Predictions for 2013
Our annual compilation offers pithy and insightful views on the world in 2013, from the challenges for the euro and central bankers to the destiny of bank bosses, tech titans, emerging economies and financial markets. Readers may agree with us or not – we aim to provoke debate.
Restrained from suing over securities fraud, lawyers are starting to prey on dodgy disclosure in corporate elections. Say-on-pay votes are popular, but anything needing investor approval is fair game. Starved of other business, attorneys’ hunger for these suits can only grow.
None of the leading currency contestants is pretty. Central banks across the globe seem willing to debase money with the printing press. The euro’s nerves have improved but the recession-hit zone is fragile. The yen wants to lose. The dollar and the pound may eventually come off best.
The chancellor is the nation’s most popular politician, although voters don’t like her policies. How does she manage? She benefits from an opaque communications strategy, and the lack of a coherent alternative. Pro-EU leaders should pray that this Merkel bubble doesn’t burst.
Lenders have underpriced everything from corporate loans to current accounts in an effort to suck in business. But tougher regulators and shrinking revenue streams make such cross-subsidies harder to justify. An overhaul of the industry’s approach to pricing is overdue.
The financial crisis has been frustrating for doom-mongers. Sure, debts are still high and the financial system’s reconstruction is slow. But growth has been no worse than tepid and China refuses to collapse. Even if the U.S. goes over the fiscal cliff, the end is not yet nigh.
Forecasts for 2013 are abundant. That’s fine. But trouble comes if you chose to believe the soothsaying. Predictions are usually wild guesses or extrapolations of trends of the past. Even when they are accurate they are all-but impossible to interpret.
2012 was the year of the Dragon. Mario Draghi’s promise to buy bonds prevented a calamitous loss of confidence and brought stability to the zone. Next year he will have to deliver on that promise, and more besides.
The 21st century becomes a teenager in 2013. It will talk to you in barely decipherable grunts. It will say you don’t understand. It will laze around in bed. It will complain, and it will pester you endlessly about iPhones.
Three tie-ups from 2012 will alter media in 2013: Penguin-Random House, Universal-EMI and Disney-Lucasfilm. In books and music, the business case for consolidation is clear. Wags will giggle about “50 Shades of Penguin”, too. But the real cultural impact may be less benign.
The country needs fiscal and energy sector reform. Its rival political parties have little history of working together, so that might sound hard. But they look set to reach a compromise with far less rancor than their counterparts north of the border.
The euro crisis will become the European crisis as governments realise that among all the things they’ve done in the last two years, austerity is what has failed. And the split will widen inexorably between the 17-member zone and the rest of the EU.
Assuming Congress settles the deficit debate, housing finance should be its next stop. Lawmakers have postponed reforming the government’s role in funding home loans for four years. Some hurdles still remain. But economic, regulatory and political obstacles are dissolving.
One doesn’t have to be a Mayan to believe that tomorrow represents a numerological end of an era. It may not mark the end of the world - as some users of the Mesoamerican Long Count Calendar suggest - but after a fertile period for adorable dates, we are now entering a desert.
On dividend yield and price-to-earnings measures, European shares look attractive - at least compared to the other big, mature market across the Atlantic. But that ignores superior growth potential in the United States. Savvy bargain-hunters will see that better value lies to the west.
Internet firms moaned for years that users were spending lots of hours on the Web, but marketing dollars weren’t following from print and TV. Time and the growth of broadband have closed this gap. The boom in smartphones now provides similar fuel for mobile advertising.
The German parliamentary election in the fall of 2013 is one of the most important pre-planned political events in Europe next year. It is certain that the incumbent will prevail, but her policies will take on different shades, depending on her coalition partners.
The Fed celebrates its centennial next year. In recent decades the independence of the U.S. lender of last resort and its peers elsewhere has become an article of faith. But with Western central bank balance sheets swelling toward 30 pct of GDP, that faith is far from rock solid.
South Africa alone can’t match the others in the emerging club. But add non-Arab continental neighbors, and the combined GDP is over $1 trln and growing fast. Single countries are too small for most investors. But if the region can combine markets and trade, it could take off.
Imagine two 1962 studies of the following five decades. The Blind Guide, written in ignorance, is gloomy, but the Retrospective Guide is pretty cheerful. Communism fell and global poverty retreated. A blind guess for the next 50 years: the demise of finance as we know it.
By elevating one of five commissioners to replace departing Chairman Schapiro without naming a replacement the White House has put Wall Street’s watchdog in a bind. Rule-making will be gridlocked along partisan lines and new blood won’t want to work for a boss seen as temporary.
The revered tech group represents the essence of Silicon Valley. But its era as an everything-to-everyone tech conglomerate is over. CEO Meg Whitman and the board won’t stick around for a five-year turnaround. Breaking up HP would be quicker, and could almost double its value.
At least, that is, for their wallets. Middle age for tech stocks can hurt as growth shareholders lose interest and value-oriented owners await stability. But Apple has already made the transition. Even if its next decade echoes Microsoft’s last, the company is worth over $1 trln.
Both needed government aid in 2008. But it is the automakers that have restructured and become decently profitable in straitened times. Detroit’s Big Three still have work to do, but they have responded better. Motown’s chiefs can more easily justify big pay days too.
Nomura has struggled with the defunct firm’s European and Asian operations. Barclays may offload the U.S. arm. So why not stitch Lehman back together? Plenty of sidelined Wall Street execs could run it. But funding looks difficult. It’s Wall Street’s problem in a nutshell.
A 13-year period in which one of the two main national parties led a stable coalition in New Delhi will come to an end in 2013. A third-front alliance of opportunistic regional parties will rise to power. Their populism will wreck public finances and delay an investment revival.
A few key people like the world’s richest man and showy political leaders have epitomized the region for years by spearheading the commodity-led, export economies. In 2013, a burgeoning middle class, helped by low interest rates, will make a mark powering Latin America’s future.
As the UK economy wobbles, George Osborne’s austerity policies are under fire. It’s unfair: the essential surgery will help revitalisation. But as 2013 progresses the Chancellor of the Exchequer may become more of an electoral liability. He could find himself axed.
The archetypal hedge fund fee deal survived the 2008 crunch and the euro zone meltdown, but not the industry’s growth. Asset gathering, tight controls and cautious bets by a new generation of fund bosses brought a decade of low returns. Fee gravity was irresistible in the end.
For decades, Gazprom’s grip on EU gas supplies made it a key lever of Russian might. But years of mismanagement have taken their toll. What’s more, gas isn’t what it used to be. The new torch-bearing company may be Rosneft. But Russia remains a badly-managed resource economy.
Of the major bank chiefs who had their jobs before the crisis, three remain: Goldman’s Lloyd Blankfein, JPMorgan’s Jamie Dimon and Brady Dougan at Credit Suisse. Each has had setbacks. But the two U.S. bank heads appear to have shrugged them off. Dougan looks more vulnerable.
China’s rambunctious social media site is valued by investors at $700 million, based on owner Sina’s share price. Weibo has two hard-to-copy assets - its “social graph” and political usefulness. If it can monetise them, Weibo might be worth many times that.
Democracies are starting to outclass countries like Iran, Venezuela and Russia in energy production. That should reduce the economic and political influence of such authoritarian states. The West’s booming output should steady fuel prices, a rare boon for the global economy.
It’s been another thin and bumpy year for betting on M&A. So, having finished the investor letter, one desperate European merger arbitrageur decided to write to Santa with a 2013 wish list. Breakingviews obtained a copy from a source close to the North Pole.
A toxic brew of Libor, bonus spats and regulatory ire led to the ousting of the Barclays CEO in 2012. Yet investors will soon twig that Diamond’s bank wasn’t the only fiddler of interbank rates. He’s unlikely to land another big CEO gig, but he may resurface.
The secret sauce in the country’s growth is no longer bank lending, but an explosion in off-balance sheet credit. The troubling expansion of funds extended through wealth management products - many of them short-term and dependent on confidence - may force a moment of reckoning.
Next year will be pivotal for the family that controls the Gray Lady. The Ochs-Sulzbergers have loyally seen the paper through dark days. With the Times on sturdier financial ground, it’s time to find a safe custodian like New York’s billionaire mayor before the moment passes.
Megadeals have been in short supply for both since 2008. But corporate bosses keep getting rewarded for modest acquisitions while Glencore and HP are warnings against going big. For private equity, though, cash stockpiles and cheap money will be catalysts for a bolder 2013.
Iffy global economics make it hard to gauge the outlook for copper and iron ore. Grains are different. Stocks are low and the drought that hit harvests in 2012 has continued. Low rainfall is also hitting river-borne U.S. trade routes. Expect prices to stay high.
Japan’s newly elected prime minister will slay the currency to save the economy. That means it will make the kind of move it made after Lehman collapsed in 2008 – but in reverse. Then, risk aversion saw the yen rise 20 percent. In 2013, a U.S. dollar will buy 100 yen or more.
Central banks in developed economies have been trying to juice the economy for years, without much success. As they run out of fresh ideas to battle the doldrums in 2013, they may reluctantly decide that debt-melting price increases are the least bad way forward.
Science points to the potential for climate shocks in burning through just current proven oil, gas and coal reserves. Stock-market valuations of miners and oil groups don’t reflect the risk of a policy response. In 2013, investors may wake up to a carbon-constrained future.
The euro crisis has balkanised the continent’s banks, with national authorities protecting their own turf and forcing domestic mergers. A single regulator and central bailout fund will lift these barriers. And it might also make EU banks more attractive to non-euro competitors.
Rupert Murdoch is buying into the New York Yankees cable network at a Ruthian EBITDA multiple. Player salaries and ticket prices have surged at triple the rate of inflation over 20 years while franchise values are at 42 times operating income. These diamonds aren’t forever.