INVESTMENT MANAGEMENT, LLCpiedmonteconomics.club/w2/admin/Raj - Presentation... · The Year Ahead...

What can we expect in the year ahead?

Raj Gupta

February 13, 2019

SEACRESTINVESTMENT MANAGEMENT, LLC

➢ 2018, a Year to be Remembered…

➢ Demographics and Their Impact on Investment Returns

➢ Developed and Emerging Nation Indebtedness

➢ The Year Ahead

➢ Summary and Q&A

2


Agenda




➢ The Year Ahead

➢ Summary and Q&A

3


Agenda

4


2018 Review

2018 Ups and Downs:

Global Risks and Uncertainties

Fed Hikes

High Levels of Volatility

Low Total Returns

5


2018 Review - Global Risks and Uncertainties

Other Headline Themes in 2018:

➢ International Trade Tension

➢ Geopolitical Unrest in the Korean Peninsula

➢ Brexit: should we stay or should we go…?

➢ Fears of an Impending Global Growth Slowdown

➢ US business investment decelerated in the second half of 2018

➢ US Housing became an early casualty of rising interest rates

➢ China slowdown

6


2018 Review – Fed Hikes

Fed Hikes 4 times in 2018:

Rates started at 1.50% and ended at 2.50%

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2018 Review - Volatility

DJ Positive Historical Record from 2018:

8th highest daily percentage change on December 26th: 4.98%

Largest daily point gains for the Dow Jones:

Source: Yahoo Finance

Largest daily point drops for the Dow Jones:

Source: Yahoo Finance

DJ Negative Records from 2018:

8th lowest daily percentage change on February 5th: - 4.60%

9th lowest daily percentage change on February 8th: - 4.15%

Worst Christmas Eve trading day in History: - 2.67%

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2018 Review – Total Returns

Asset Class Performance December Q4 and YTD 2018 – Total Return %

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2018 YTD Returns

➢ETF ASHR China-28.44%

➢ETF USO Oil-19.57%

➢ETF SHY 1-3Y T-Bond1.46%




➢ The Year Ahead

➢ Summary and Q&A

9


Agenda

10


Demographics

➢ Projected to increase from:

7.35B (2015) to 9.73B (2050): 32% increase9.73B (2050) to 11.21B (2100): 15% increase

➢ Current population growth is slower than 10 years ago

➢ Old-Age Dependency Ratio (population aged 65+ per 100 population aged 15-64)

✓ Developed Nations = 26.74

✓ Developing Countries = 9.69

Source: CS, SeaCrest

Population in the World and Regions:

Cumulative Projected Population Growth Old-age dependency ratio


11


Demographics

➢ General trends are towards:

✓ longer lives

✓ lower fertility rates

✓ higher median ages

✓ higher old-age dependency ratios


Core Demographics – Selected Countries Ranking

# 1 # 2

Population size China India

Old-dependency ratio Japan Italy

Median age Japan Germany

12


Demographics

➢ 86% of the world’s population

➢ 77% of the world’s land mass

➢ 39% of the world’s GDP

➢ 21% of stock market capitalization

➢ 5% of the world’s bond markets

Source: Population – World Bank, 12/2016. GDP – IMF, 10/2017. Market Cap – IMF, 04/2018

Emerging Nations of the world account for:

13


Population Pyramid: Developing Nation Advantages

➢ Mexico: 27.3% of population under 14 years old

➢ Japan: 13.0% of population under 14 years old

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Demographics

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Fertility Rate vs. Per Capita GDP (2007)

➢ Fertility rate drops as income per capita increases

➢ Replacement level is hit at an income per head of $4,000 - $10,000 a year

➢ Globalization has resulted in an increase of women in the workforce

Size of circle is proportional to country's population

Source: The Economist, www.gapminder.org

Demographics

“the fertility rate of

half the world is

now 2.1 or less—

the magic number

that is consistent

with a stable

population”

The Economist,

October 29, 2009

As of December

2015, the average

global fertility rate

was about 2.5

The United Nations

Department of

Economic and Social

Affairs

15


Pensions Funds under significant pressure

➢ U.S. multinationals are contributing to a $78 trillion gap in pension funding

within a group of 20 countries that belong to the Organization for Economic

Cooperation and Development

Source: Citigroup, Bloomberg, SeaCrest

Demographics




➢ The Year Ahead

➢ Summary and Q&A

16


Agenda

17


Developed and Emerging Nation Indebtedness

World Government Debt as a % of GDP

US leads the World with

roughly $22 trillion

Greece is at a level of

approximately 178%

Japan has the highest

debt-to-GDP ratio, at

239%

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General government gross debt as a percentage of GDP

✓ Debt in excess of 90% associated with mean growth of 1.7%

✓ Debt between 30% - 90% associated with mean growth of 3.0%

✓ Debt below 30% associated with mean growth of 3.7%

Source: OECD National Accounts Statistics; Eurostat Government finance statistics. IMF Economic Outlook. April 2017.



Government Debt, Growth, and Inflation: 1946 - 2009

Advanced Economies

Source: Growth in Time of Debt, Reinhart and Rogoff (2010)

19

Developing Economies

20



Source: IMF, Bloomberg

% annual GDP growth

gross debt as % of GDP

GDP growth moving average

90% Debt / GDP

Lost Decades: The Japanese Experience

➢ Gross Debt as % of GDP and Annual GDP Growth Rate

21


IMF projections of gross debt as a share of GDP

Source: IMF Fiscal Monitor. April 2018.


https://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&ved=2ahUKEwisvprh5e3fAhVhhOAKHXA3AuUQjRx6BAgBEAU&url=https://seekingalpha.com/article/4204900-drowning-debt-road-30-trillion&psig=AOvVaw1FuLMyOYDV5qUxMm_Wisul&ust=1547573065799382

22


US historical gross federal debt as a percentage of GDP

Source: Advisor Perspectives, dshort.com. 2017.





➢ The Year Ahead

➢ Summary and Q&A

23


Agenda

24


Low Interest Rates

Nominal Yields on Government Bonds

➢ Current State of Interest Rates

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10 Year Bond Rate

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Low Interest Rates

Normalization

➢ In Sep 2018, global stock of negative-yielding bonds hits low

➢ Just to see the level rise back to well over $8.0 trillion

Source: Bloomberg as of Jan 2019

26


Low Interest Rates

How to save under Negative Interest Rate Policy - NIRP conditions?

➢ What would you do if the interest rate(s) on saving account(s) fell

below 0%, for example, to -0.5%, so that you would receive less

money in the future than you originally saved.

Source: VoxEU.org

27


Stocks and Bonds

Dividends as a Bigger Part of Company Profits

➢ Investors are clamoring more for dividends as a result of low rates

➢ Are stocks being treated as an alternative to bonds?

➢ Between 2012 – 2015:

US companies acquired $1.7 trillion of their own stocks

➢ Announced buybacks for 2018 hit $1.1 trillion

Source: Wall Street Journal

28


Stocks and Bonds

What to expect in 2019…?

➢ International Trade – China and USA

➢ Korean Peninsula

➢ Global Recessionary Risk

➢ India Elections

➢ Washington Grid Lock

➢ Brexit

➢ Venezuela: end game?




➢ The Year Ahead

➢ Summary and Q&A

29


Agenda

30


Questions & Answers

Organization

SeaCrest Investment Management, LLC is an SEC registered investment advisor specializing in the

management of fixed-income portfolios for institutional and private clients. SeaCrest is an employee-

owned Firm with offices in New York, Michigan and South Dakota.

SeaCrest Wealth Management, LLC (SWM) is an SEC registered investment advisor providing

wealth management guidance and solutions based on a thorough understanding of each client’s

goals. SWM has offices in Arizona, California, Illinois, Florida, Kansas, Kentucky, Maine, Michigan,

Missouri, New Hampshire, New Jersey, New York, Ohio, Oregon, South Carolina and South Dakota.

Disclaimer

This is not an offer to purchase or sell securities. Not for distribution to the general public. There is no

assurance that an investment will achieve its objective. Investments are subject to market risk, which

is the possibility that the market values of securities owned by the investment will decline and that the

value of the investment may therefore be less than what you paid for them. Accordingly, you can lose

money. Investments in foreign markets entail special risks such as currency, political, economic, and

market risks. The risks of investing in emerging market countries are greater than the risks generally

associated with foreign investments.

31


Our Location

3010 Westchester Ave, Suite 307

Purchase, NY 10577

914-502-1900 Phone

914-251-1312 Facsimile

www.seacrestim.com

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