Read of the Day: 3 Reasons 2013 Could Surprise on the Upside

There’s a lot of pessimism surrounding 2013 as the fiscal cliff remains unsettled.  But what about the upside risks?  The Washington Post listed three big ones that could cause the economy to surprise on the upside in 2013:

Housing. The biggest cramp the economy these last few years has been the housing sector, with sales near historic lows for half a decade. At first, this was a necessary adjustment, as the overbuilding of homes during the 2000-2006 boom was worked off. But we’re far beyond that point now, with, if anything, significant under-building of homes in recent years relative to demographic trends. That’s true even when one adjusts for the lower-than-normal “household formation” during the recession and its aftermath (think young college graduates living in their parents’ basement instead of getting an apartment).

Household debt. American consumers, we have often heard, have been weighed down the debts they incurred during the boom years — credit card bills, student loans and, especially, burdensome home mortgages. A widespread theory is that consumer spending will never really rebound until Americans have dug themselves out from under those debts.

State and local governments. Among the persistent drags on the economy through this weak recovery have been state and municipality budget woes. State and local governments have slashed spending and jobs, essentially counteracting federal stimulus efforts with fiscal anti-stimulus measures of their own.

Read more here.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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Comments

  1. Pessimism? I see a whole lot of optimism. Just look at Barron’s call for 2013.

  2. I still have to read a forecast on the official press and/or from the sell side that is not optimist or wildy optimist. Where is pessimism ?

  3. short term pessimism (cliff) but overall optimism (deal will get done, housing, autos, china keep economy driving) seems consensus to me.
    real pessimism? i don´t see it.

  4. Americans (real ones anyway) arent allowed to be publicly pessimistic. Dont you know? Put a good face on, stay positive and go out and consume consume consume. If you cant consume because of too much credit card or mortgage debt, pull up your straps, smile and go ask for a refi to get your current payments lower and longer. Then take that debt servicing saving and go out and take on another line of credit out.

  5. The fact that housing is seen as a reason for optimism is a reason to be pessimistic. Housing is an unproductive form of investment that can only grow if leverage grows, which means if we go back to the “business-as-usual” economy, which we’ll pay for thanks to the reckless actions of the Fed.

    The day I see a real resurgence of america’s manufacturing and creativity I will be truly optimistic.

  6. Exactly.
    The only way housing would be a boost would be if we were building new housing or rehabbing old housing. There could be a market for that, in that most housing was designed or built 50 years ago when family sizes and needs were much different. Also, an aging society requires different housing.
    What’s happening now in housing is good for balance sheets; however, just remember that if you sell your house for more it means somebody else has to pay more. So that’s really a wash.

  7. You’re right long term but wrong short term. If housing continues its 2012 trend it will provide a boost to the economy and stock market IMHO.

  8. As for me, I do see a lot of reasons to be optimistic in 2013. (1) Housing-but don’t expect a boom, (2) household debts (although I think debts level should be down closer to the level in 2002 for the economy to expand at a healthy clip), (3) Job Acts, (4) Obamacare is a boosting GDP that people don’t see it yet, (5) In-shores, (6)further dollar devaluation or maintain at this tight range, (7) continue weapon sales/export. Realistically, I can be totally wrong about most things, but Obamacare can boost about 300 billion in forced spending, and job act can help ordinary people play the private equity or pre-ipo game (whether this is good or it just creates an illusion is another topic for another day. An investor’s objective is to understand and to be able to predict what will happen next and extract profits from the opportunities).

    What are the risks? (1) Fiscal cliff-because men are sometimes stupid and live by their ideologies rather being pragmatic, (2) terrorist attack, (3) natural disaster.

    I don’t know when they can resolve the cliff, but I think it will be sometimes between mid Jan to mid April. I prefer the US economy muddle through rather than expanding at 3% or higher. This will help alter the American consumer’s perception and constraint them from living above their means. But apparently this is not the goal of the government.