What to Expect for the Economy and the Climate in 2011

2011 is shaping up to be an interesting year for the global and the US economies, and it could be an interesting year on the climate change front as well. In mid-December, 2010, it is the normal time for prognostications on the next calendar year by those who actually do the work and may know what they are talking about and those of us who read the work and make our less data-driven forecasts.  Indulge me while I put some of my thoughts about next year in print.  I think this is an important exercise for anyone to do.  It establishes a base line from which to look for and measure deviations from expectations. And it puts in place a discipline that I always suggested to analysts who worked with me: once one has developed a point of view, spend the time looking for disconfirming information. At the same time, one needs to step away from the data and do a little speculation, particularly when in the early stages of a change in direction and a possible change in the second derivative of an established trend. So here we go:

The Economy. I think next year could be surprisingly good in the US with the likelihood of us printing a 5% GDP quarter at some time during the year. The truth is the economy has been clicking along reasonably well in most areas excluding the construction industry. That industry, which at its peak can employ 10 million people, has always produced the amplitude on the downside and upside to our statistics on employment and overall GDP.  Without much lift there we are still starting to see employment numbers improve. The trade numbers, aided by a weaker dollar over the last year working its way into purchase decisions, will also add to GDP, even if the dollar does better than many expect over the next year. At the same time, we have just passed a very stimulative tax package, which puts money in wage earners’ pockets as well as corporate America, while quantitative easing continues. QE2 and the tax package probably represent the last of the stimulus efforts, which almost always are lagging indicators of economy. We do have some issues around several state budgets, but the responses by the new crop of governors could be surprising, maybe because they have to be.  One can almost sense a palpable shift now toward addressing the federal deficit with the Budget Commission’s recommendations producing some fundamental change. It may not all happen next year, but I suspect that before we are done, we will see some major changes in the tax law. I am looking forward to a 28% top rate on income and I will accept the other changes that get us there. Lots of details to observe along the way including what’s happening in the rest of the world, but if the US surprises, that may be enough.

The Climate. In spite of the cold December in populous areas of the Northern Hemisphere, 2010 may end up being the second or third warmest year globally since measurements began in 1880.  There are some indications that the changing weather patterns are themselves a product of long term anthropomorphic-driven climate change. Based on what took place in Copenhagen at the end of last year and what was just concluded in Cancun, there will be no concerted world-wide effort to do anything other than recognize that there is a problem requiring some movement away from a carbon-based global economy or simply adaptation to a warmer world. On the other hand I continue to be amazed at the innovation that is taking place globally to produce non-carbon or low carbon solutions to energy needs either through greater efficiency or truly new economic approaches. These include the transportation sector in most countries where mileage standards are much higher than in the US. These changes are driven by a desire for energy independence, economic innovation, or a response to the will of the people, even in China.  It is sad to see the limited response by the US which will ultimately result in much of the new technology being owned and controlled elsewhere. We should not be buying 9 million barrels of oil a day from other countries for many reasons well beyond the effect on the atmosphere.  And we don’t need to take on the cost and risk of additional carbon production domestically as a way to eliminate our trade imbalance, although natural gas is an interim step in the right direction. We do need to support the technology and innovation that can occur domestically to move us away from carbon and affect our trade balances as we export these solutions to others.

More to Come. There is much more to talk about on both the economy and the climate. Stay tuned.

 

This entry was posted in Climate Change and tagged , , , , , , by Jack Rivkin. Bookmark the permalink.

About Jack Rivkin

Jack Rivkin retired in 2008 as EVP, CIO, Head of Private Asset Management of Neuberger Berman(NB) and from NB's Executive Management Committee. He was also on the Lehman(LB) Council on Climate Change(CC) and the NB CC Fund Advisory Board. He has been engaged with the United Nations and other entities on policy issues related to Private Capital and CC. He is an Associate Fellow of the Asia Society. He has continued on the NB Mutual Fund Board and with his CC responsibilities. He began his investment career in 68 as an analyst at Mitchell Hutchins(MH), and became Director of Research(DOR) there. After Paine Webber(PW) acquired MH, he served as DOR; CFO of PW; CEO of PWMH-the equity trading and investment arm of PW; Chmn of MH Asset Management and President of PW Capital. 87-92 he was DOR and, subsequently, Head of the Worldwide Equities Division of LB. 93-95, he served as a Vice Chairman and DOR at Smith Barney (now Citigroup). He was an EVP with Citigroup Investments 94-01, responsible for private equity investments. He was also an adjunct professor at Columbia University teaching a course in Security Analysis. He joined NB in 2002. He is the co-author of “Risk & Reward—Venture Capital and the Making of America’s Great Industries,” Random House, 1987. He is a regular guest on various media. He is the principal subject in a series of Harvard Business School cases describing his experience as DOR and Equity Head at LB. He has served as a director of a number of private companies and the NYSSA. He is currently a director of Idealab, Dale Carnegie, Operative, World Policy Institute and other private companies. He is a member of the Economic Club of NY, the Anglers Club, Theodore Gordon Fly Fishers, and a lifetime member of Trout Unlimited. He continues to be an active private equity investor when he isn’t fly fishing. Mr. Rivkin earned his Professional Engineering degree from the Colorado School of Mines and his MBA from the Harvard Business School

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s