 after a long struggle with Parkinson’s disease. He was 72.

    April 18, 2014

Stocks