Wells Fargo’s Silvia Tells TIGER 21 Why He’s Bearish on the Long Term



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June 9, 2014

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Wells Fargo’s Silvia Tells TIGER 21 Why He’s Bearish on the Long Term Tough decisions face the next president-whoever is electedOctober 15, 2012 | By Michael S. FischerWhile big business appears to be returning to normal operations, small businesses are considerably less optimisticabout their prospects for a full recovery, John Silvia, Wells Fargo’s chief economist, told ultrahigh-net-worthinvestors during his Headliner talk to members of TIGER 21 in September.”The biggest mistakes in business have very little to do with actually running the business,” Silvia said; “rather ithas to do with not having a vision of where you are in the world and how things are happening.”Silvia’s presentation was part of a series of talks by financial and investment experts to TIGER 21 members.Earlier this year, for example, George Soros was the featured speaker to the peer-to-peer group.During his presentation, Silvia also set out economic statistics that had a decidedly on-the-one-hand, on-the-other-hand feel.Signs point to moderate job growth, he said, but this is in the context of a much lower employment base to supportgrowth and spending. Household debt service has returned to sustainable rates, but the sluggish recovery pointsto slower consumer spending resulting in lower states sales tax revenues.Moreover, capital goods orders are slowing following their post-recession surge. And commercial property isrecovering unevenly, with high-end office vacancies and apartment vacancies trending lower.Below are highlights from the Q&A session that followed Silvia’s talk, summarized in the statement:How will the wave of baby boomer retirements impact the economy?Silvia presented statistics showing that the majority of baby boomers have an average retirement account balancebetween $60,000 and $80,000, which makes them totally unprepared for retirement.”This creates political problems as well as economic problems,” Silvia said. “These people will be counting oncertain entitlements that the country cannot afford to sustain.”He noted that the labor force participation rate has actually increased among ages 55 and older in recent years,indicating that many baby boomers realize they are not prepared for retirement.Is unemployment cyclical or structural?As the unemployment rate has decreased during the past few years, year-over-year wage growth has alsodecreased. This indicates the existence of a huge structural problem, according to Silvia.If the unemployment rate were just cyclical, its coming down would be associated with higher wages becausecompanies would be chasing after skilled workers.He said that in various localities across the country with high structural unemployment, many people have the wrongskills, and semi-skilled and low-skilled manufacturing jobs have disappeared. Furthermore, new manufacturingfacilities that are being created today are fully automated and require a few workers who can navigate a laptop.Because unemployment is structural, he said, printing more money to extend unemployment benefits will not solvethe problem. Instead, he proposed a voucher program that would aid displaced workers in obtaining new skill sets.