Post on 21-May-2018
Reading the Tea Leaves:Investing for 2010 and Beyond
Wednesday, April 28, 2010; 8:00 AM - 9:15 AM
Moderator:Maria Bartiromo, Anchor, CNBC's “Closing Bell With Maria Bartiromo”
Speakers:Nick Calamos, President of Investments and Co-Chief Investment Officer,
Calamos InvestmentsCalamos InvestmentsPatrik Edsparr, Global CEO, Citadel Securities
Thomas Joyce, Chairman and CEO, Knight Capital Group Inc.Meredith Whitney, CEO, Meredith Whitney Advisory Group LLC
1
Tracking a normal recovery
FIGURE 1: S&P 500 FALL/RISE OF 1970s, 1980s, 2001 & FIGURE 2: ISM MANUFACTURING FALL/RISE OF 1970s, & , , &2007 RECESSIONS
,1980s, 2001 & 2007 RECESSIONS
3
Tracking a normal recovery, continued
FIGURE 3: CREDIT SPREADS FOR HIGH GRADE AND FIGURE 4: G7 EXPORTS FALL/RISE OF 1970s, 1980s, HIGH YIELD CORPORATE BONDS
, ,2001 & 2007 RECESSIONS
4
Not tracking a normal recovery
FIGURE 5: TOTAL NONFARM PAYROLL FALL/RISE OF FIGURE 6: REAL DOMESTIC INVESTMENT FALL/RISE OF 1970s, 1980s, 2001 & 2007 RECESSIONS 1970s, 1980s, 2001 & 2007 RECESSIONS
5
High debt levels indicate this is not a normal recession
FIGURE 8: GENERAL GOVERNMENT DEBT, ADVANCED FIGURE 9: U.S. HOUSEHOLD DEBT AS A % OF NOMINAL ECONOMIES AS A % OF GDP GDP
7
Historical collapse in velocity of money further indication this recession is different
FIGURE 10: RATIO OF GDP TO MONETARY BASE(VELOCITY OF MONEY)
8
A high debt level increases vulnerability to rate changes and event risk
Sources: Non-Financial Debt from Federal Reserve, Flow of Funds Report.. GDP data from BEA, Govt Bond Yields from FactSet.
9
Expanding government results in lower wealth creation
FIGURE 12: FEDERAL GOVERNMENT EXPENDITURES AS A % OF GDPAND S&P 500 INDEX ADJUSTED FOR INFLATION
10
“Short-term Bullish; Long-term Scared”
FIGURE 13: U.S. CORPORATE PROFITS AND U.S. LABOR PRODUCTIVITY
FIGURE 14: EUROZONE LABOR PRODUCTIVITYLABOR PRODUCTIVITY
11
Calamos focusing on companies with global revenue sources
FIGURE 15: MARKET BOTTOM TO NOW– RUSSELL 3000® INDEX AND INTERNATIONAL REVENUE SEGMENT RETURNS
12
U.S. Consumer Confidence IndexConfidence improves slowly
160Index (1985 =100)
40
60
80
100
120
140
160
Conference Board's Consumer Confidence Index
14
0
20
Jan 2000
2001 2002 2003 2004 2005 2006 2007 2008 2009 Mar 2010
Source: Bloomberg.
U.S. small business optimism index
110Small business optimism Index(1986=100)
90
95
100
105
110
15
80
85
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010Source: the National Federation of Independent Business.
Forecasts of positive U.S. real GDP growth rates
Real GDP growth (%) (Quarterly percentage change, seasonally adjusted at an annual rate)
2.1
-0.7
1.5
-2.7-0.7
2.2
5.9
3.0 3.0 2.8 2.9 2.9 3.0 3.2 3.9
6-4-202468
( yp g g y j )
Composite forecasts
16
Note: Composite forecasts are average forecasts of 27 private organizations. Sources: U.S. Bureau of Economic Analysis; Bloomberg.
-5.4-6.4
-10-8-6
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42007 2008 2009 2010 2011
Retail sales climbed in MarchA sign showing American consumers were beginning to spend more
400US$ billions Monthly total retail sales, seasonally adjusted
300
350
+1.6% in March
17Source: U.S. Department of Commerce.
2502000 2002 2004 2006 2008 2010
Shade area indicates recession
Households are deleveraging U.S. households need to reduce their debt to more manageable level
U.S. household debt (% of disposable personal income)
50
100
150Economists see 100% as a
sustainable level
Total household debt stood at 123% as of the end of 2009
18
01950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2009
Source: Federal Reserve.
Growing personal bankruptcy filingsThe total number of bankruptcy filings = 1.47 million in 2009
800
Thousands The number of quarterly bankruptcy filings in the federal courts
200
400
600
800
Business bankruptcy filingsPersonal bankruptcy filingsTotal
19
Source: Administrative Office of the U.S. Courts.
0
200
Q1 1995 Q1 1997 Q1 1999 Q1 2001 Q1 2003 Q1 2005 Q1 2007 Q1 2009
The nation posted its large job gain in March The largest job gains since the start of the recession
400
Monthlynet employment change(thousands of workers)
-600
-400
-200
0
200
400162,000 jobs added in March
20
-1000
-800
600
Jan-2007 Jan-2008 Jan-2009 Jan-2010
Source: U.S. Bureau of Labor Statistics.
Decline in initial claims for unemployment insurance
700Thousands
6.6 million people receiving jobless b fit f J 2009
400
500
600 4.56 million(as of March 31, 2010)
benefits as of June, 2009
21Source: U.S. Bureau of Labor Statistics.
200
300
1980 1985 1990 1995 2000 2005 2010
A rise in private hiringJob losses continued in financial activities and in information
Monthlynet employment change, March 2010 (thousands of workers)
Mining and loggingProfessional and business
ConstructionManufacturing
Leisure and hospitalityTrade, transportation, utilities
Education and healthGovernment
22Source: U.S. Bureau of Labor Statistics.
-30 -20 -10 0 10 20 30 40 50
Financial activitiesInformation
Other services
Underemployment is still a concern
7 000
Thousands Part-time employment for economic reasons
2 000
3,000
4,000
5,000
6,000
7,000
Part-time due to slack work or business conditions
23Source: U.S. Bureau of Labor Statistics.
0
1,000
2,000
1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
Could only find part-time work
2010
Turnaround stock markets
300015,000
Nasdaq9001,800
1500
2000
2500
7,500
10,000
12,500
Nasdaq (right scale)
D J400
500
600
700
800
800
1,000
1,200
1,400
1,600 Russell 2000 (right scale)
S&P 500(left scale)
24Source: DataStream.
500
1000
5,000
,
2002 2004 2006 2008 2010
Dow Jones(left scale)
200
300
400
600
2002 2004 2006 2008 2010
Narrowing risk spread Indicative of the reduced stress in the debt markets
5Percentage points
Oct 10, 2008
2
3
4 TED Spread
BAA-AAA spread
25
Note: The TED spread is the difference between 3 month-LIBOR rates and the yield on 3 month U.S. Treasury bill.The BAA-AAA spread is the difference between the interest rates on high-grade and medium-grade corporate bonds.
Sources: Bloomberg, Federal Reserve.
0
1
Decline in market volatility
80Volatility index (VIX)VIX long term average 1990 2010 Lehman Brothers
20
30
40
50
60
70VIX long-term average,1990-2010 Lehman Brothers
collapsed (September 2008)
Dot-com bubble burst (March 2000)
Long-Term Capital Management bailout (September 1998)
26Note: VIX is the Chicago Board Options Exchange's volatility index. Source: DataStream.
0
10
20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Frozen secondary markets
1,000
US$ billions U.S. issues of non-agency mortgage-backed securities (MBS)
400
600
800
, g g ( )
27
Source: Securities Industry and Financial Market Association, SIFMA.
0
200
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Frozen secondary markets
800US$ billions U.S. issues of asset-backed securities (ABS)
by asset type
200
400
600
Student Loans
CBOs & CLOs
Manufactured HousingHome Equity
Equipment
28Note: CBOs = Collateralized bond obligations; CLOs = Collateralized loan obligations.Source: Securities Industry and Financial Market Association, SIFMA.
0
200
85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Credit Cards
Auto
U.S. bond issuanceStarted to increase since 2009
180Total issuance (US$ billions)
406080
100120140160180
High yieldInvestment grade
29
020
Jan 2008
Mar May Jul Sep Nov Jan 2009
Mar May Jul Sep Nov Jan 2010
Mar
Source: Securities Industry and Financial Markets Association.
U.S. fiscal position is in a free fall
400Federal surplus [+] or deficit [-], fiscal yearUS$ billions
-1,000-800-600-400-200
0200
30Source: The Office of Management and Budget, White House.
-1,600-1,400-1,200
,
1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Shade area indicates recession
President Obama's budget will generate nearly $10 trillion in budget deficits over the next 10 yearsFederal Budget (US$ billions)
US$9.761 trillion total deficit from 2011 to 2020
-1,000
-800-600-400-200
0( $ )
31Source: Congressional Budget Office (CBO).
-1,600-1,400-1,200
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Actual CBO's estimate of federal budget for fiscal year 2011
U.S. national debt will reach 90% of GDP in the next decade
100% of GDP Federal debt held by public
30405060708090
201063% of GDP, or$9.2 trillion
202090% of GDP, or$20.3 trillion
32Source: Congressional Budget Office (CBO).
01020
1980 1985 1990 1995 2000 2005 2010 2015 2020
CBO's estimate
World economic recoveryReal GDP growth rates, 1980-2014
10Real GDP (% change, year-to-year)
Emerging andProjected
-2
0
2
4
6
8 World
Advanced economies
Emerging and developing economies
33
-6
-4
1980 1985 1990 1995 2000 2005 2010
economies
2014
2009 and 2010 Global equity marketsEmerging markets were the clear winners in 2009
YTD (as of April 20, 2010)
-0.4%
3.7%
5.6%
1.4%
5.8%
7.4%
MSCI Europe
MSCI World
S&P 500 Index
MSCI EAFE
MSCI Pacific
MSCI Japan
34
Source: DataStream.
3.8%
-2 0 2 4 6 8 10
MSCI EM index
Index return (%) in US$
2010 global equity markets Japan and U.S. lead; Europe lags in 2010
110December2009 = 100 Japan and U.S. have
been the leader in 2010
90
95
100
105MSCI Japan
S&P 500 Index
MSCI EM
MSCI EAFE
MSCI EUROPE
been the leader in 2010.
Spain, Portugal and
35
Source: DataStream.
85
90
Dec-09 Jan-10 Feb-10 Mar-10 Apr-10
Spain, Portugal and Greece continue to weigh on European performance
Unemployment rate in Eurozone on the rise
10.5Unemployment rate, percent (seasonally adjusted)
8 0
8.5
9.0
9.5
10.0
36
7.0
7.5
8.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010Sources: Eurostat, Bloomberg.
Global economic forecastsEmerging market economies will lead the world growth
8 08.59
% Real GDP growth forecasts by key countries/regions (average 2010-2014)
1 42.1
3.94.6 4.8 4.9
8.0
2345678
(average 2010 2014)
37Source: Economist Intelligence Unit.
1.4 1.1
012
Western Europe
Japan United States
Latin America
MENA Brazil Asia India China
Change in the world economic power China and India become larger in the world economy
Real GDP (PPP dollars), share of world total20091991
United States20%
China12%
Rest of the world
47%
2009United States22%
China4%
Japan
Rest of the world
48%
1991
38Sources: International Monetary Fund, The Milken Institute.
Japan6%
India5%Germany
4%
U.K.3%
France3%
Japan9%
India3%
Germany6%
U.K.4%
France4%
Global stock market capitalization (% world total)China almost surpassed Japan in stock market capitalization
United
April, 20101991United States;
31%
Rest of the
world; 39%
United States34%
United Kingdom
9%
France3%
Canada2%
Rest of the
world19%
39
Japan; 8%
China; 7%
United Kingdom
7%
France; 4%
Canada; 4%
Source: Bloomberg.
Japan33%
China0%
9%