2013 Cerf Conference REPORT 2013 January

2013 Myers Report on the CERF Conference Brings New Economic Truths: Central Oregon is in for a better Economic Forecast this Year!

By T. Myers

One time a year we all have an opportunity to learn about the economic forecast from the top experts in America. This year’s theme: The Bottom Line featured Dr. Bill Watkins from the CLU Center for Economic Research and Forecasting, Dr. Knute Buehler, local surgeon and former candidate for Secretary of State in Oregon this past November, Katherine Klingensmith, Executive Director Economic and Political Strategist at UBS FS Wealth Management Research and keynote speaker, Dr. Craig Barrett, retired CEO and Chairman of the Board at Intel. The sponsor of the event for the past five years has been Rivera Wealth Management owner, Keith Rivera who serves as chairman for CERF. Sponsors for the event come from the banking, Insurance and Realtors in the area.

This year- after four dismal years of the truth the way the experts have seen it, was a positive takeaway for attendees. We will see a small growth for the nation economy and a better forecast for Central Oregon.

Dr. Knute Buehler, Bend Physician and former Candidate for Secretary of State, opened the conference with his talk called ‘Lessons from the Campaign’.

“People are deeply concerned about Oregon,” Beuhler started. “We have unmet potential and Oregon politics is broken! I believe in public service and wanted to give back, but as Lincoln once stated ‘We can’t escape the problems of tomorrow by avoiding it today!’ We have problems to solve.”

With that, Beuhler discussed our systemic entitlement programs like welfare, Medicare and Social Security. He addressed the fact that citizen involvement in elections is declining and a big factor now in elections is that 85% of our elections are not even contested and an average of only 39% voted in 2012 where 73% voted back in 1968.

Buehler said that neither party is contributing to the solutions to our many serious problems. “No one wants to be the bad guy!” He suggested that we reform the way we hold elections and the timelines for running the campaigns need to be shorter (resulting in a lower cost for campaigns, too). Redistricting has become very political with borders re-drawn so that candidates will win without difficulties. He also pointed out the attack ads that ran during the last two weeks of the general election. There was no way to contest them or time to do it before the ballots were cast.

Beuhler brought up our PERS budget, the declining American income and the increased need for services from education and law enforcement. Public awareness is the key to change. “Right now we have a 50% increase in the proposed state budget.” Then he asked, “What are we prepared to do?”

Beuhler finished by adding that we all need to be involved at all levels of State Government, focus on the demand side of energy businesses and offer tax credits to Oregonians who buy green.

The second speaker was long time Central Oregon Supporter, Dr. Bill Watkins, who is a real fan of Bend, Oregon and he loves La Pine, too (He told me personally!) Watkins looks at the National picture and the International impact and then he goes over the real story for the attendees.

“The recovery is weak” Watkins began. “We are fragile. Defense spending is down. Jobs are not increasing the way they should. We also need to make an adjustment on the inventory we have in retail and wholesale operations.”

Why doesn’t it feel like a recovery? “We have fewer jobs than when we went into the recession. Our incomes are down. Wealth is down across the board so people are actually poorer than before 2007. Retiring baby boomers are affecting the labor force in a big way.”

Then there is the deficit: “Entitlement payments are eating the budget and strangling what all of government does,” Watkins startled us. “We have a city like San Bernardino California going bankrupt and on the US list as number 2 in the rate of poverty to Detroit’s number 1. Everything has changed!”

Watkins went on to address why small business are not getting involved in the recovery. Big business gets the bailouts and small businesses get tax increases and no breaks. Small business also invests their assets into real estate and that has also hurt them badly.

Another conundrum is that young people are borrowing money to finance their education and for leisure. He has us note that as the population declines the young people will have less to consume than the parents did and that will impact the economy for years.

The US Forecast for 2013 is for less than the 3% average. Unemployment is dropping, but that also means that the labor force is getting smaller. How do we deal with this information? We increase legal immigration. As the boomers retire these immigrants will go to work and pay for the retirement due to the boomers. We need 5 million more per year to grow. Also- immigrants start businesses more than we do and they are happy to take the risks of being a new business.

  • The government needs to stop crowding out investment and raise the return flow of dollars coming back into the US in foreign trade.
  • We also need to get rid of bad regulations like the 900 page report called Dodd Frank that regulates banks, lending and investing.
  • By developing domestic energy we will have more money staying in America.
  • When it comes to taxes, how do we finance fiscal spending? The fiscal cliff was really insignificant, but the changes that we need to make to pay for what we do is crucial!
  • What can go wrong with International economy? The Euro zone is too big and they are covering for countries that should not be part of it (Greece?) It will eventually fall apart according to forecasters.
  • Oregon has an amazing Bi- Polar economy. We are second to North Dakota, but unlike N. Dak., we have no jobs!
  • Our Gross National Product is up
  • Our Jobs are down
  • Unemployment is down – People are quitting the job hunts
  • Make all of Oregon an Enterprise Zone to attract big investing companies who hire lots of people.
  • When it comes to educating our workforce, we need to have conversations between Educators and Businesses so schools prepare the labor force to be ready for the jobs of tomorrow. The start the education of our children in k-12. Our Universities do not respond to market forces and they need to.
  • In Central Oregon we are looking for jobs, but traditional Economic Development activities around retention, creating businesses and attracting businesses needs to be revamped. (He mentioned that about 5% of adults telecommute. We need to create a different market for tourists and we need direct plane flights to the major centers and airports- especially LA.
  • When looking for businesses think: Anything that is done on a computer can be done anywhere! A CITY Wide Hot internet Zone would be a real attractor
  • Look at migrating retirees. They are younger, healthier and they have money to spend.
  • Home ownership rate of 65% is high. Not everyone should own a home, so have rentals.
  • Most markets are dependent on the local economy, but, some are not. They are dependent on the accumulated wealth of their residents who are still investing because the upper class workers are not affected by the past five year recession.

The next speaker was introduced as an International economist. Katie Klingensmith works out of the Bay Area, but she travels the world and consults with the top forecasters across the globe. Once she stepped on the stage we all took off to a new place!

She asked the tough questions and then she began to give the answers:

  1. Is US leadership a thing of the past? In 2000 we were #1. By 2012 we have dropped to #7
  2. Are we trusted? Trust in politicians is very low and we are ranked at 54th in the world.
  3. Why? We have an uncertain fiscal outlook and a lack of macroeconomic stability.
  4. Loss of manufacturing is a problem. In 1940 we had 38 million manufacturing jobs. In 2013 we are looking at 8 Million. The loss accelerated during the recession and manufacturing and construction is considered to be flat.
  5. Manufacturing jobs have changed considerably: It used to be common that a person would not need much education to do a manufacturing job. Now, we require higher education and degrees and that means that we need to pay higher salaries. (No longer does a car tech make 60K per year for putting a bolt- now he might have to program a line and that requires high level math and tech skills) Education also lies at the head of the UEC crisis. Higher education is related to people keeping their jobs for a longer period of time and the more education the less likely that they will lose their jobs.
  6. Gains in manufacturing have stagnated
  7. There is a huge trade imbalance with China: $300 billion in 2010 ($290 billion in 2011) and with China manipulating their exchange rate and subsidizing goods to keep costs down to customers, they control the competition and it keeps the trade imbalance higher.
  8. The US is experiencing a small manufacturing renaissance and we have seen the cost of Chines labor climb, so after 15 years where our costs to manufacture in china were flat, costs are escalating and we have an opportunity to bring it back home if the incentives are there.
  9. There is now a major opportunity for North American energy independence and we can lower the trade deficits with the OPEC nations by using our own energy resources.
  10. US companies continue to dominate the EQUITY companies and have 33% of global market capitalization. Whether the US will remain competitive will depend on research and development.
  11. The US is not alone in facing the overleveraged loans and assets. The public sector is at 111% and Japan is at 230% of value.

Klingensmith explained that the global issue at hand is one of cutting services or increasing taxes to pay for them and right now the richest countries have the highest percentage of debt. She also stated that the cost of servicing our debt will start going way up and we are barely meeting our ability to handle the interest on loans that we owe right now. Our national debt is going up exponentially. Americans are at an all-time high disapproval rate for Congress (14% approve and the rest do not). In 10 years we will have a 200% increase in the costs to pay our debt.

She addressed Medicare and interest payments as our highest priority: The fiscal problems are a mixed Bag. Some of the things are silly and the others are so serious they could stop us. On January 2nd we avoided the fiscal cliff with passage of taxpayer relief. On Feb. 15th we need to address the debt ceiling. (She describes it as a silly thing that is used by the minority party as a weapon and it has been raised 74 times since 1960).) On 3/2 is sequester where they have automatic straight across the board cuts in the budget expenses. And, on 3/27 Federal gov’t funding runs out and it affects 1/3 of the government agencies deemed non-essential so it will put 800K people out of work. With a drained economy where do we go? The debate won’t go away because we have an inability to function in our government.

Klingensmith says that the US economy will grow 2.3%: Housing is up. Jobs are starting to improve and if the two parties can agree to raise taxes to pay for services or cut services to save money, we will improve in government, too.

The final speaker at the conference was Dr. Craig Barrett, former CEO at Intel. He has visited 125 countries for business and ran 25 Intel sites in America and 75 outside of the US as a CEO.

Barrett started with a comment about how much the world economy has changed since the cold war. In the 20 years after China and India joined the world economy, Latin America and other emergent nations have given us all a different perspective of what it takes to compete in the world market- and the key is realize that even in La Pine- we are part of a world market.

Barrett’s comments about how we need to change in order to be able to function in the new economy struck home. We can no longer compare ourselves to the business down the street or in the next town; we need to look far beyond our local borders. For example he spoke to the troubles at the Post Office competing with the fast moving overnight services of their closest competitors, Kodak refusing to see the digital future of photos and the way cell phones have become the new PCs with I Phones and Samsung.

Big Point: YOU WIN MARKET SHARES WHEN THERE IS A TRANSITION and we are in the middle of the biggest technology transition in history. There will be winners and losers and you have to decide which you want to be.

There are 3 levels to stimulate growth of the economy for the long term:

  1. Education- Educating the workforce adds value to what it does and can achieve an elevated income for workers.
    1. Prior to 1990 the car industry used to command high dollars for jobs
    2. 21st century? Technological jobs will command the $.
    3. How do you get the ideas to make new ideas and products?
      1. You invest in research and Development to create new ideas
      2. Research Universities are the crown jewels in the world economy. They spin out most of the new products, jobs and service and the US Government is the primary funder behind R&D
      3. The Right environment to let smart people take these ideas to fruition.

The US education system used to have the best k-12 schools in the world and now we fall to the bottom of the list for science and math. Our universities are still at the top of the lists, but we educate foreign nationals in our schools and then we send them back home with no ability to keep them because of immigration laws. They go home and create there instead of here we need intelligent immigration to let them stay in the US and work here.

We have the highest corporate tax rate in the world. We need incentives of a stable and lower tax rate, protection of Intellectual Property and the use of our substantial ‘good rule of law’ to bring businesses back from overseas. Without a tax break there will be no investment here, without a better Immigration policy there will continue to be a flow through of the most intelligent scholars to other nations.

Note: we still are not comparing ourselves to the WORLD. We are not one school district to the next one ion the next town. We are schools in the world and we are falling short.

He spoke about Intel not hiring people from Oregon. “We are not graduating the people with the right education to fit into Intel here- so we go elsewhere,” Barrett emphasized. “80% of Intel jobs are the result of competing with the best and we go where the talent is to find them.”

Barrett understands education falls short. There are 15 thousand districts here that need to consider:

  • Opening up education to competition- it is the only thing that will change education in America
  • Create liberal charter schools
  • Remove caps and restrictions
  • Open up to innovation
  • Open up to entrepreneurship
  • Pay teachers for performance

He ended with this thought: “Everywhere I go in the world I see people looking forward to the future. In the US we’re looking in our rearview mirrors.”

He shared that three fortune cookies he opened were thoughts that seemed to make the most sense to him

  • The world will always accept talent with open arms
  • You cannot win unless you choose to compete
  • A small deed done is better than a great deed planned.

With that the conference drew to a close. Four great and inspiring teachers shared the forecasting and commonsense advice that will see us through the rest of the year.

Until 2014, T. Myers signing off!

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