Date post: | 30-May-2018 |
Category: |
Documents |
Upload: | santiago-cueto |
View: | 216 times |
Download: | 0 times |
of 53
8/9/2019 Top 10 Global Economic Surprises 2010
1/53
The Surprises of 2010
Byron R. Wien
Senior Managing DirectorTel: 212.583.5055Email: [email protected]
Byron's monthly essays are broadly recognized for their insight and perspective. If you would like to
receive future monthly market commentary publications by Byron Wien, please email
'
yronwenscommen ary ac s one.com.
8/9/2019 Top 10 Global Economic Surprises 2010
2/53
The Ten Surprises of 2009
-. .U.S. economy, the market improves from a base of investor despondency and hedge fundand mutual fund withdrawals. The mantra changes from fortunes have been lost tofortunes can still be made. Higher quality corporate bonds, leveraged loans andmortgages lead the way
2. Gold rises to $1,200 per ounce. Heavy buying by Middle Eastern investors and a worldwidedisenchantment with paper currencies drive the price of precious metals higher. In a timeof uncertainty, investors want something they can count on as real
3. The price of oil returns to $80 per barrel. Production disappointments and rising Asiandemand create an unfavorable supply / demand balance. Other commodities also rise,some doubling from their 2008 lows. Natural gas goes to $9 per mcf
4. Low Treasury interest rates coupled with huge borrowing by the Treasury send the dollarinto a serious downward slide. Overseas investors become concerned that the currencyprinting presses will never stop. The yen goes to 75 and the euro to 1.65
5. The ten-year U.S. Treasury yield climbs to 4%. Later in the year, as the economy showssigns of recovery, economists and investors shift their mood from concern about deflationto worries about inflation. A weak dollar, rapid growth in money supply and record-settingdeficits (over $1 trillion) are behind the change
1
8/9/2019 Top 10 Global Economic Surprises 2010
3/53
The Ten Surprises of 2009
. .authoritarian government for its thoughtful stimulus policies and effective execution duringa challenging period. The Chinese consumer begins to spend more and save less and thisshift is behind the unexpected strength in the economy
7. Falling tax revenues from the financial sector cause New York State to threaten bankruptcyand other states and municipalities follow. The Federal government is forced to step in andprovide substantial assistance. The New York Post screams When will the bailouts stop?
. ,
dropping 15% from year-end 2008 levels. The Obama stimulus program proves effectiveand a slow growth recovery begins before year-end. Third and fourth quarter real grossdomestic product numbers are positive
9. The savings rate in the United States fails to improve beyond 3%, as most economistsexpect. The concept of thrift seems to have vanished from American culture. Peak jobinsecurity and negative growth drive increased savings early in the year, but spendingresumes as the economic growth turns positive in the second half, making Christmas 2009
10. Citing concerns about Iraqs fragile democratically elected government and the danger of aTaliban-controlled Afghanistan, Barack Obama slows his plan for troop withdrawal in theformer and meaningfully increases U.S. military presence in the latter. In a hawkish speech
2
he states that the threat of terrorism forces the United States to maintain a strong militaryforce in this strategic area
8/9/2019 Top 10 Global Economic Surprises 2010
4/53
The Ten Surprises of 2010
.and the unemployment level drops below 9%. Exports, inventory building and technologyspending lead the way. Standard and Poors 500 operating earnings come in above $80
2. The Federal Reserve decides the economy is strong enough for them to move away fromzero interest rate policy. In a series of successive hikes beginning in the second quarterthe Federal funds rate reaches 2% by year-end
3. Heavy borrowing by the U.S. Treasury and some reluctance by foreign central banks to
eep uy ng no es an on s r ves e y e on e -year reasury a ove . . an sloan more to corporations and individuals and pull away from the carry trade, therebyreducing demand for Treasuries. Obama says, The suits are finally listening
.runs out of steam and declines to 1000, ending where it started at 1115.10. Even thoughthe economy is strong and earnings exceed expectations, rising interest rates and fullvaluations present a problem. Concern about longer term growth and obligations to
reduce leverage at both the public and private level unsettle investors
5. Because it is significantly undervalued on a purchasing power parity basis, the dollarrallies against the yen and the euro. It exceeds 100 on the yen and the euro drops below$1.30 as the long slide of the greenback is interrupted. Longer term prospects remain
3
uncertain
8/9/2019 Top 10 Global Economic Surprises 2010
5/53
The Ten Surprises of 20106. Ja an stands out as the best erformin ma or industrialized market in the world as its
currency weakens and its exports improve. Investors focus on the attractive valuations of
dozens of medium sized companies in a market selling at one quarter of its 1989 high. TheNikkei 225 rises above 12,000
7. Believing he must be a leader in climate control initiatives, President Obama endorses
legislation favorable for nuclear power development. Arguing that going nuclear isessential for the environment, will create jobs and reduce costs, Congress passes billsproviding loans and subsides for new plants, the first since 1979. Coal accounts for about50% of electrical power generation, and Obama wants to reduce that to 25% by 2020
8. The improvement in the U.S. economy energizes the Obama administration. The WhiteHouse undergoes some reorganization and regains its momentum. In the NovemberCongressional election the Democrats only lose 20 seats, much less than expected
9. When it finally passes, financial service legislation, like the health care bill, proves to beso er on e n us ry an or g na y eare . ere s grea er consumer pro ec on, moretransparency, tighter restriction of leverage and increased scrutiny of derivatives, but theregulatory changes for investment bankers and hedge funds are not onerous. Tradingvolume and merger activity increases; financial service stocks become exceptional
erformers in the U.S. market
10. Civil unrest in Iran reaches a crescendo. Ayatollah Khamenei pushes out MahmoudAhmadinejad in favor of a more public relations adept leader. Economic improvementbecomes the key issue and anti-Israel rhetoric subsides. Talks with the U.S. and Europebe in but the countr remains a nuclear threat. Pakistan becomes the hots ot in the
4
region because of the weak government there, anti-American sentiment, active terroristgroups and concerns about the security of the countrys nuclear arsenal
8/9/2019 Top 10 Global Economic Surprises 2010
6/53
Surprises Not on the 2010 List
! Gold
! Oil
! China
!
! Tax policy
5
8/9/2019 Top 10 Global Economic Surprises 2010
7/53
Crowd Sentiment PollDaily Data 1/03/2000 - 12/29/2009
(updated weekly on Wednesday mornings)S&P 500 Composite Index
Extremes Generated when Sentiment Reading:
Rises above 61.5% = Extreme Optimism
Declines below 55.5% = Extreme Pessimism
Sentiment must reverse by 10
percentage points to signal an
extreme in addition to the above
extreme levels being reached.
Arrows represent extremes in optimism and
pessimism. They do not represent buy and
sell signals and can only be known for
certain (and added to the chart) in hindsight.
1260
1320
1380
14401500
1560
1260
1320
1380
14401500
1560
S&P500 Gain/Annum When:
12/01/1995 - 12/29/2009
NDR Crowd Gain/ %
Sentiment Poll is: Annum of Time
:
840
900
960
1020
1080
1140
1200
840
900
960
1020
1080
1140
1200
* Above 61.5 -1. 2 35. 8
B et we en 5 5. 5 a nd 6 1. 5 6 . 3 2 1. 8
55.5 and Below 8.6 42. 4
verage aue f In ica or :
Optimistic Extremes (down arrows)= 67.8
Pessimistic Extremes (up arrows)= 45.9
Average Spread Between Extremes = 21.9660
720
780
660
720
780
75.7
73.571.9 72.271.9 72.2
12/29/2009 = 65.2Extreme Optimism (Bearish)
72
75
72
75
2000M J S D
2001M J S D
2002M J S D
2003M J S D
2004M J S D
2005M J S D
2006M J S D
2007M J S D
2008M J S D
2009M J S D
69.2
51.5
66.8
62.0
67.166.1
63.1
66.6
55.4
69.6.
69.5
66.4
54.5
67.2
61.9
51.9
68.167.1
62.2
53.5
59.4
54.8
.
58.1
66.7
51
54
57
60
63
66
69
51
54
57
60
63
66
69
.
46.0
48.7
45.7
40.4
37.6
46.5
33.9
47.3
43.8
46.6
49.7
42.5
49.9
47.6
30.9
46.8
42.5
33.9 33.9
49.7
38.037.1
32.5Extreme Pessimism (Bullish)33
36
39
42
45
48
33
36
39
42
45
48
6
Source: Ned Davis Research.
(S574) NDR Crowd Sentiment PollCopyright 2009 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.
.www.ndr.com/vendorinfo/. For data vendor disclaimers refer towww.ndr.com/copyright.htmlSee NDR Disclaimer at!"
8/9/2019 Top 10 Global Economic Surprises 2010
8/53
MSCI World Index (in USD)
MSCI World Index(in US$)
980
1,090
1,200
760
870 Minor divergence has developedthe average stock has just begun tolag the cap-weighted averages. Not
yet a reason to sell, though
650Dec 08 Feb 09 Mar 09 May 09 Jul 09 Sep 09 Oct 09 Dec 09
MSCI World Index Dail Advance / Decline Line
858
904
950
720
766
812
7
Source: The Leuthold Group.Source: The Leuthold Group.
Dec 08 Feb 09 Mar 09 May 09 Jul 09 Sep 09 Oct 09 Dec 09
8/9/2019 Top 10 Global Economic Surprises 2010
9/53
Standard & Poors 500 Stock Index
1,070
1,270 Price Move of:-0.4% to Overvalued (+1 SD) = S&P 500 Level of 1,091.06-25.7% to Median Fair Value = S&P 500 Level of 813.84
-51.0% to Undervalued (-1 SD) = S&P 500 Level of 536.61
(Monthly Data 12/31/1968 11/30/2009 (Log Scale))
270
470
670
70
1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
11/30/2009 = 1,095.63
S&P 500 Median Price / Earnings Ratio (NDR Calculation) with Historical Median(Davis100)
22
26
30
34
+2 SD
+1 SD
Very Overvalued
Overvalued
10
14
18 41-Year Median = 16.5
11/30/2009 = 22.2
-1 SD
Bargains
8
Source: Ned Davis Research.
1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
8/9/2019 Top 10 Global Economic Surprises 2010
10/53
World Market Cap as of 12/31/2003
World Market Ca as of 12/31/2003 World Market Ca as of 12/31/2008
8.5%
11.5%
Secular Bulls
Other
14.2%Secular Bulls
12.0%
73.8%
er
.ecu ar
Bears
Bears
Market Cap as a % Market Cap as a %
Countries in Secular Bull Markets Countries in Secular Bear MarketsMarket Cap as a % Market Cap as a %
Cap in 2003 Cap in 2008 Change
China 0.36% 1.72% 1.36Canada 2.54% 3.50% 0.96
Brazil 0.42% 1.22% 0.81Taiwan 0.55% 1.03% 0.48
South Korea 0.83% 1.29% 0.46
Cap in 2003 Cap in 2008 Change
U.S. 52.47% 45.03% (7.44)
U.K. 10.45% 8.35% (2.10)
Italy 1.56% 1.54% (0.02)
France 3.99% 4.58% 0.59
Germany 2.91% 3.67% 0.76Australia 2.05% 2.50% 0.45India 0.26% 0.62% 0.36Russia 0.22% 0.54% 0.32Mexico 0.29% 0.49% 0.20Hong Kong 0.65% 0.84% 0.19Singapore 0.33% 0.45% 0.12
Total 8.49% 14.21% 5.72
Japan 8.64% 10.60% 1.96
Total 80.02% 73.77% (6.25)
9
For data vendor disclaimers refer to www.ndr.com/vendorinfo. Further distribution prohibited without prior permission.Copyright 2009 (c) Ned Davis Research, Inc. All rights reserved.
8/9/2019 Top 10 Global Economic Surprises 2010
11/53
World Nominal GDP as of 12/31/2003
World Nominal GDP as of 12/31/2003 World Nominal GDP as of 12/31/2008
18.0%
Secular Bulls
24.2%
Secular Bulls
18.2%
63.8%Secular
Bears
Other
22.5%
53.3%Secular
Bears
Other
GDP as a % of GDP as a % of Point
Countries in Secular Bull Markets Countries in Secular Bear MarketsGDP as a % of GDP as a % of Point
China 4.57% 7.63% 3.06Russia 1.21% 2.86% 1.65Brazil 1.55% 2.76% 1.22India 1.51% 1.96% 0.45Australia 1.47% 1.74% 0.27
Canada 2.41% 2.61% 0.20
U.S. 30.88% 24.94% (5.94)
Japan 11.75% 8.49% (3.26)
U.K. 5.17% 4.63% (0.53)
Germany 6.80% 6.33% (0.47)
Italy 4.19% 3.99% (0.20)
France 5.01% 4.95% (0.06)Singapore 0.26% 0.31% 0.06
Hong Kong 0.44% 0.37% (0.07)South Korea 1.78% 1.64% (0.15)
Taiwan 0.86% 0.70% (0.17)Mexico 1.95% 1.59% (0.36)
Total 18.00% 24.16% 6.16
Total 63.80% 53.33% (10.46)
10
For data vendor disclaimers refer to www.ndr.com/vendorinfo. Further distribution prohibited without prior permission.Copyright 2009 (c) Ned Davis Research, Inc. All rights reserved.
8/9/2019 Top 10 Global Economic Surprises 2010
12/53
Diminishing Returns from Debt-Financing by Decade
-
($ in billions)
Diminishing Returns from Debt-Financing by Decade12/31/1949-6/30/2009
Debt Range
DecadeChange in
Debt(billions $)
DecadeChange in
GDP(billions $) Debt/GDP GDP/Debt
12/31/1949-12/31/1959 337.6 248.0 1.36 0.73
12/31/1959-12/31/1969 752.1 491.3 1.53 0.65
12/31/1969-12/31/1979 2,785.2 1,654.9 1.69 0.59
12/31/1979-12/31/1989 8,562.8 2,922.3 2.93 0.34
12/31/1989-12/31/1999 12,550.0 4,026.0 3.12 0.32
12/31/1999-06/30/2009* 27,403.6 4,543.5 6.03 0.17
11
Source: Ned Davis Research.(*) Most recent data available.
8/9/2019 Top 10 Global Economic Surprises 2010
13/53
The Economy (The Index of Coincident Economic Indicators)
$100
$400
(12-Month Total $ in billions)
Budget Surplus Federal Government Budget
($1,100)
($800)
($500)
($1,400)1965 1970 1975 1980 1985 1990 1995 2000 2005
8
2009
= , .
(1)
2
5
Budget Surplus 11/30/2009 = -10.0%Federal Budget Deficit / Surplus
as a % of Nominal GDP 2.7
(10)
(7)
(4)
(5.7)
Budget Deficit
(5.4)
(4.0)
12
Source: Ned Davis Research.
National Bureau of Economic Recessions.
8/9/2019 Top 10 Global Economic Surprises 2010
14/53
Government Debt (Federal, State, and Local) as % of GDP
100%
106%
Government Debt = $14,834.2 billion = 104.0%Gross Domestic Product = $14,266.3 billion
Quarterly Data 3/31/1952 9/30/2009
82%
88%
94%
83.6% 85.6%
70%
76%
55-Year Mean = 66.9%
71.0%
52%
58%53.2%
49.6%45.1%
46%
1950 1955 1961 1967 1973 1979 1985 1991 1997 2003 2009
47.2%
13
Data Subject to Revisions byThe Federal Reserve Board
Source: Ned Davis Research.
8/9/2019 Top 10 Global Economic Surprises 2010
15/53
Foreign Central Banks
8% 120%U.S. Nominal Trade-weighted Dollar(1)
4%
6%
80%
100%
2%%o
fGD
60%
Foreign Official Flows(2) to the U.S.
0% 40%
-2%
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1980
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2009
20%
14
Note: Shaded regions reflect periods of heavy foreign official inflows.(1) Source: J.P. Morgan Chase & Co, BCA Research.(2) Central Banks and Monetary Authorities.
8/9/2019 Top 10 Global Economic Surprises 2010
16/53
Dollar Watch Two Foreign Holders of U.S. Treasury Securities
$900Treasury Holdings as of 9/30/2009
($ in billions)
$600
$700$798.9
$300
$400
$500
$185.3
$100
$200
$0
2001 2001 2002 2003 2004 2005 2006 2007 2007 2008 2009
China OPEC
15
Source: Ned Davis Research.
8/9/2019 Top 10 Global Economic Surprises 2010
17/53
The United States Economy
8/9/2019 Top 10 Global Economic Surprises 2010
18/53
Good News
Real GDP
Peak-to-
7
8
9
RecessionTroughDecline
First yearRecovery
1957 -3.7% +6.9%uring
ry(%)
1953
19571960
1982 2008
3
4
51973 -3.1% +6.1%
1981 -2.9% +8.5%Deep
seinRealGD
P
YearofRecove
1974
19701990
0
1
22009 -3.9% +8.6%e
Shallow 2001 -0.3% +1.9%
Incre
Firs Regression
Y = 2.2 + 1.7*XR2 = 64%
2001
-5-4-3-2-10
Decline in Real GDP During Recession (%)
17
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
19/53
Good News
, .
2010:4Q Real GDP
4Q / 4Q Cont. to GDP
Consumer Spending +1.0% 0.7%
CapEx Eqp +10.0% 1.0%
Housing +10.0% 0.2%
Inventories +$196.0 1.5%
Trade +$140.0 1.0%
Federal Government +6.0% 0.4%
a e overnmen - . - .
CapEx Structures -10.0% -0.5%
18
.
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
20/53
Bad News
Real GDP Q/Q % A.R.1 and 2 Quarter of Recovery
1st 2nd
+ +. .
1983 +5.1% +9.3%
1991 +2.7% +1.7%
2002 +3.5% +2.1%
2009 +2.8% r +3.0%e
19
Source: ISI Group.
r = expected revision
8/9/2019 Top 10 Global Economic Surprises 2010
21/53
8/9/2019 Top 10 Global Economic Surprises 2010
22/53
Good News
Funds Distribution Reported By Week(Total Stimulus Amount $787 Billion)
($ in billions)
$250
Sep 30, 2010$255 e
$150
$200Paid Out
Nov 6 $132.5 b
$50
$100
$0
Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10
21
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
23/53
8/9/2019 Top 10 Global Economic Surprises 2010
24/53
CapEx Help for Industrial Machinery SharesU.S. Nominal CapEx Eqp Ex Tech
30
Q/Q % Ch A.R.
2009:3Q: - 10.0%
10
-10
-30
-
-50
-
23
-
1Q 2003 1Q 2004 1Q 2005 1Q 2006 1Q 2007 1Q 2008 1Q 2009
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
25/53
U.S. Employment
2008Actual-5.0%
1953
1957
-4.5%
-4.0%
-3.5%ecline
t
1974
1982
Fitted-3.0%
-2.5%to-troughD
Employme
2001
1960
1990Regression
*
-2.0%
-1.5%Peak-In
1970 - . .R
2= 73%
- .
-0.5%
0.0%
24
Source: ISI Group.
-4.0%-3.5%-3.0%-2.5%-2.0%-1.5%-1.0%-0.5%0.0%
Peak-to-trough Decline in Real GDP
8/9/2019 Top 10 Global Economic Surprises 2010
26/53
U.S. Employment
U.S. Temp EmploymentM/M Ch 3 Mo. Avg.
Nov 38
20
40
-20
0
-60
-40
-100
-80
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
25
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
27/53
U.S. Employment
35.0
Total Work WeekNov 33.2
34.5
34.0
33.5
33.0
1988 1989 1991 1993 1994 1996 1998 1999 2001 2003 2004 2006 2008 2009
26
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
28/53
U.S. Profits
U.S. Productivity2 Qtr. % Ch. A.R. 2009:3Q 8.2%
6
8
Biggest Gain in almostFive Decades
2
4
-2
0
-6
-4
1Q 1980 1Q 1982 1Q 1984 1Q 1986 1Q 1988 1Q 1990 1Q 1992 1Q 1994 1Q 1996 1Q 1998 1Q 2000 1Q 2002 1Q 2004 1Q 2006 1Q 2008
27
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
29/53
8/9/2019 Top 10 Global Economic Surprises 2010
30/53
U.S. Consumer
U.S. Consumer Installment Debt8 Mo. % Ch. A.R. Sep -6.3%
20%
10%
15%
0%
5%
-10%
-5%
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
29
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
31/53
Housing
-
U.S. New Houses for SaleOct 0.239
0.55
0.60
0.30
0.35
0.40
0.45
0.50
U.S. Existin Houses For Sale
0.200.25
1988 1990 1993 1996 1998 2001 2004 2007
Oct 2.97
3.0
3.5
4.0
1.5
2.0
2.5
30
Source: ISI Group.
1988 1990 1993 1996 1998 2001 2004 2007
8/9/2019 Top 10 Global Economic Surprises 2010
32/53
Housing
U.S. House Price Index (Case-Shiller)SA M/M % Sep 0.3%
1.0%
1.5%
.
0.0%
0.5%
-1.5%
-1.0%
- .
-2.5%
-2.0%
2005 2006 2007 2008 2009
31
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
33/53
U.S. Manufacturing
U.S. Mfg PMI Export Orders3 Mo. Avg. Nov: 55.5%
65%
Latest Click 56.0%
45%
50%
55%
60%
35%
40%
2000 2001 2002 2004 2005 2006 2008 2009
. .3 Mo. Avg. 3 Mo. % A.R. Sep: 25.0%
10%
30%
-50%
-30%
-10%
32
Source: ISI Group.
2000 2001 2002 2004 2005 2006 2008 2009
8/9/2019 Top 10 Global Economic Surprises 2010
34/53
U.S. Manufacturing
.
U.S. Industrial Production5 Mo. % A.R. Nov 8.8% e
10
15
20
0
5
-
-10
-5
-25
-20
-
33
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
35/53
Small Business Not Hiring
U.S. Small Business Trends (NFIB). . .
30%
35%
Latest Click 8.0%
20%
25%
15%
5%
1988 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
34
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
36/53
Good News
.
U.S. Monetary BaseNov 4 $ 1,999.8
$2,000
$2,200
$1,600
,
$1,000
$1,200
,
$800
Jan 07 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul 09 Dec 09
35
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
37/53
Good News
Junk Bond Yields (Merrill Lynch).
20%
22%
24%
16%
18%
10%
12%
6%
8%
2006 2007 2008 2009
36
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
38/53
U.S. Profits
-
ISI Global Economic Diffusion Index13 Wk. Avg. Dec 7 11.7
15
-15
-5
5
-25
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
SA by ISI 13 Wk. Avg. Nov 27 62.5%
60
20
30
40
37
Source: ISI Group.
1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009
8/9/2019 Top 10 Global Economic Surprises 2010
39/53
U.S. Inflation
U.S. Average Hourly Earnings Y/Y % Oct 2.4%
U.S. CPI Core Y/Y % Sep 1.5%
5% 3.0%
2%
3%
4%
1.5%
2.0%
2.5%
U.S. CPI Total Rent
0%
1998 1999 2001 2003 2005 2007 2009
1.0%
1998 1999 2001 2003 2005 2007 2009
Rent plus Owners Equivalent Rent Y/Y % Sep 1.4%
4%
5%
2%
3%
38
Source: ISI Group.
1998 1999 2001 2003 2005 2007 2009
8/9/2019 Top 10 Global Economic Surprises 2010
40/53
The Rest of the World
8/9/2019 Top 10 Global Economic Surprises 2010
41/53
Conditions Have Diverged
100
105
100
105
100
105
U.S.A. Europe Japan
75
80
85
90
75
80
85
90
75
80
85
90
60
65
70
00 02 04 06 08 10
60
65
70
00 02 04 06 08 10
60
65
70
00 02 04 06 08 10
90
95
100
105
90
100
110
90
100
110
120
na merg ng ar e s ex- na
65
70
75
80
85
60
70
80
40
50
60
70
80
40
Source: Bridgewater.
60
00 02 04 06 08 10
50
00 02 04 06 08 10
30
00 02 04 06 08 10
8/9/2019 Top 10 Global Economic Surprises 2010
42/53
Japan Real Exports
95
100Q/Q % A.R.
RealGDP
PriceDeflator
NominalGDP
Japan Real Exports
2009 3Q: 69.4
70
75
80
85
2009 1Q -12.2% +2.4% -10.1%
2Q +2.7% -4.2% -1.6%
60
65
1/0/00 1/4/00 1/8/00 1/12/00 1/16/00
3Q +4.8% -4.8% -0.3%+13.2%
2006 2007 2008 2009
41
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
43/53
Japan
. .
150%
200%
250%
200%
250%
300%
0%
50%
100%
0%
50%
100%
JAPAN GOVT DEBT % GDP
2009:2Q: 204.4%
U.S. GOVT DEBT % GDP
2009:2Q: 67.0%
JAPAN NONFIN CORPORATE DEBT % GDP
Debt Securities and Loans
2009:2Q: 178.3%
U.S. NONFIN DEBT % GDP
2009:2Q: 77.3%
75%
85%
95%
200%
300%
400%
45%
55%
1980 1985 1990 1994 1999 2004 2009
0%
100%
1980 1985 1990 1994 1999 2004 2009
42
Source: ISI Group.
JAPAN CONSUMER DEBT % GDP
2009:2Q: 78.6%
U.S. CONSUMER DEBT % GDP
2009:2Q: 96.5%
JAPAN NONFIN TOTAL DEBT % GDP
2009:2Q: 461.3%
U.S. TOTAL DEBT % GDP
2009:2Q: 242.5%
8/9/2019 Top 10 Global Economic Surprises 2010
44/53
Severe Underperformance From Japanese Equities
3.2
Japan MSCI Index Relative To World MSCI Index
2.8
3.0
2.2
2.4
.
1.6
1.8
2.0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
43
Source: BCA Research 2009.
8/9/2019 Top 10 Global Economic Surprises 2010
45/53
The 20th Century was a Growth Anomaly For China% of World GDP
30%
35%
25%
15%
5%
10%
0%1
1000
1500
1600
1700
1820
1870
1900
1913
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2003
44
Source: Historical Statistics for the World Economy Angus Maddison, J.P. Morgan Securities, Inc.
8/9/2019 Top 10 Global Economic Surprises 2010
46/53
China
850
900
750
800
China ExportsS.A. by ISI, Oct 725.8
China ImportsS.A. by ISI, Oct 622.6
700
750
800
550
600
650
700
550
600
650
2007 2008 2009
400
450
500
2007 2008 2009
+34.9%Annual Rate
+36.2%Annual Rate
45
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
47/53
India
10
12India Real GDP Y/Y%
Forecast
4
6
8
2009:2Q 6.2%
2010:3Q 8.3%
0
2
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
46
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
48/53
Brazil
8Brazil Real GDP Y/Y%
6.9%
Forecast2010:1Q
2
4
-2
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
-1.4%2009:1Q
47
Source: ISI Group.
8/9/2019 Top 10 Global Economic Surprises 2010
49/53
Some Thoughts About thePrice of Oil
8/9/2019 Top 10 Global Economic Surprises 2010
50/53
Long-Term Demand Drivers Are Still in Place
27282930
31
27282930
31
Yearly Data 12/31/1960 - 12/31/2007
In Barrels per Person per Year
202122
232425
202122
232425
13141516
1718
19
13141516
1718
19
CountryConsumption
Per Capita Year
78
9101112
78
9101112
.Japan 14.3 2007Russia 7.5 2007Brazil 4.5 2007China 2.1 2007India 0.9 2007
012345
012345
49
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Sources: Energy Information Administration and U.S. Census Bureau. Ned Davis Research.
8/9/2019 Top 10 Global Economic Surprises 2010
51/53
Oil Supply / Demand Prospects
or r mary nergy eman
Peak Oil:2015
6,000
Peak Oil:2010
,
4,000
Oil
3,000
2,000
Mto
Coal
GasBiomass
Nuclear
Other Renewables
1,000
World energy demand expands by 45% between now and 2030 an average rate of
0
1980 1990 2000 2010 2020 2030
50
Source: IEA World Energy Outlook 2008. Bank of America Merrill Lynch.
increase of 1.6% per year with coal accounting for more than a third of the overall rise
8/9/2019 Top 10 Global Economic Surprises 2010
52/53
8/9/2019 Top 10 Global Economic Surprises 2010
53/53