As a global economist, Jeff Korzenik dissects topics ranging from China's growing pains to Japan's perpetual problem with productivity.
But one economic trend close to home has seized his passion: the natural gas boom.
An abundance of cheap natural gas could put the U.S. on the path to energy independence. It could be a huge job generator and cut transportation costs dramatically.
Korzenik, chief investment strategist for Fifth Third Bank, puts natural gas' long-term impact on the economy on par with the Internet. Along with numerous municipal fleets in Florida and beyond, the trucking fleets for Waste Management, home-improvement chain Lowe's and local beer distributor J.J. Taylor Distributing are among those that have made the switch to compressed natural gas. Ford revved up the movement this month, announcing it will offer a natural gas version of widely-popular F-150 pickup trucks for the 2014 model year.
"Florida seems to be ground zero for this," Korzenik said, "partially because of geography. It's flat here. The first generation of a lot of these engines do not have the power of diesel, so it's easier to see their application in flatter geographies."
Cincinnati-based Fifth Third for years has targeted the Florida market, focusing in particular on wealthy retirees who are looking for investment options.
Korzenik, who is based in Chicago, visits Florida up to four times a year to talk with clients. "I used to joke that Florida is essentially a real estate development company with a state attached," he said. "But Tampa/St. Petersburg is the exception to that … and that's probably a good thing. It's probably one of the most diversified metros."
The Times caught up with Korzenik, 52, during his latest visit.
Six months ago, you made some bold predictions about the natural gas revolution. Is this transformation happening slower than you thought?
No, I think it's happening at a pretty good pace. One of the more interesting things came recently when the president spoke in Illinois … referencing support for clean energy. He said the usual suspects — wind and solar — and then added natural gas. It struck me as a change in tone in this government's administration.
But we're not seeing federal subsidies for natural gas?
No, and I'm not sure that you need that. Most of our concerns for adoption of this technology revolve around regulatory issues. It's too early to tell whether this is a start of a friendlier approach by the EPA, but it certainly was a friendlier tone.
One of the reasons we feel we're on the right track with natural gas is this is happening without subsidy. I'd rather ride a trend that is going on without subsidy than a trend that would not exist except for subsidy.
Do you still think natural gas could rival the Internet in economic impact?
Yes. If anything, with the rise in (gasoline) prices and the further decline of natural gas prices, that differential becomes all the more compelling. While there's been talk for decades by some advocating a shift to a natural gas-based transportation system, the price differential did not exist until today.
What's the impact of Ford's move to offer F-150 trucks fueled on natural gas?
Too early to say, but certainly there's some symbolic value. It's part of the mainstreaming of the concept. We're (also) seeing growth in filling stations. What appears to be happening is CNG-filling stations that were developed for (trucking) fleets are opening up to the public. And that's a great way for this infrastructure to be built.
Is the transformation being slowed down by environmental concerns over the use of fracking to extract natural gas?
This may change, (but) I don't think so. I make no pretense about being an environmental expert. (But) it doesn't matter what you or I believe, it's how it's regulated. And I think the tone there has certainly improved. If you're fracking, does it cause more gas to go into the atmosphere? Methane is certainly a powerful greenhouse gas. But the EPA recently said that those concerns are overstated.
Beyond natural gas and our energy future, what else are you focusing on?
My day job? General macroeconomic trends.
What we're seeing right now is a reacceleration of the U.S. economy. We still think our economic trajectory is a function of a special kind of recession that we went through (in) '08, '09. We're still not done with this deleveraging phase, but it is shifting. Households are most of the way done. State and local governments are halfway done.
And now we have the federal government, where we see de-leveraging going on. The sequester is just one example. Higher taxes. The restoration of the payroll tax. But we think the worst is over in terms of the constraints. Our view is the second quarter will be the weakest quarter of the year.
With the economy picking up the rest of the year?
The weights on the economy are behind us. Housing is the biggest driver (of) this economic acceleration. We don't think that the higher mortgage interest rates that have come about because of the Fed's talk are that meaningful. We do think they'll constrain price increases, which is probably a good thing because that's the only thing we've been worried about: inflation.
Are you as bullish about Florida? Many Florida homeowners are still underwater in their homes (owing more than their homes' market value).
Florida is probably a laggard in that sense. But with some of the federal programs, even those somewhat underwater have been able to refinance. So that puts money in consumers' pockets. Now as we get payroll gains, that puts money in consumers' pockets. That's one reason we don't think home prices are that impacted or that the economy is that impacted (by rising interest rates).
The other issue for us is … we like what's going on in energy and manufacturing, and those aren't really interest-rate sensitive.
Number three, housing is largely driven by demographics. You think about when do people buy houses or go out on their own? Usually 25 to 30. Look at where we were in 1983; that was the early part of the echo boom. That means there are more people in the demographic of house buyers coming in. That's a nice tail wind.
But won't stagnant or lower wages keep a lot of young people out of the home buying market?
It may be you're going for rental, not purchase. Or you're sharing an apartment. There is a demographic shift toward preference to renting that may linger for some time. But all of those are new household formations.
I would say the human instinct to get out of Mom's basement is very, very powerful. And the older you get, the more powerful it becomes.
Jeff Harrington can be reached at [email protected] or (727) 893-8242.