Transcript Cliffs, Tooth Fairies and The End of Year Four

24th
Eastern Contra Costa Bank
Antioch, California
February 6, 2013
John W. Mitchell
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Disasters Avoided-Cliff One, Euro Survived
March1st and March 27th Deadlines
Year Four of Upturn-Modest or Moderate
1/2013 Employment 3.23 Million below 1/2008 but 5.51 million
above 2/2010 Trough-Upward Revisions
House Prices Rising Case Shiller up 5.5% to November
California with Clean Budget?
Fourth Quarter Output Decline ( Remain Calm!)
Global Economy Weak But Stabilizing?
S &P 500 up 6.1% to 2/1/13
December Personal Income up 2.6% rate from 1% in November
(SAAR)
Largest Increase in Domestic Oil Production in History of Industry
in 2012
Inflation Moderated
Lone Ranger Back and Twinkies GONE!
Q1
Q2
Q3
Q4
GDP
2
1.3
3.1
-.1
Consumption
2.4
1.5
1.6
2.2
Equip &
Software
5.4
4.8
-2.6
12.4
Non-Res
Structures
12.9
.6
0
-1.1
Residential
20.5
8.5
13.5
15.3
Federal
-4.2
-.2
9.5
-15
State and Local
-2.2
-1
.3
-.7
Exports
4.4
5.3
1.9
-5.7
Imports
3.1
2.8
-.8
-3.2
2.00%
1.50%
1.00%
0.50%
0.00%
-0.50%
-1.00%
-1.50%
Source: BLS
350
300
250
200
150
100
50
0
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
-500,000
-0.20%
August
July
June
May
April
March
February
December
November
October
September
August
July
June
May
April
March
February
January
December
November
October
September
-0.40%
January
Source:BLS
0.80%
0.60%
0.40%
0.20%
0.00%
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Beige Book January 16, 2013 Stable Price
Pressures
Energy Commodities 8.6% in Aug, 6.7% in
Sept. -.5% in October and -6.9% in November
and -2.2 in December
Compensation 12 Months to December 1.9%,
Wages1.7%, Benefits 2.5%
30 years
20 years
10 years
7 years
5 years
3 years
2 years
1 year
6 months
3 months
1 month
3.50%
3.00%
2.50%
2.00%
1.50%
2/1/2013
1.00%
7/25/2012
0.50%
0.00%
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Seven Years of Zero Short Term Rates ?
30 Year Mortgage 3.42% Week Ending
1/25/13
10 Year 1.9% on Week Ending 1/25/13
Fed will tolerate 2.5% Inflation
All Treasuries Under 5 Years Yield Less than
1%
Personal Interest Income Q4 2007 $1.32
Trillion in December 2012 $1.012 Trillion
Pension Obligations?
GDP Growth Fed Central Tendency
for 2013 2.3-3% and 3-3.5% in 2014
( 2012 2.2% First Est.)
 Consensus Moving from 2% in 2013
to 2.6% in 2014
 Inflation Staying Near 2% Through
2014
 Fed on Hold Until at Least Mid 2015
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What happens Overseas ?
Dealing with the debt ceiling and sequesters
in the next few months?
How will the actors behave ?
July
January
July
January
July
January
July
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
Jul-06
1-Jan
Jul-05
Jan-05
2,500
2,000
1,500
1,000
500
0
250,000
207,390 205,020
200,000
160,502
150,000
110,073
100,000
62,681
50,000
35,069
43,716 45,471
58,540
0
2004
2005
2006
2007
2008
2009
2010
2011
2012
20.00%
15.00%
10.00%
5.00%
-20.00%
-25.00%
-30.00%
-35.00%
3
2012/1
3
2011/1
3
2010/1
3
2009/1
3
3
2008/1
-15.00%
2007/1
-10.00%
3
-5.00%
2006/1
0.00%
Oakland
California
20,000
15,000
10,000
5,000
0
San Fran/Oakland
Permits-2004-2012
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Affordability
Price Declines
Mortgage Rates
Employment
Household Formation
Different Credit World
More Renters
Contra Costa (Central)
Median Sales Price in
December up 22.9% to
$637,250 (CAR)
Case Shiller SF 12.7%
November
Building Forces
Source: Rockefeller Institute
15.00%
10.00%
5.00%
0.00%
-5.00%
-10.00%
-15.00%
-20.00%
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After Proposition 30
Governor Proposed Budget with a Spending
Increase of 5%
Expecting Gains in Personal Income Tax of
1.8% ($1.1B), Sales Tax Receipts 12.3%
($2.55B), Corporate Taxes 20.4% ($1.55B)
What will Actually Appear-Getting Beyond the
Cliff Impact
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The First Cliff
Payroll Tax Holiday Ends
Bush Tax Cuts Expire for Over $450,000
Sequester Process Delayed 2 Months
New Medicare Taxes Start
Phase Outs and Deduction Limitations Back
Estate Tax Rate Bumped
AMT Fix, Doc Fix
Long Term Spending Issues-Not Addressed
Debt Ceiling Unresolved
Short Term Problem-Long Term Problem
Geithner-”And you can’t count indefinitely on the world having
more confidence in our political system than is justified”
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Twist Ended in December-Now Buying $45 Billion Per
Month of Treasuries with maturities from 4 Years to 30
Years
Continuing to Buy $40 Billion Mortgage-Backed Securities
Per Month
Total $85 Billion Per Month in New Acquisitions as well as
Reinvesting Principal Payments
Exceptionally low rates as long as unemployment remains
above 6.5% and inflation is no more than .5 point above 2%
longer run goal (12/12/12) and (1/30/2013)
When does the buying program end? When the labor
market improves!
How does the unwinding take place? “Balanced approach”
1/30/13
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North Dakota 1
Utah 2
Arizona 3
Texas 4
Colorado 5
Oklahoma 6
Idaho 7
Montana 8
Indiana 9
Hawaii 10
Washington 11
Minnesota 12
Ohio 13
Georgia 14
South Carolina 15
North Carolina 16
California 17
Massachusetts 18
Nevada 19
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Kentucky 20
Missouri 21
New York 22
Tennessee 23
Oregon 24
New Jersey 25
Florida 28
Virginia 32
Pennsylvania 34
Alabama 38
Alaska 39
Connecticut 44
Mississippi 45
Wyoming 46
Connecticut 47
Maine 48
New Mexico 49
West Virginia 50
California
Oregon
Washington
Source: USDA
2009
2010
2011
$8,462,343
$10,949,761
$16,304,937
$494,534
$510,793
$1,029,169
$1,065,891
$1,903,302
$2,985,398
Source: EDD
14,600,000
14,400,000
14,200,000
14,000,000
13,800,000
13,600,000
12-Dec
10
8
12-Jun
4
2
12
10
8
6
4
2
12
10
8
6
4
10-Feb
13,400,000
Total
Govt.
Othe Ser.
Leisure&Hos.
Ed&Health
Prof. Services
Finance
Informati…
Constru…
TP,W,Util
Trade
NR&MNG
Manufac…
-50,000
0
50,000
100,000
150,000
200,000
250,000
300,000
Job Change
Percentage
Chico
400
Fresno
4,600
1.6
69,500
1.8
Los Angeles
Modesto
.6
1,000
.7
-200
-.3
Oakland
21,500
2.2
Redding
1,800
3.1
Sacramento
10,800
1.3
San Diego
20,300
1.6
San Francisco
33,200
3.4
San Jose
27,600
3.1
Stockton
5,500
2.9
Napa
Total
Govt.
Othe Ser.
Leisure&Hos.
Ed&Health
Prof. Services
Finance
TP,W,Util
Information
Trade
Constructi…
Manufactu…
-5,000
0
NR&MNG
5,000
10,000
15,000
20,000
25,000
Source: EDD
1,060,000
1,040,000
1,020,000
1,000,000
980,000
960,000
940,000
920,000
900,000
880,000
2004 2005 2006 2007 2008 2009 2010 2011 2012
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Youth Un and Underemployment -Scarring
January U-6 14.4%, Mean Unemployment 35.3
Weeks
Labor Force Participation Rate January 63.6%-The
last Time it was there was December 1981.
Recession Start 66%
Real Family Median Net Worth Down 38.8% 20072010 Survey of Consumer Finances
California Jobs Gap 1,791,000 In October
Brookings
CoreLogic Underwater in CA 28.3%
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How Does the Fiscal Situation End?
Simpson-Bowles, Confidence Collapse as in
John Mauldin’s–Endgame, Rogoff and
Reinhart’s This Time is Different- Slow
Growth
Do we still have the recipe for growth? (Lots
of Gloom, but Remember the Late 1970s!)
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Stella
The Tooth Fairy
Free Medical Services
Fairy
The No New Taxes
Fairy
The Rich Will Pay Fairy
The Entitlement Fairy
Fairies
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Uncertainty Reduced, But Remains
Most likely GDP Growth 2-2.5%
California Employment 1.5-2%
Falling Debt Burdens, Housing, Rising Income
and Employment, Balance Sheets, Financial
Institutions Strength, ISM both Manufacturing
and Non-Manufacturing, Energy
Developments, Initial Claims, Global
Glimmers
Adjacency Advantage-Residence Adjustment
in 2011 49%
Thank you,
our customers are
our strength.