Global Insights, Risk Management
With 2017 just beginning, it is worth thinking about some financial and business outcomes that are uncertain and will be consequential in the state of the economy next year.
The Trump administration seems more supportive of the broader energy sector than was that of Obama, including coal and oil. The price of crude oil is at $53 a barrel, up from a 2016 low around $28. Impressive if you bought at the bottom. No so impressive, if you held energy assets over the last three years, when oil was once over $110. What can we expect?
With a strengthening dollar, oil is expected to have a natural headwind. Oil trades in US dollars and simply a stronger dollar, buys more oil. It also means that oil producing countries are well positioned to pump more oil. OPEC, Canada, Mexico, and the like are all encouraged to pump more oil. And, of course, we must ask what will Russia do with its oil and new US friendship.
With the crash in oil prices in 2015, the US oil producers in the west have gone through a series of bankruptcies and consolidations. In short, the oil is now more competitive in its production. Also, these producers will have to pump to keep their larger operations afloat.
Outlook: Low and Stable Oil Prices for 2017
The emerging market indices showed a modest gain on 2016. Still, it seems growth must be on the horizon for these growing and inflation-rich economies. As with oil, the strengthening US dollar, can impact that. I think emerging markets are ready for a rebound. These economies are sensitive to energy costs, and low energy costs help the like of India, Indonesia, Vietnam, and China, to name a few.
Outlook: Look for a recovery in emerging markets in 2017
News of Trump’s policies did not seem to bolster technology stocks. Still, giants like Amazon and Google showed growth in 2016. Technology, at a certain level, has always been about efficiency. The reduction of cost, the increase in convenience, and scale of economy are why buyers are using Amazon, Google, and Apple in big ways. I don’t see a pro-business administration able to slow that down.
Outlook: More growth for technology stocks in 2017
The battle between Yellen and Trump seems to have already begun. Trump promised growth and rising interest rates. The Federal Reserve has signaled that more increase rate increases can be expected in 2017. The concern, they say, is inflation. If oil and energy prices remain stable, there is a sector that will not contribute to inflation. Food prices (unprepared, anyhow) have been down. The real test on interest rates will be the housing market and loans. We see auto loan delinquencies up and student loan defaults up, yet the Federal Reserve says the economy is improving, so what to believe?
Outlook: expect slower and smaller interest rate increases in 2017 than feared.
Some firms to consider:
They make amazing cars. It appears wealthy people value these as great luxury cars. If oil prices stay low and stable and administration removes or reduces and tax benefits for electric cars, it seems like negative news for Tesla. The stock was mostly flat in 2016. In spite of the excellent cars, see the bears coming for Tesla.
Outlook: Bad year for Tesla.
The airline industry is dealing with some unexpected shocks. The stronger US dollar is making trans-Atlantic travel more expensive for Europeans. Americans are concerned about violence in some places. United has responded with a low-cost economy fare, a new focus on small towns in the US, and major cuts in trans-Atlantic travel. Travel to Asia is a bloodbath with the rise of many competitive Asian carriers. In my observation, United is unwilling or unable to hold market positions, quickly cutting and running. In the long-term it loses and will continue to do so. It will allow low cost carriers like Norwegian to grow the trans-Atlantic market, and the savvy executives at Delta to carve more out of the United network. Delta is positioning to grow the Chicago operation. Historically, United ran from its hubs in Miami and Seattle, yielding to American and Delta, giving each a foothold in lucrative international markets. I don’t see where United will get the growth. From increasing ticket prices? From trying to be low cost and high touch all at once? It is hard to believe that. From better service? Really, what has your experience been? United stock is trading at it an all-time high. It is hard to see it staying there or getting much higher, especially when it runs from markets that more competitive carriers will gladly capture. If anything, United, should be positioning itself to grow new markets for the long-term. That is what Delta is doing in Seattle and American in its Miami and JFK hubs.
Outlook: American, Delta, Southwest, and JetBlue outperform United.
Over 6 million Americans are delinquent on auto loans. That is the highest from 2010 and the trajectory of default is going up, up, up! What happened? Americans delayed or deferred auto purchases during the great recession, snapping up cars in 2013 and 2014. No, they can’t make the payments. Rising interest rates, delinquent auto buyers, and a reality that cars are now easily kept over a decade are all bad signs for the US auto industry. Saving hope: maybe Trump’s populist policies help US auto-makers with tax breaks and job creation programs.
Outlook: Not a strong year to sell (new) cars.
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About Russell Walker, Ph.D.
Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. He has worked with many professional sports teams and leading marketing organizations through the Analytical Consulting Lab, an experiential class that he founded and leads at Kellogg.
His most recent book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data through digital strategies. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.
Follow me at @RussWalker1492, bigdatatobigprofits.com and russellwalkerphd.com
2017 Predictions, Automobile Loans, Automobiles, Economic Outlook, Economy, featured, Federal Reserve, interest rates, Loans, Oil, Price of Oil, Risk, Technology, Technology Stocks, Tesla, United Airlines
Russell Walker helps companies develop strategies to manage risk and harness value through analytics and big data. He has done novel research in data monetization and digital disruption and advises leading firms on these topics.
As Director of Experiential Learning in Analytics and Associate Teaching Professor of Marketing and International Business at the Foster School of Business, at the University of Washington, Dr. Walker is an academic thought-leader on analytics. Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. Previous to moving to Seattle and the Foster School, Dr. Walker was Clinical Professor at the Kellogg School of Management of Northwestern University, where he founded and taught many popular courses in analytics and risk management.
His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage.
Dr. Walker consults with firms on the topics of Big Data and Analytics, Data Monetization, Risk Management, and Business Strategy.
Russell Walker can be reached at:
russell@walkerbernardo.com
@RussWalker1776
russellwalkerphd.com
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