Dr. J. Antonio Villamil

1. Growing your South Florida Business in the “New Normal” Economy Dr. J. Antonio Villamil The Cuban American CPAs Association, Inc. Fall Seminar December 12, 2012

2. The 2013 Business Environment: Managing your Business in the “New Normal” Economy • A prolonged period of below potential economic growth in US and industrial countries through 2013 • Business opportunities in selected emerging markets of Asia and Latin America – positive for global-oriented businesses • Low “pricing power” for most products and services (e.g., low and stable inflation), which suggests a prolonged period of relatively low-real interest rates – QE3 and FED “forward guidance!” • Consumers and businesses “re-liquifying” balance sheets; building cash, expanding operations and spending cautiously • Emphasis on productivity, expense management and credit quality to improve profitability of your business • Big uncertainty: Resolution of “Fiscal Cliff” and the “Affordable Care Act” (Obamacare)

3. The “New Normal” Economy: Key Financial Areas to Monitor at National Level Through 2013 1 US HOUSEHOLD NET WORTH FLOW OF FUNDS 2 MONETARY BASE 3 4 5 M2 MONEY STOCK VELOCITY OF M2 MONEY STOCK

4. US Household Net Worth: Consumers Paying Down Debt and Spending Cautiously (US $ Trillion) Source: Federal Reserve, Flow of Funds, Q3-2012, December 6, 2012

5. Flow of Funds(Percent Change/Prior Period) “DANGER ZONE” Source: Federal Reserve, Flow of Funds, 2Q-2012, September 2012.

6. Helicopter Ben!”: Monetary Base at Record Levels: What is FEDs Exit Strategy? Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from Jan 1950-October 2012 . Shaded areas indicate US recessions.

7. Money Growth Accelerating Due to FED “Easy” Policy: Where is Inflation? Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from Jan 1959-October 2012 . Shaded areas indicate US recessions.

8. M2/GDP: Not Getting GDP Growth out of $1 of Money Growth 1950’s Level! Source: Federal Reserve Bank of St. Louis, Economic Research. Latest observations based from 1Q-1959-3Q-2012 . Shaded areas indicate US recessions.

9. Economic Drivers Suggest Steady, but Modest Economic Expansion through 2013 if Fiscal Cliff is Satisfactorily Resolved

10. THE US AND GLOBAL ECONOMIES UNDER THE “NEW NORMAL”: WHAT ARE THE ECONOMIC INDICATORS TELLING THE BUSINESS COMMUNITY

11. US Economic Growth Below Potential Through 2013:FEDs QE3 Could Increase Growth in 2013, but Risks Higher Inflation Expectation in 2014

12. Global Economic Driver of US: Stronger Economic Growth in Selected Emerging Markets, but Sluggish in Many Industrial Countries – Positive for Expanding your Global Business

13. Global Economic Activity: Latin America Region Expanding at Moderate Pace

14. US AND GLOBAL ECONOMIC INDICATORS SUGGEST A MODERATELY IMPROVING SOUTH FLORIDA ECONOMY IN 2013

15. South Florida Economy: Moderate Growth, with a Steadily Improving Real Estate Markets

16. Business Opportunities under the “New Normal” of Below Potential Economic Growth • Mergers and acquisitions (M&A activity) • Exports to selected emerging markets; including services such as tourism, education, healthcare • Retail Trade: consumer spending growing • Business services (accounting, legal, engineering, consulting) • Foreign companies investing in South Florida (from Canada, Europe, Mexico, China, Brazil) • Selective income producing properties (commercial) • Wealth management (high net worth international visitors, “baby boomers”) • Mortgage refinancing products

17. Concluding Perspectives for 2013 • A much-changed economic environment for business through 2013 • A “New Normal”: Slower economic growth than in prior cycles with ample financial liquidity and low-interest rates • Consumers, corporations and businesses repairing balance sheets: building cash! Spending cautiously • Risk shifting from private to public sector (public finance a key issue) • Low and stable short-term interest rates through 2013; time to “lock in” if you are a borrower (interest-sensitive) • Watch “Fiscal Cliff” resolution as economy risks another recession if not solved. Uncertainty!