{"id":92,"date":"2015-04-24T21:05:40","date_gmt":"2015-04-24T21:05:40","guid":{"rendered":"http:\/\/kempner.ggsitebuilder.com\/?page_id=92"},"modified":"2015-04-24T22:34:15","modified_gmt":"2015-04-24T22:34:15","slug":"4th-quarter-2013","status":"publish","type":"page","link":"https:\/\/kempnercapital.com\/4th-quarter-2013\/","title":{"rendered":"4th Quarter 2013"},"content":{"rendered":"
KEMPNER CAPITAL MANAGEMENT, INC.
\nFourth Quarter 2013 Letter
\n<\/strong>January 9, 2014, By: Harris L. Kempner, Jr., President<\/em><\/p>\n

THE ECONOMY<\/strong><\/p>\n

Some economists have embraced the concept of a \u201cNew Normal\u201d in the United States economy(Bloomberg 8\/3\/13)<\/em>. The theory, as voiced first several years ago by Bill Gross and Mohamed El-Erian of PIMCO, supports the premise that, since the 2008 economic crash, the U.S. economy has structural problems and is incapable of growing GDP over time at a rate of over 2-2 \u00bd% in real terms<\/span>.\u00a0 This relative gloom has influenced a lot of decision-makers for the last three years.\u00a0 We do not agree.\u00a0 We believe the U.S. can and will do much better than that in terms of GDP growth over an extended period of time.<\/p>\n

To begin with, the economy in the last two quarters of 2013 has grown substantially more than 3%(Cornerstone Macro 12\/23\/13)<\/em>.\u00a0 For the calendar 2014 year, we are projecting real U.S. GDP growth of 3 \u00bc- 3 \u00be%.<\/span>\u00a0In our opinion, this is now a self-sustaining recovery that will take place even as the Fed tapers (reduces) their rate of bond buying throughout the year.\u00a0 We do not believe this economy needs the recent high monetary injections by the Fed to get to our projected level of GDP growth.<\/p>\n

The Fed gave a signal (tapering) in December when they started to cut back their government bond purchases.\u00a0 They now apparently believe the economy has a chance to be on a solid, sustaining growth path.\u00a0 There are several positives that may have influenced their thinking.<\/p>\n

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  • The American consumer seems very solid.We have put our balance sheets in order over the last 3-4 yrs. The Labor markets (jobs) are solidly improving.\u00a0 Unemployment rates have dropped from 7.9% to 7.00% during 2013.\u00a0 Almost two million jobs have been created in calendar 2013 and, according to the Bureau of Labor statistics, we are close to the pre-crash high job number of January 2008. \u00a0Further, due to increases in housing prices and equities, consumer net worth is higher than before the crunch in 2007-2008.\u00a0Consumer confidence, as recently measured by the Rasmussen Survey is a near six-year high. Consumer activity is about 55% of the U.S. GDP.<\/li>\n
  • Inflation remains under control.Recent numbers indicate that the core CPI was up 1.7% year-on-year thru November, and the CPI with food and energy was up less – only 1.2% (Bloomberg 1\/10\/13<\/em>). Wage increases are the biggest factor in U.S. inflation, and they do seem to be under control for the time being.\u00a0 Our expectation is that as the economy grows, we will see a steady fall in the unemployment rate in 2014, but very little wage price pressure.\u00a0 It may be a different story in 2015.\u00a0 It is important to remember wages are about seventy percent of the cost in the U.S. economy. \u00a0As long as wages stay under control, no matter what happens in any other area, no real fly up in U.S. inflation is possible.\u00a0 However, in addition, energy prices (due to the energy revolution we\u2019ve discussed many times), particularly oil and gasoline prices, look as if they will stay roughly level just as they did in 2013.\u00a0 This will help both consumer and inflation figures, and of course consumer and business confidence.<\/li>\n
  • Beginning 2014, there is much lower economic drag from the Federal Government than we faced at the beginning of 2013.In January 2013 we increased Individual Withholding Taxes by over 40%.\u00a0 Further, a substantial Sequester was newly in place.\u00a0 We\u2019ve learned to accommodate the increased withholding taxes. \u00a0The Sequester, due to the new Ryan-Murray bargain, is now more generous than it was at the beginning of 2013.\u00a0Overall, the Federal drag, according to various economists, will be reduced from an estimated 1.9% of GDP in 2013 to an estimated .5% in 2014 (Cornerstone Macro 12\/23\/13).<\/em> Growth will come easier with this headwind reduced.<\/li>\n
  • The Fed is looking at a substantial growth in manufacturing, which is 12% of the U.S. economy \u2013 far more than, for example, housing, which is presently only 3% (Bloomberg News 1\/3\/14)<\/em>. Government statistics reported on Bloomberg, January 2, 2014, indicated manufacturing expanded in December at the second fastest pace in two years and is \u00a0\u201ca sign industry will bolster growth in early 2014\u201d.\u00a0 This is another factor the Fed considered in reducing the tapering.<\/li>\n
  • According to data released earlier this month, the U.S. trade gap continued the year\u2019s improving trend.For November, it was the narrowest in 4 years (Commerce Department 1\/7\/14<\/em>).\u00a0 This is a specific statistical boost to the economy.<\/li>\n
  • As mentioned in our second quarter newsletter, the United States is rapidly and massively reducing our Federal budget deficits.In May of 2013, the Congressional Budget Office was quoted by Bloomberg and others as projecting the budget deficit would improve to 4% of GDP in fiscal 2013, to 3.4% of GDP in fiscal 2014, and down to 2.1% of GDP in fiscal 2015.\u00a0 The cost and revenue numbers that have come in since May indicate to us that these are actually conservative estimates for the potential reduction in the Federal budget deficit, and that the deficit is likely to be significantly lower than those current stated projections.\u00a0 We are beginning to think it is feasible that we will begin to hear discussions of possible Federal budget surpluses by the end of 2015.<\/li>\n<\/ul>\n

     <\/p>\n

    All of these are some of the bases for optimism about U.S. economic growth in 2014.\u00a0 Several things could temper that optimism.<\/p>\n