Top Stock & Wall Street Predictions for 2013

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Every December, trendsetters, astrologers, and clairvoyants test their credibility with a slew of prognostications – only some of which ever come true. Here at CNBC, we also like to show off our talent for predictions. Since we've got our finger on the pulse of the news and the global markets, our financial contributors are usually pretty smart about what the next year will bring. We asked the CNBC Fab Five -- Maria Bartiromo, Jim Cramer, Larry Kudlow, Joe Kernen and Tyler Mathisen -- to ponder a few weighty financial questions and give us their wisdom. Below is our annual look-ahead to what we call The Big Picture. Let us know if you agree – or if you don't – with their predictions for 2013. 1. What is in store for interest rates in 2013? CRAMER: I think rates can go much higher. Perhaps as much as 3.75 percent for the 30-year treasury. KERNEN: Like watching grass dry, or paint grow. Courtesy of Bernanke and Co. MATHISEN: Basically flat but slightly higher for treasuries and mortgages. BARTIROMO: Interest rates will continue to stay at rock-bottom levels. The Fed has already told us rates will remain at very low levels until 2015. I would expect QE4 to be announced sometime in 2013, which will reinforce this notion. KUDLOW: Don't look for much change in next year's interest rates barring a fiscal cliff recession, which I do not expect. The Fed will be ultra-easy, short rates stay near zero, QE in perpetuity. Long rates could drift higher from modest inflation pick-up from a soft dollar. 2. Where will the unemployment rate be by this time next year? CRAMER: I think we could see employment at 7 percent. KERNEN: Still in the 7s… MATHISEN: Unemployment will go down, but it won't be lower than 7.5 percent. BARTIROMO: The unemployment rate will likely stay around 8 percent, if not get worse, particularly if we go over the fiscal cliff. The upcoming expiration of the Bush tax cuts and the cuts in spending will likely push the economy into recession next year if not addressed, which will send unemployment higher. KUDLOW: With tax increases likely, including the Obamacare tax and regulatory and mandate increases, don't expect growth or unemployment to change much. Entrepreneurs are ready to rock, but they need a dose of free market policies to unleash confidence. I'm not optimistic about that. 3. Which companies do you think will become irrelevant in 2013? CRAMER: Advanced Micro Devices, Nokia, Sony KERNEN: The New York Times and other print-based entities. MATHISEN: Best Buy BARTIROMO: There will always be relevant and irrelevant names. What investors need to focus on are fundamentals. What we have learned again and again from the dot.com boom and bust and the housing boom and bust and so many other bubbles is, if it looks too good to be true, it probably is. So look for those companies that may have a mismatch in terms of revenue and earnings growth relative to their market valuation for those that could end up busting. 4. Who will win the World Series in 2013? CRAMER: OK, I think pitching is everything, which means San Francisco is going to win the World Series. It bothers me because I'm a Philadelphian, and at one point the Phillies had the best rotation -- but our rotation got old. It's almost as if the Giants' rotation got young, so they're going to win it. KERNEN: Every year I predict the same winner, and that would be the Big Red Machine. The Big Red Machine is coming back; we're going to call it that again -- Cincinnati Reds. MATHISEN: I think the two teams in the World Series next year will be the Cincinnati Reds and the Los Angeles Angels of Anaheim. The Angels have got a great team and the best manager in baseball, Mike Sosa. I think they are ready, and I think they'll win it in 2013. BARTIROMO: New York Yankees KUDLOW: It's gotta be the New York Yankees, but then again I say that every year. I am a manic Yankee fan, and they are going to have to change two-thirds of their lineup and their pitching staff. But yeah, go Yankees go. Good Riddance, $4 Gas Gasoline prices will continue to vary widely depending on where you live. But an improving supply picture will help alleviate any price increases in the national average next year. In 2013, the return and restart of major refinery units from the East to West coasts, and particularly along the Gulf of Mexico, will enable the production of more gasoline and keep pump prices from topping the $4 mark. Gates Back at Microsoft With Windows 8 a disaster, and the Surface tablet not close to meeting original internal projections, Steve Ballmer'sdays at Microsoft in 2013 are ... over. The bigger surprise: Chairman Bill Gates returns as interim CEO in a last-ditch effort to do the impossible: re-engineer Microsoft to its former glory. Perhaps the only bright side: To keep investors engaged, Microsoft more than doubles its regular dividend. Hewlett-Packard Splits Hewlett-Packard: All the king's horse and all the king's men (and CEO Meg Whitman) realize Hewlett-Packard cannot be put back together again. Before the end of 2013, the company is restructured, with the spinoff of its PC and printer business as HP makes a last-ditch effort to be like IBM. Buffett & His Elephant He wrote in his 2011 letter to Berkshire shareholders that his "elephant gun has been reloaded, and my trigger finger is itchy" for a multibillion dollar acquisition. It hasn't happened so far. Buffett revealed that two possible big buys "that were plus and minus" $20 billion didn't get done this year because he couldn't get the price he wanted. Berkshire won't borrow money to do a deal, unlike competing buyers who use cheap money to "bid pretty aggressively." Still, in an October CNBC interview, Buffett told us he's "salivating" for another big acquisition and I think he'll finally bag one with a big chunk of the $40 billion in cash now burning a hole in Berkshire's pocket. Obamacare Tax Reprieve UnderArmour Will Make Serious Moves at Nike Nikestill owns the shoe business, but if UnderArmour can get things going with its sneaker business, it will make a huge move to the upside. Its apparel has more cache with young Americans, and the growth trajectory has UA on a collision course with the sports icon from Oregon. My prediction is that UA profits and stock price will outperform Nike for the year. Medical device makers like Medtronic, Stryker and Boston Scientific face a 2.3 percent excise tax on revenues starting in 2013 under Obamacare. The expected drag on profits has been a headwind for the sector. It's unlikely the industry will succeed in getting the tax overturned in the current budget negotiation environment. But if device makers succeed in getting a partial rollback, the sector could see a lift. Over the next couple years, watch for consolidation among device makers as costs rise due to the new tax, but continued competition could prevent firms from raising prices. Major Bankruptcy in India India could experience a major corporate bankruptcy in 2013 that could hurt investor confidence. Many companies have taken out foreign currency loans and are feeling the heat as the rupee weakens. At the same time, growth is slowing, some industries are locked in brutal competition (look at aviation and telecom) and input prices are rising. A downgrade for India's sovereign rating looks likely, and that could have a knock-on effect, raising funding costs for corporates further and pushing the weak ones finally over the edge.

What is The Future of Berkshire Hathaway?

Berkshire Hathaway (NYSE: BRK.B) executive David Sokol quit the conglomerate. There were questions about his trading of shares in Lubrizol before Warren Buffett, Berkshire’s chief, decided to buy the firm. Conveniently, both men said that Sokol had tried to resign before and miraculously Buffett had decided to move toward retirement again recently.



A great deal has been made of the fact that Sokol might take over as head of Berkshire one day. He was one of a list of “Buffett replacements” that the press identifies from time to time.



Investment manager Todd Combs joined Berkshire last year and become a new candidate to run the company, at least in the eyes of the press. China investor Li Lu has been tagged as a candidate. And, Berkshire has a number of large operating companies with stellar CEOs. The head of Burlington Northern, Matthew K. Rose, a railroad Berkshire bought recently, is also described as being worthy of consideration.



Berkshire’s board also has at least one member who could become CEO–Steve Burke, the COO of Comcast and head of the NBCU unit the cable company controls.



Buffett has revealed very little about who might replace him or whether the new management might be a group–a sort of Office of the CEO.



The most important aspect of any debate over who might take Buffett’s job is that Berkshire is a very different company than it was three years ago. It owns more operating companies. Buffett’s prowess as an investor has become less important to the company’s fortunes, and no one could be expected to duplicate his investments returns which date back to the 1960s.



There are more people to replace Buffett than most observers of Berkshire will admit. And, the old man could live another 20 years.


by
D, McIntyre

Why did Berkshire Hathaway Buy Lubrizol for $9 Billion

Berkshire Hathaway announced on Monday that it would buy Lubrizol for $9 billion in cash – making it one of Warren Buffett’s largest deals ever.




Berkshire is paying $135 a share for the Indiana specialty chemical maker. The price represents a 28 percent premium to Lubrizol’s closing price on Friday.



“This transaction provides compelling value to our shareholders and is a clear endorsement of the growth and diversification success Lubrizol has achieved,” James Hambrick, chief executive officer, in a statement. “We are very excited to have the opportunity to become part of the Berkshire Hathaway family.”



The Oracle of Omaha, in his latest investment letter, indicated that he was on the hunt for major acquisitions. “We’re prepared,” he wrote. “Our elephant gun has been reloaded, and my trigger finger is itchy.”



And Lubrizol fits much of Mr. Buffett’s deal-making criteria. It’s a large company, with earnings of $732 million in 2010. Those earnings are relatively consistent, too. The product is to easy to understand: Lubrizol makes goods global transportation, industrial and consumer markets like fuel additives for gasoline and diesel. The management team has been in place for awhile, too – another core tenet of the billionaire investor’s strategy. Mr. Hambrick joined the company in the 1970s while still in school, and was named CEO in 2004.



“Lubrizol is exactly the sort of company with which we love to partner – the global leader in several market applications run by a talented CEO, James Hambrick,” Mr. Buffett said in a statement. “Our only instruction to James – just keep doing for us what you have done so successfully for your shareholders.”



That Mr. Buffett is using cash to buy Lubrizol may indicate he thinks Berkshire is undervalued. In a prior annual letter, he lamented the use of stock in the purchase of the Burlington Northern Santa Fe Railway, saying he enjoyed issuing shares as much as “prepping for a colonoscopy.”



“The reason for our distaste is simple. If we wouldn’t dream of selling Berkshire in its entirety at the current market price, why in the world should we ’sell’ a significant part of the company at that same inadequate price by issuing our stock in a merger?” Mr. Buffett wrote. “If an acquirer’s stock is overvalued, it’s a different story: using it as a currency works to the acquirer’s advantage.”



At a recent price of $128,000, shares of Berkshire are still way off their 2008 peak of $147,000.

The Essays of Warren Buffett: Lessons for Corporate America, Second Edition

Citigroup and Evercore Partners advised Lubrizol on the deal, while the company’s legal counsel was Jones Day.
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