As I look back at the TOP picks for 2013 made by me and by a number of my LinkedIn connections, I realized that former Microsoft chief technology officer Nathan Myhrvold was right when he said, “It is better to predict dramatic things that don’t happen than boring things that do.”

Collectively, my fellow prognosticators and I were generally accurate in our predictions for 2013. Capital spending remained soft. The bitterness held by the general public toward their congressional representatives remained harsh. The Alta Group’s Shawn Halladay correctly assessed the level of dissatisfaction with the current drafts of lease accounting proposals. He asserted that an acceptable solution might be presented. No such luck as we continue to wallow along without direction. Dr. James Johnson, professor of finance, Northern Illinois University, correctly predicted sustained low interest rates for the year.

Regarding my predictions that niche lessors will continue to thrive and that soft costs will continue to grow as a percentage of the equipment finance pie — both seem to fit squarely within the observation made by Mr. Myhrvold — not very dramatic at all. My projection that one or more European lessors would retreat from the U.S. market appears to have missed its mark, though not completely. At least two, and perhaps three, of my suspected candidates have minimally reigned in their growth aspirations.

Will 2014 be similar to 2013 with marginal growth marked by a lack of business confidence? Will we once again experience the effects of a dysfunctional U.S. Senate and House of Representatives? With the recent advancement of a bipartisan budget that passed both House and Senate votes before being signed by President Obama on December 26, another government shutdown is unlikely. However, the watchword of the moment continues to be the same word that has restrained our growth for the past several years . . . uncertainty!

Many pundits are predicting continued marginal economic growth for 2014. In their 2014 U.S. Economic Outlook, the Equipment Leasing & Finance Foundation estimated “…economic growth is set to accelerate in 2014, driven by a number of positive factors. Specifically, a sustainable housing market recovery, low natural gas prices, robust auto sales, record high household wealth, steadily improving credit availability and improving employment gains all point to three percent or stronger growth next year.”

Prediction: For my first prediction I am going to disagree with the pundits and the ELFF by forecasting no more than 2.5% growth and probably something closer to 2%. I blame it on the watchword — uncertainty. Our country is experiencing an absence of strong political leadership, making it difficult for individuals and businesses to project mid to longer term direction and results. This is driven by many factors like the unknown future tax burden for individuals and corporations, the long-term cost and effect of the Affordable Care Act (aka Obamacare), the long term survivability of Social Security and the impact of bigger government along with its accompanying highly charged regulatory environment. This uncertainty derails business confidence, which negatively impacts our industry.

Observation: 2014 is a mid-term election year. Broadly, folks are not happy with their representation in Washington. As reported in the December 31, 2013 issue of The Week, a recent Gallup poll showed only 9% of Americans approve of the way Congress is doing its job, the lowest number in 39 years, and according to an NBC/The Wall Street Journal poll, 60% of respondents would like to replace every single senator and representative. Expect this general level of dissatisfaction to spill over into the voting booth come November.

Trend: Notice that I label this annual article as my TOP picks, with the acronym representing trends, observations and predictions. Notice the order of my first three items . . . a prediction, an observation and a trend . . . POT. A growing trend in American society is the increased acceptance of marijuana. Medical marijuana is now legal in 20 states and the District of Columbia. It is about to be legalized in New York without legislative review due to an obscure law that allows the state to dispense the product. Voters in Washington and Colorado approved recreational use of pot and many Colorado dispensaries are already sold out. With the growing acceptance — despite its heavy taxation — we should expect to see an increase in the legalized sale of cannabis. Which lessor will take the bold next step to finance the warehouses, the lights, the required 24/7 video surveillance systems, the water filtration systems, all of the distribution equipment and even the individually barcoded plants? Pot is a growth industry but not one for the fainthearted. Quoting from a January 13 New York Times story “. . . banks, including state-chartered ones, are reluctant to provide traditional services to marijuana businesses. They fear that federal regulators and law enforcement authorities might punish them, with measures like large fines, for violating prohibitions on money-laundering, among other federal laws and regulations.” It will take an independent lessor with a liberal mindset to tackle this new trend. Will we see it happen in 2014? Time will tell.

Observation: Leasing leaders make good banking leaders! Most recently, it was Jim McGrane who took on a broader role as executive vice president of the Commercial Group at Everbank. He joined the firm as part of the Tygris acquisition where he previously served as president & CEO of Tygris Vendor Finance. Jim turned over his leadership role in equipment finance to his long time sidekick Jeffrey Hilzinger. A few months back it was Rick Remiker who took on the role of executive vice president and executive managing director of Specialty Banking for Huntington Bank. He turned over the reins of the equipment finance business to Michael DiCecco, a 12-year veteran of Huntington Equipment Finance. John McQueen has taken on an expanded role at Wells Fargo. Sal Maglietta moved from heading U.S. Bancorp Equipment Finance to heading the bank’s Specialty Finance Division. And before retiring last year, Ellen Alemany was head of RBS Americas and chairman and chief executive officer of RBS Citizens Financial Group. She joined RBS after a 20-year career with Citigroup where she held roles as CEO of Citigroup’s Global Transaction Services and president and CEO of CitiCapital. Who’s next? There is obviously a lot more talent out there and ample opportunity for the courageous.

Prediction: Insanely fierce pricing competition will lead to portfolio decay. You say, “What? How can that be?” Many lenders cannot compete on price due to their higher cost of funds. As they continue to lose out on opportunities to larger entities with more aggressive pricing, they will revert to accepting transactional deficiencies elsewhere. It may come in the form of an overly aggressive residual investment, or perhaps by accepting substandard documentation. And yes, it may even come in the form of reduced credit quality, though I’m betting that it won’t be the banks that fall prey to this judgmental error. After several years of record setting portfolio quality improvements, even the stingiest most conservative lessors may find an uptick in their delinquencies and charge-offs in 2014.

Trend: The “asset-less” finance business will continue to grow. Last year I focused on software and services playing an increasingly larger role in IT financing. These intangibles continue to gain ground. In a January press release, Gartner projected a worldwide growth in IT spending of 3.1% in 2014, led by enterprise software with 6.8% in projected growth. Though device sales contracted by more than 1% in 2013, Gartner predicts a 7.6% increase in 2014. At this year’s Consumer Electronics Show, Intel chief Brian Krzanich announced significant investment in “Edison,” the next generation embedded processor that will fuel the growth of wearable devices. For the past few years the craze was tablets, smartphones and bring-your-own-device (BYOD). This year some of the hottest tech products include Google Glass, Oclulus Rift, artificial intelligence, ear buds, watches and other wearable products. Are you ready to finance air? With these gadgets there is little collateral value and a relatively short useful life. Get used to it!

Observation: Social media is for real. It is not a trend. A senior executive at my company proclaimed Facebook to be “a fad that will be gone in a few years.” Don’t bet on it. A Pew Research Center Internet Project Tracking Survey conducted during August and September of 2013 with Internet-using adults indicated that 71% use Facebook, 22% use LinkedIn, 21% use Pinterest, 18% use Twitter and 17% use Instagram. Each of these figures represents an increase in usage over a similar survey conducted in 2012. Leasing and finance companies need to leverage the power of social media for their advantage. If you don’t have “Follow” buttons for all the major social media websites — on your home page, email footer, newsletters, email marketing, etc. — you should consider hiring a social media consultant to help you maximize the benefit for you and your customers.

Prediction: Short-term interest rates will rise in 2014, but not by as much as most people expect. In the words of Bob Dylan, “It’s hard to speculate what tomorrow may bring.” After four-and-a-half years of modest recovery, and with a new chairperson of the Federal Reserve who has already indicated that tapering is about to begin, I don’t see rates rising to pre-recession levels. Instead, I see rates increasing perhaps 100 basis points for three- to five-year term finance products, leaving rates still in the range of historic lows. Despite improving unemployment, which is approaching the 6.5% level at which the Fed has warned of interest rate normalization, I think we are in for another ho-hum rather boring year as it relates to fiscal policy. It would be good to be wrong on this prediction because perhaps the threat of interest rate normalization would trigger CAPEX spending and the financing that goes along with it.

Trend: M&A activity is picking up. Element Financial continues to buy assets in Canada and the U.S. Don’t expect that activity to slow down any time soon. PacWest Bancorp should be closing its purchase of CapitalSource around the time this article goes to press. Following a recession-induced hibernation, GE Capital is back on the prowl. The prolonged period of artificially deflated interest rates has forced banks to search for new ways to enhance revenue. Many will be looking to either buy one of the few remaining valid independents or steal an origination team from an existing lessor and start a leasing division. Fully funded amortizing debt brings in a lot more revenue than untapped lines of credit. Expect this trend to continue through 2014 and beyond.

What do you think? Am I being too conservative — not bold enough? My trends, observations and predictions are based on a quote by management guru Peter Drucker: “Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window.” You can use deductive reasoning to help convert observations to trends and trends to predictions. Yet in reality, I am no more clairvoyant than the next guy, so your guess is as good as mine. If you have a different opinion on any of these thoughts please share it with me at [email protected].

Dexter Van Dango is a pen name for a real person who is a senior executive with more than 25 years of experience in the equipment leasing industry. A self-described portly, middle-aged, graying, balding leasing guy in the twilight of a mediocre career, Van Dango will provide occasional insight from the front lines via the Monitor.