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Frost Bros. say, 'Economy to pick up in 2014'

By Judith Pannebaker BCC Editor

Entrepreneur Gary Johnston held his annual Bandera County Economic Development Summit XII on Friday, May 10 for, as he put it, "local movers and shakers, people who make things happen in this community - or not, as the case may be.

Making their biennial appearance were keynote speakers Tom Stringfellow, CFA, and Michael Brell, CFA, Frost Bank investment advisors, who are known throughout the Hill Country as "The Frost Brothers." Using their familiar tag-team approach, Brell kicked off discussions by offering a quick overview of a "Macro and Strategic Outlook."

Starting off on a positive note, he predicted more "muddle through with modest improvements" throughout the remainder of this year, but felt that growth should pick up in 2014. "Although the US economy has struggled, in terms of economic recovery, the Hill Country and Texas are doing better than the US and the United States is doing better than other countries across the world," Brell said.

Characterizing the financial freefall of 2008 as "not your garden variety recession," he noted that it had occurred because of a structural downturn related to the bursting of housing and mortgage bubbles. "But," Brell added, "we avoided another Great Depression." In that regard, Stringfellow considered TARP (Troubled Asset Relief Program) a success because it put new money back in the treasury.

In 2008, then President George W. Bush signed TARP into law, which allowed the United States government to purchase assets and equity from financial institutions to strengthen the financial sector. TARP became part of the government's measures to address the subprime mortgage crisis - what Brell referred to as "a structural turndown."

After attributing the so-far slow recovery to subpar growth in the housing industry, Brell noted that same industry is now experiencing an uptick. "In 2014, growth is likely to accelerate," he said, noting that stronger housing prices and volumes are supported by pent-up demand, affordability at multi-decade highs and inventories at almost all-time lows.

"There's been above-average construction activity throughout the Hill Country," Brell said. "This market will continue to rebound because of a decreased supply of housing units. When there's not enough supply, prices increase."

He also noted that if an individual can qualify for a mortgage, now would be the time to enter the housing market. "It will be cheaper to buy a house than to rent an apartment," Brell said.

Other factors leading to a better economy in 2014 include a "domestic renaissance" in energy, autos and possibly manufacturing. "The Ford and GM recovery is real and those companies are expected to gain not only in the US markets, but also in European and Chinese markets." Additionally, he noted that increased fuel costs also support more production in the United States because of its recent boom in natural gas production.

Additionally, wage increases in India and China should cause a decline in the off-shoring of jobs, making the US more competitive on global markets, Brell said. "A decrease in the cost of natural gas allows products made by US chemical products to be exported to the world," he added, calling the Eagle Ford Shale "a big plus" - to both Texas and the nation.

Offering what he termed "market thoughts" to the crowd assembled at Brick's River Café, Stringfellow, a 33-year veteran at Frost Bank, agreed with Brell that Texas in general and San Antonio in particular is "recovering nicely" from the Great Recession of 2008 - particularly when compared to cities such as Detroit, Michigan.

"I'm an optimistic in the market, but a pessimist by nature," Stringfellow said, adding, "I don't see inflation for some time to come.

Despite market naysayers, he felt the average person is better off today than he has ever been. "The housing market has recovered for real and there has been a decrease in unemployment."

Interestingly, regarding the market and politics, presidential cycles from the 1940s shows no differences between Republicans or Democrat administrations. " It doesn't matter what party is in power, the market will work around obstacles and find ways to make things work. The market did well under Clinton and badly under Bush," Stringfellow said. But, when faced with the unknown, make the best plans you can with the information you have. Be prepared and diversify."

Stringfellow recently attended a conference that featured speaker Fred Barnes, executive editor of The Weekly Standard.

"Barnes told the group that nobody's winning in Washington, DC," Stringfellow said. "Obama detests the Republicans because he thinks they're protecting the rich and the Republicans consider all Democrats as socialists. Everybody's waiting for the midterm elections so we'll have a lot of rhetoric and not much action over the next year and a half."

Pictured: Photo by Judith Pannebaker
After his "Macro and Strategic Outlook" presentation, Frost Bank investment advisor Michael Brell, CFA, greeted Angelika Inzanti and Gary Johnston, host of the always-anticipated Bandera County Economic Development Luncheon XII, held Friday, May 10.

Photo by Judith Pannebaker
Frost Bank investment advisor Tom Stringfellow, CFA, offers an investment tip as Bandera County Judge Richard Evans takes note.