john k. paglia - pepperdine graziadio business school · john k. paglia, ph.d., cfa, cpa • about...
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2011 Economic Forecast February 22, 2011
John K. Paglia, Ph.D., CFA, CPA
• About the respondents • 2011 economic forecast • Creating jobs in 2011 • Impediments to US GDP Growth in 2011 • Impact of US and foreign monetary policy on GDP • Growth confidence in US GDP and business growth • Incentives to innovate • Allocation of economic stimulus • Value of US dollar and business financial health • Investing in US and abroad • Extending the US debt limit
Outline
• 1,224 participants from privately-held businesses, private capital providers, investment bankers, business appraisers, and business service providers affiliated with privately-held companies
• Responses collected from January 1 – January 11, 2011 • 84% from U.S. (West 32%, Midwest 13%, South 18%, Northeast
21%); 16% International • 35% capital providers, 17% business owners; 18%
intermediaries, 11% business appraisers, 19% business service providers (accountants, consultants, attorneys, etc.)
• 64% are managing director or C-level employees; 19% VPs; 12% manager or analyst; 5% other
• 45% have revenues or AUM under $5 million; 30% from $5 million to $100 million; 15% from $100 million to $1 billion; 10% greater than $1 billion
About the Respondents
Economic Forecast by Location of Respondent
Fourth Quarter to Fourth Quarter (Percentage change)or at December 31, 2011 where indicated
WholeSample
SampleSegmentsNonU.S.based
U.S.based West Midwest South Northeast
2011USGDP 2.0% 1.7% 2.1% 1.7% 2.2% 2.2% 2.3%
2012USGDP 2.5% 2.2% 2.5% 2.2% 2.8% 2.6% 2.7%
USUnemploymentRate(12/31/2011) 9.1% 9.1% 9.1% 9.2% 9.0% 9.1% 9.1%
Inflation(CPI) 2.1% 1.9% 2.2% 2.3% 2.3% 2.0% 2.0%
10-yearTreasuryNote(12/31/2011) 3.8% 3.6% 3.8% 3.7% 4.0% 3.8% 3.9%
USHousing(2011) -1.8% -0.2% -2.0% -2.7% -1.6% -2.3% -0.9%
S&P500(2011) 6.5% 7.3% 6.3% 5.1% 7.1% 6.4% 7.4%
ProbabilityofUSrecession(2011) 28.4% 31.2% 28.0% 30.5% 25.6% 26.6% 27.5%
PrimeRate(12/31/2011) 3.8% 3.7% 3.8% 3.8% 3.8% 3.8% 3.8%
Economic Forecast by Type and Size of Respondent
Fourth Quarter to Fourth Quarter (Percentage change)or at December 31, 2011 where indicated
WholeSample
SampleSegments
BusinessOwners
PrivateEquityAngel/VC Lenders
Intermediaries
<$5million
$5-$100M
>100million
2011USGDP 2.0% 1.8% 2.3% 2.1% 2.0% 2.2% 1.9% 2.1% 2.1%
2012USGDP 2.5% 2.4% 2.6% 2.5% 2.3% 2.6% 2.4% 2.6% 2.5%
ProbabilityofUSrecession(2011) 28.4% 30.6% 26.2% 26.1% 28.6% 28.8% 30.4% 27.6% 27.3%
Inflation(CPI,2011) 2.1% 2.3% 2.0% 1.8% 2.1% 2.2% 2.2% 2.1% 2.1%
10-yearTreasuryNote(12/31/2011) 3.8% 3.7% 3.8% 3.8% 3.9% 3.8% 3.7% 3.8% 3.8%
PrimeRate(12/31/2011) 3.8% 3.8% 3.8% 3.8% 3.6% 3.8% 3.8% 3.7% 3.8%
USUnemploymentRate(12/31/2011) 9.1% 9.2% 9.1% 8.9% 9.2% 9.1% 9.1% 9.1% 9.2%
USHousing(2011) -1.8% -2.4% -1.8% -1.7% -1.0% -1.4% -2.3% -1.5% -1.1%
S&P500(2011) 6.5% 5.5% 7.0% 6.8% 5.9% 7.2% 6.1% 6.7% 6.7%
Economic Forecast Comparison to Financial Institutions
Fourth Quarter to Fourth Quarter (Percentage change)or at December 31, 2011 where indicated
WholeSample
WhiteHouse
FederalReserve CBO WallStreet
Consensus NABE
2011USGDP 2.0% 3.1% 3.7% 3.1% 3.3% 3.3%
2012USGDP 2.5% 4.0% 3.9% 2.8% 3.2% 3.4%
USUnemploymentRate(12/31/2011) 9.1% 9.1% 8.9% 9.2% 8.8% 9.0%
Inflation(CPI2011) 2.1% 1.4% 1.5% 1.3% 1.9% 1.8%
10-yearTreasuryNote(12/31/2011) 3.8% 3.6% n/a 3.6% 4.0% 3.9%
USHousing(2011) -1.8% n/a n/a n/a -0.1% 0.4%
S&P500(2011) 6.5% n/a n/a n/a 10.0% 7.3%
ProbabilityofUSRecession(2011) 28.4% n/a n/a n/a 13.0% n/a
PrimeRate(12/31/2011) 3.8% n/a n/a n/a 3.3% n/a
Distribution of participants’ projections for the change in real GDP, 2011–13 and over
the longer run
0.4% 0.3% 1.0%1.5%
4.3%
18.4%
21.1%19.2%
12.7%
7.8%
5.1%
2.2% 2.5%1.3% 0.7% 0.3% 1.0% 0.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Averageis3.75%
Government Policies to Lead to Job Creation
16.3%
22.9%31.7%
1.9%19.7%
Regulatoryreform
Taxincentives
Increasedaccesstocapital
Educationreform
Increasedcompetitivenesswithforeigntradepartners
Wholesample
BusinessOwners
Entiresegment
<$5million
$5-$100million
$100million-$1billion >$1billion
Increasedaccesstocapital 35% 44% 35% 31% 30% 17%
Taxincentives 20% 19% 20% 24% 24% 30%
Regulatoryreform 17% 14% 17% 15% 17% 20%
Increasedcompetitivenesswithforeigntradepartners 17% 14% 17% 22% 21% 24%
Educationreform 2% 0% 2% 1% 3% 4%
Other 10% 9% 10% 8% 5% 5%
Government Policies to Lead to Job Creation (Segmented)
Will U.S. publicly-traded or U.S. privately-held companies create more jobs in 2011?
17.5%
69.7%
12.8%
Publicly-tradedcompanies
Privately-heldcompanies
Bothwillcreateapproximatelythesamenumberofjobs
The Year when the U.S. unemployment rate first reaches 6% or below
0.6%
4.9%
23.3%25.0%
20.4%
11.0%
3.8% 3.8%
0.7% 0.9%
5.6%
0%
5%
10%
15%
20%
25%
30%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 After2020
The Number One Impediment to U.S. GDP growth in the next 12 months
Mostinfluential Least
influential Score(1to4)
1 2 3 4Uncertaineconomicenvironment/lowdemand 35% 31% 22% 11% 2.9
Governmentregulations(tax,healthcare) 26% 24% 26% 25% 2.5
Limitedaccesstocapital 23% 19% 24% 32% 2.3
Globalpoliticalandeconomicenvironment 17% 26% 29% 32% 2.3
The Number One Impediment to U.S. GDP growth in the next 12 months by Segment?
WholeSample
BusinessOwners
Entiresegment
<$5Million
$5-$100Million
$100million-$1billion
>$1billion
Uncertaineconomicenvironment/lowdemand 35% 26% 33% 33% 40% 42%
Governmentregulations(tax,healthcare) 26% 26% 26% 26% 27% 26%
Limitedaccesstocapital 23% 32% 28% 22% 17% 13%
Globalpoliticalandeconomicenvironment 16% 17% 14% 18% 16% 19%
Impact the U.S. monetary policy will have on U.S. GDP in the next 12 months?
9.0%
41.6%24.6%
18.2%6.6%
Positive
Somewhatpositive
Neutral
Somewhatnegative
Negative
Impact the foreign monetary policy will have on U.S. GDP in the next 12 months?
2.9%21.8%
31.0%
37.5%
6.8%Positive
Somewhatpositive
Neutral
Somewhatnegative
Negative
©2011PepperdineUniversity.AllRightReserved.
Confidence in U.S. economic growth compared to one year ago?
16.4%
51.6%
18.3%
9.3% 4.5%Moreconfident
Somewhatmoreconfident
Neutral
Somewhatlessconfident
Lessconfident
Confidence in growth prospects for U.S. privately-held businesses that are recipients of your investment or
your firm's (or fund's) capital compared to one year ago?
20.0%
56.0%
18.0%
3.5%2.5% Moreconfident
Somewhatmoreconfident
Neutral
Somewhatlessconfident
Lessconfident
The incentive for U.S. privately-held businesses to innovate today compared to
one year ago?
10.9%
28.4%
38.8%
13.5%8.4%
Moreincentivized
Somewhatmoreincentivized
Neutral
Somewhatlessincentivized
Lessincentivized
Companies that have benefited more from the economic stimulus measures put forth
over the past year in the U.S.
64.0%
7.6%
14.6%13.7%
Publicly-tradedcompanies
Privately-heldcompanies
Bothhavebenefitedequally
Neitherhavebenefitted
Has the economic stimulus measures put forth to benefit businesses in the U.S. over the past year been fairly
distributed between publicly-traded and privately-held companies?
19.4% 9.1%71.5%
Yes
No.Publicly-tradedcompanieshavereceivedlessthanafairallocationNo.Privately-heldcompanieshavereceivedlessthanafairallocation
A.EntireSample
10.6% 9.1%
80.3%
Yes
No.Publicly-tradedcompanieshavereceivedlessthanafairallocationNo.Privately-heldcompanieshavereceivedlessthanafairallocation
B.BusinessOwners
Has the economic stimulus measures put forth to benefit businesses in the U.S. over the past year been fairly
distributed between publicly-traded and privately-held companies? (Segmented by size)
19.4% 9.1%71.5%
Yes
No.Publicly-tradedcompanieshavereceivedlessthanafairallocationNo.Privately-heldcompanieshavereceivedlessthanafairallocation
C.EntireSample
15.5%8.4%
76.1%
Yes
No.Publicly-tradedcompanieshavereceivedlessthanafairallocationNo.Privately-heldcompanieshavereceivedlessthanafairallocation
D.Size<$5million
20.2% 8.8%71.0%
Yes
No.Publicly-tradedcompanieshavereceivedlessthanafairallocationNo.Privately-heldcompanieshavereceivedlessthanafairallocation
E.$5million-$100million
26.1%
11.5%62.5%
Yes
No.Publicly-tradedcompanieshavereceivedlessthanafairallocation
No.Privately-heldcompanieshavereceivedlessthanafairallocation
F.Morethan$100million
With regard to the value of the U.S. dollar (relative to other currencies), which do you believe would be more
beneficial to the financial health of U.S. privately-held businesses in 2011?
35.3%
39.1%
25.6%
StrongerU.S.dollar
WeakerU.S.dollar
Indifferent.Idon'tbelieveeitherwouldmakeasignificantdifference
A.WholeSample
40.5%
31.3%
28.2%
StrongerU.S.dollar
WeakerU.S.dollar
Indifferent.Idon'tbelieveeitherwouldmakeasignificantdifference
B.BusinessOwners
With regard to the value of the U.S. dollar (relative to other currencies), which do you believe would be more beneficial to the financial health of U.S. privately-held
businesses in 2011? (Segmented by size)
35.3%
39.1%
25.6%
StrongerU.S.dollarWeakerU.S.dollarIndifferent.Idon'tbelieveeitherwouldmakeasignificantdifference
C.WholeSample
36.7%
35.5%
27.8%
StrongerU.S.dollar
WeakerU.S.dollar
Indifferent.Idon'tbelieveeitherwouldmakeasignificantdifference
D.<$5Million
35.4%
39.9%
24.7%
StrongerU.S.dollarWeakerU.S.dollarIndifferent.Idon'tbelieveeitherwouldmakeasignificantdifference
E.$5-$100Million
31.8%
43.4%
24.7%
StrongerU.S.dollarWeakerU.S.dollarIndifferent.Idon'tbelieveeitherwouldmakeasignificantdifference
F.$100millionplus
Geographic areas more or less likely to be invested in today as compared to one year
ago?
Lesslikely Somewhatlesslikely Neutral Somewhat
morelikelyMorelikely Score(1to5)
UnitedStates 5% 7% 30% 37% 20% 3.6
Brazil 9% 7% 38% 33% 14% 3.35
India 9% 6% 41% 33% 12% 3.32
Canada 6% 7% 47% 31% 9% 3.31
Australia 8% 7% 54% 25% 7% 3.18
China 11% 14% 38% 26% 12% 3.13
Japan 15% 17% 56% 10% 2% 2.67
EuropeanUnion 17% 22% 44% 14% 3% 2.66
Mexico 22% 18% 44% 14% 3% 2.58
Russia 21% 20% 46% 9% 4% 2.55
Geographic areas more or less likely to be invested in today as compared to one year
ago? (Non-US Based Only) Lesslikely Somewhat
lesslikely Neutral SomewhatmorelikelyMorelikely Score
(1to5)
India 5% 7% 25% 38% 25% 3.72
Brazil 5% 5% 31% 38% 21% 3.64
China 8% 11% 30% 33% 18% 3.42
Canada 7% 6% 48% 31% 8% 3.28
Australia 8% 10% 44% 25% 14% 3.26
UnitedStates 13% 16% 38% 24% 9% 2.99
Mexico 12% 18% 40% 25% 6% 2.97
Russia 12% 22% 36% 21% 9% 2.94
EuropeanUnion 13% 23% 34% 24% 7% 2.9
Japan 16% 24% 48% 10% 2% 2.59
Geographic areas more or less likely to be invested in today as compared to one year
ago? (US Based Only)
Lesslikely Somewhatlesslikely Neutral Somewhat
morelikely Morelikely Score(1to5)
UnitedStates 4% 5% 28% 41% 22% 3.72
Canada 6% 7% 48% 31% 9% 3.32Brazil 10% 7% 39% 32% 12% 3.29India 10% 6% 43% 32% 9% 3.25Australia 7% 6% 55% 25% 6% 3.16China 12% 14% 39% 24% 11% 3.08Japan 15% 16% 57% 10% 2% 2.69EuropeanUnion 17% 21% 47% 12% 2% 2.61Mexico 24% 18% 45% 12% 2% 2.5Russia 22% 20% 49% 7% 3% 2.49
Would an increase in the $14.3 trillion U.S. debt limit be beneficial or detrimental to
U.S. businesses in 2011?
6.4%15.0%
18.8%
29.3%
30.4%
Beneficial
Somewhatbeneficial
Neutral
Somewhatdetrimental
Detrimental
John K. Paglia, Ph.D., CFA, CPA Associate Professor of Finance
Senior Researcher, Pepperdine Private Capital Markets Project
bschool.pepperdine.edu/privatecapital [email protected]
Thank you!