July 2015 Speech by Danielle DiMartino Booth
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Transcript of July 2015 Speech by Danielle DiMartino Booth
Obfuscate:Defined as:
To hide, to render unintelligibleconfuse, muddle…
Latin root:Obfuscatio – “to darken over”
Wealth Recaptures Record Level
Change in Household Net Worth
Q4 ‘02 – Q3 ’07: $24 Trillion
Q1 ‘09 – Q1 ’15: $29 Trillion
400
450
500
550
600
650
700
0
10
20
30
40
50
60
70
80
90
Q3-
1980
Q1-
1982
Q3-
1983
Q1-
1985
Q3-
1986
Q1-
1988
Q3-
1989
Q1-
1991
Q3-
1992
Q1-
1994
Q3-
1995
Q1-
1997
Q3-
1998
Q1-
2000
Q3-
2001
Q1-
2003
Q3-
2004
Q1-
2006
Q3-
2007
Q1-
2009
Q3-
2010
Q1-
2012
Q3-
2013
Q1-
2015
%$ tn
Household Net Worth (LHS) Net Worth as % of Disposable Income (RHS)
Income Stagnates
Source: Haver Analytics, Bureau of Economic Analysis
0
5
10
15
20
25
30
35
40
45M
ay-1
960
Nov
-196
2
May
-196
5
Nov
-196
7
May
-197
0
Nov
-197
2
May
-197
5
Nov
-197
7
May
-198
0
Nov
-198
2
May
-198
5
Nov
-198
7
May
-199
0
Nov
-199
2
May
-199
5
Nov
-199
7
May
-200
0
Nov
-200
2
May
-200
5
Nov
-200
7
May
-201
0
Nov
-201
2
May
-201
5
$ (0
00's
)
Real Disposable Personal Income per Capita (SAAR, Chn.2009$)
Rebuilding Household Debt
Source: Haver Analytics, Flow of Funds
0
2
4
6
8
10
12
14Q
3-19
80
Q1-
1982
Q3-
1983
Q1-
1985
Q3-
1986
Q1-
1988
Q3-
1989
Q1-
1991
Q3-
1992
Q1-
1994
Q3-
1995
Q1-
1997
Q3-
1998
Q1-
2000
Q3-
2001
Q1-
2003
Q3-
2004
Q1-
2006
Q3-
2007
Q1-
2009
Q3-
2010
Q1-
2012
Q3-
2013
Q1-
2015
$ tn
Households: Liabilities: Consumer Credit (NSA, Bil.$)
Households: Liabilities: Home Mortgages (NSA, Bil.$)
Student Loan Debt
0
5,000
10,000
15,000
20,000
25,000
0
10
20
30
40
50
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$% Proportion with Student Loans(lhs)Average Student Loan Balance(rhs)
0
0.2
0.4
0.6
0.8
1
1.2
1.4
2007
2008
2009
2010
2011
2012
2013
2014
2015
(Tri
llion
)
Total Student Loan Debt Outstanding
Let Them Drive Cars!
0
2
4
6
8
10
12
14
16
18
20
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,00019
75
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Single Family Home Sales: US (SAAR, Thous) (LHS)Vehicle Sales (SAAR, Mil.Units) (RHS)
Source: Bureau of Economic Analysis/Haver Analytics; HN1US: Census Bureau HX1US: National Association of Realtors
Malinvestment
In Austrian business cycle theory, malinvestmentsare badly allocated business investments made dueto the artificially low cost of credit. Central banksare often blamed for causing malinvestments.
Malinvestment occurs when artificially low interestrates mislead relative price signals which eventuallynecessitates a corrective contraction. A boomfollowed by a bust.
Falling Reward for Bond Risk
Source: Federal Reserve Bank of New York
-0.5
0
0.5
1
1.5
2
2012
2013
2014
2015
US 10-Year Term Premium %
U.S. Equity Market Dwarfs GDP
Source: Haver Analytics, World Federation of Exchanges, Bureau of Economic Analysis
Q2 '00:174 %
Q2 '15:149%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%Q
4-19
47
Q2-
1955
Q4-
1962
Q2-
1970
Q4-
1977
Q2-
1985
Q4-
1992
Q2-
2000
Q4-
2007
Q2-
2015
NYSE Market Cap: % of GDP NYSE + NASDAQ Market Cap: %of GDP
(100)
-
100
200
300
400
500
600
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Bill
ions
, US$
S&P 500 Buybacks (bil. $)
Domestic Equity Mutual Fund + Domestic ETF Flows ($ billions)
S&P 500 Buybacks vs Domestic Equity MutualFund + Domestic Equity ETF Flows
Source: Haver Analytics and Citi Research US Equity Strategy
Commercial Real Estate Recovery Outpaces Housing
Source: S&P/Case-Shiller, RCA, Morgan Stanley Research
90
110
130
150
170
190
210
Apr
-02
Oct
-02
Apr
-03
Oct
-03
Apr
-04
Oct
-04
Apr
-05
Oct
-05
Apr
-06
Oct
-06
Apr
-07
Oct
-07
Apr
-08
Oct
-08
Apr
-09
Oct
-09
Apr
-10
Oct
-10
Apr
-11
Oct
-11
Apr
-12
Oct
-12
Apr
-13
Oct
-13
Apr
-14
Oct
-14
Apr
-15
S&P/Case-Shiller CPPI(Indexed Price 2002=100)
Peak-to-TroughHousing: -35%Commercial: -40%
Recovered:Housing: 59%Commercial: 128%
Trump Towers
Source: Haver Analytics, Census Bureau
Feb '06:573%
Oct '09:821%
0%
100%
200%
300%
400%
500%
600%
700%
800%
900%
1000%Ju
n-19
91
Dec
-199
2
Jun-
1994
Dec
-199
5
Jun-
1997
Dec
-199
8
Jun-
2000
Dec
-200
1
Jun-
2003
Dec
-200
4
Jun-
2006
Dec
-200
7
Jun-
2009
Dec
-201
0
Jun-
2012
Dec
-201
3
Jun-
2015
Single Family Starts/Multi Family Starts: Ratio
Jun '15140%
Investors Throwing in the Towel
Source: NAR
Mar '11:35%
June '15:22%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0%
10%
20%
30%
40%
50%
60%Se
p-09
Dec
-09
Mar
-10
Jun-
10Se
p-10
Dec
-10
Mar
-11
Jun-
11Se
p-11
Dec
-11
Mar
-12
Jun-
12Se
p-12
Dec
-12
Mar
-13
Jun-
13Se
p-13
Dec
-13
Mar
-14
Jun-
14Se
p-14
Dec
-14
Mar
-15
Jun-
15
First Time Buyers(LHS) All Cash Purchases (RHS)
June 15:30%
Will the Rental Revolution Continue?
Source: Haver Analytics, Census Bureau
Q1'15:-1.2 M-4
-2
0
2
4
6
8
10
12
14
10 Y
r C
hang
e: M
illio
ns
Owners Renters
Q1 '15:8.6 M
Source: CollegeBoard
Tuition and Fees + Room and Board
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
$40,000
$45,00019
73
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Public Four-Year Private Nonprofit Four-Year
Year Tuition andFees
Tuition and Fees +Room and Board
2000 $15,518 $21,475
2015 $31,231 $42,419
Not Saving One Thin Dime
36%
38%
40%
42%
44%
46%
48%
50%
1992 1995 1998 2001 2004 2007 2010 2013
Source: FRB Survey of Consumer Finances, DB Global Markets Research
Source: Employee Benefit Research Institute, Survey of Consumer Finances
$-
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
1992
1995
1998
2001
2004
2007
2010
2013
Median Housing Debt for Families With Heads Age 65-74
Retirement Anyone?
Hitting the Basement
Source: Haver Analytics, Census Bureau
0.0
0.5
1.0
1.5
2.0
2.5
3.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Mar
-196
5
Sep-
1967
Mar
-197
0
Sep-
1972
Mar
-197
5
Sep-
1977
Mar
-198
0
Sep-
1982
Mar
-198
5
Sep-
1987
Mar
-199
0
Sep-
1992
Mar
-199
5
Sep-
1997
Mar
-200
0
Sep-
2002
Mar
-200
5
Sep-
2007
Mar
-201
0
Sep-
2012
Mar
-201
5
Uni
ts (
Mill
ions
)
Uni
ts:
Mill
ions
: 12
Mo.
Rol
ling
Sum
Net Household Formation (Thous) Total Housing Starts: Units (RHS)
Cash at Fifteen-Year Low
Note: Cash defined as checkable deposits, money market funds, and Time andsavings deposits
Q1 ‘1534.6%
20%
25%
30%
35%
40%
45%
Q1-
1996
Q1-
1997
Q1-
1998
Q1-
1999
Q1-
2000
Q1-
2001
Q1-
2002
Q1-
2003
Q1-
2004
Q1-
2005
Q1-
2006
Q1-
2007
Q1-
2008
Q1-
2009
Q1-
2010
Q1-
2011
Q1-
2012
Q1-
2013
Q1-
2014
Q1-
2015
Non-Financial Corporate Cash/Non-Financial Bonds Outstanding
Buy High, Sell Low! (On Margin)
Source: Haver Analytics, Bloomberg
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Q2-
1981
Q2-
1983
Q2-
1985
Q2-
1987
Q2-
1989
Q2-
1991
Q2-
1993
Q2-
1995
Q2-
1997
Q2-
1999
Q2-
2001
Q2-
2003
Q2-
2005
Q2-
2007
Q2-
2009
Q2-
2011
Q2-
2013
Q2-
2015
%
Margin Debt/GDP
Q1: '00:2.8% Q2: '07:
2.6%
Q2: ‘15:2.9%
Landlords Raise the Roof
Source: Bank of America Merrill Lynch
2013:$5881
2013:$4560
0
1000
2000
3000
4000
5000
6000
7000
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
$/Y
r
CES: 25-34 Years of Age: Rented Dwellings Expenditures ($)
CES: 25-34 Years of Age: Owned Dwellings Expenditures ($)
Melrose Displaced
Source: Haver Analytics
6
7
8
9
10
11
12
Mar
-91
Mar
-92
Mar
-93
Mar
-94
Mar
-95
Mar
-96
Mar
-97
Mar
-98
Mar
-99
Mar
-00
Mar
-01
Mar
-02
Mar
-03
Mar
-04
Mar
-05
Mar
-06
Mar
-07
Mar
-08
Mar
-09
Mar
-10
Mar
-11
Mar
-12
Mar
-13
Mar
-14
Mar
-15
Rental Vacancy Rate: United States (%)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
'85 '92 '99 '06 '13
Highest IncomeQuintile
4th IncomeQuintile
3rd IncomeQuintile
2nd IncomeQuintile
Lowest IncomeQuintile
Buy Low, Fly High
Energy:Outsized Role in non-Residential Structures
Source: Bank of America, Merrill Lynch Global Research, Bureau of Economic Analysis
Inflation Persists Even as Energy Plummets
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
25002600270028002900300031003200330034003500
Dec
-201
3
Jan-
2014
Feb-
2014
Mar
-201
4
Apr
-201
4
May
-201
4
Jun-
2014
Jul-
2014
Aug
-201
4
Sep-
2014
Oct
-201
4
Nov
-201
4
Dec
-201
4
CRB Commodities Index Annual Services Inflation
Source: Haver Analytics
Location, Location, Location…
-5
0
5
10
15
20
25
30
35
40
Richmond Philly NY Kansas Texas
2014 Average January 2015
Is Real Estate Next?
0
10
20
30
40
50
60
70
80
90
100
400
900
1,400
1,900
2,400
2,900
3,400
Jan-84 Sep-86 Jun-89 Mar-92 Dec-94 Sep-97 Jun-00 Mar-03 Nov-05
CRE Debt ($Bn) Brent Crude ($/bbl, right)
CRE Prices Synchronous With Debt Financing
100
150
200
250
300
350
400
450
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jan-84 Jun-89 Dec-94 Jun-00 Nov-05 May-11
CRE Debt ($Bn)NCREIF Price Index (right)
…And Then Oil Diverged Sharply
40
50
60
70
80
90
100
110
120
2,400
2,600
2,800
3,000
3,200
3,400
3,600
Jan-11 Jul-11 Feb-12 Aug-12 Mar-13 Sep-13 Apr-14 Nov-14
CRE Debt ($Bn) Brent Crude ($/bbl, right)
Fastest Wage Growth Has Been in Oil Patch
2.5%
-3.0%
3.9%
9.4%
0.80%
2.9%
15.3%
3.8%
3.4%
-0.02%
US Wage Growth 2009-2014 -0.80%
Oil Futures Open Interest
250,000
1,250,000
2,250,000
3,250,000
03/0
1/19
95
03/0
1/20
00
03/0
1/20
05
03/0
1/20
10
03/0
1/20
15
Source: Bloomberg
S&P Earnings Estimate
$125
$123$122
$121$120
$119 $119
$117$116
$137$138
$136
$131
$121
$110
$115
$120
$125
$130
$135
$140
$110
$112
$114
$116
$118
$120
$122
$124
$126
Q1 '13 Q2 '13 Q3 '13 Q4 '13 Q1 '14 Q2 '14 Q3 '14 Q4 '14 Q1 '15
S&P Annualized Quarterly Profit Estimate Full Year Estimate for 2015
Exposure to Office Properties with Oiland Gas Tenants
61%21%
5%4%
4%3%
2%
Texas
Colorado
California
Oklahoma
Pennsylvania
Louisiana
Other
Source: Morgan Stanley
Exposure to Eagle Ford & Permian Basin
43%
27%
16%
9%5%
Midland, TX
Williston, ND
Odessa, TX
Dickinson, ND
Laredo TX
Source: Morgan Stanley
Companies with $1B+ Market Cap Companies $250M- $1B Market Cap
48%52%
48%52%
30%
70%
Dal
las
Hou
ston
85%
15%
Private Fixed Assets
Source: Haver Analytics
-2
-1
0
1
2
3
4
5
0
20
40
60
80
100
120
1926
1929
1932
1935
1938
1941
1944
1947
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
Net Stock: Private Fixed Assets: Quantity Index (2009=100)Y/O/Y Growth (RHS)
%
Average Daily Demand for Paper Oil
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
Jan 14 -Jun 14
2013 -Jun 14
2012 -Jun 14
2011 -Jun 14
2010 -Jun 14
2009-Jun 14
QE1 -Jun 14
Source: CFTC; Bloomberg; Paradarch Advisors, LLC
Percentage of Families With Debt
0%
10%
20%
30%
40%
50%
60%
70%
1992 1995 1998 2001 2004 2007 2010 2013
Age 65-75 Age 75+
Source: Employee Benefit Research Institute, Survey of Consumer Finances
0
500
1000
1500
2000
2500
0
500
1000
1500
2000
01/01/2009 02/01/2010 03/01/2011 04/01/2012 04/01/2013 05/01/2014 06/01/2015
S&P 500 Announced Stock Buybacks Cumulative Total in Billions (LHS)S&P Index (RHS)
Fiscal Cliff
Debt Ceiling
QE3 Worries
Sell Low, Buy High?
Source: Bloomberg
0
2
4
6
8
10
12
14
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(tri
llion
s)
Consumer Credit (includes: auto loan, credit card,student loan)Home Mortgages
0
5
10
15
20
25
30
35
40
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Sub Prime Auto ABS Outstanding
Source: Zillow data as of 2014Q3, DB Global Markets Research
0
10
20
30
40
50
60
US Atlanta Chicago Detroit Los Angeles New York SanFrancisco
Washington
Bottom tier Middle tier Top tier
Owners of less expensive homes are three times more likely to beunderwater than owners of expensive homes. In NY the ratio is five.
Mortgage Origination
20%
30%
40%
50%
60%
2000 2002 2004 2006 2008 2010 2012 2014
% GSE/FHA
Sources: BofA Merrill Lynch Global Research, Fannie Mae, Freddie Mac, Gannie Mae, Intex, Fed
Sources: BofA Merrill Lynch Global Research, Fannie Mae, Freddie Mac, Gannie Mae, Intex, Fed
Mortgage Origination
50%
60%
70%
80%
90%
100%
2000 2002 2004 2006 2008 2010 2012 2014
% GSE/FHA (Sec)
US Syndicated Loan Volume
0
200
400
600
800
1000
1200
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
(in
billi
ons)
Leveraged I-Grade Other
Source: Loan Connector
-4
-3
-2
-1
0
1
2
3
4
5
2006 2007 2008 2009 2010 2011 2012 2013
Rea
l GD
P G
row
thShale Production States National Aggregate ex Shale
Source: Bureau of Economic Analysis
Source: Bureau of Labor Statistics
-1
0
1
2
3
4
5
6
2006 2007 2008 2009 2010 2011 2012 2013 2014
Une
mpl
oym
ent
Rat
e, C
hang
e si
nce
Jan
2006
Shale Production States National Aggregate ex Shale
Source: Bureau of Labor Statistics
4
5
6
7
8
9
10
11
2006 2007 2008 2009 2010 2011 2012 2013 2014
Une
mpl
oym
ent
Rat
eShale Production States National Aggregate ex Shale
-6
-4
-2
0
2
4
6
2006 2007 2008 2009 2010 2011 2012
Ele
ctri
city
Gen
erat
ion,
Ann
ualP
ctC
hang
eShale Production States National Aggregate ex Shale
Source: Department of Energy
-8
-6
-4
-2
0
2
4
6
8
2006 2007 2008 2009 2010 2011 2012 2013 2014
Hom
e Pr
ices
, Ann
ualP
ctC
hang
eShale Production States National Aggregate ex Shale and ex CA, AZ, FL, NV
Source: Zillow Home Prices
-8
-6
-4
-2
0
2
4
2006 2007 2008 2009 2010 2011 2012 2013
Non
farm
Pay
rolls
, Cha
nge
sinc
e Ja
n 20
06,m
nShale Production States National Aggregate ex Shale
Source: Bureau of Labor Statistics
Source: Bureau of Labor Statistics
-5
-4
-3
-2
-1
0
1
2
3
2007 2008 2009 2010 2011 2012 2013 2014
Non
farm
Pay
rolls
, Ann
ualP
ctC
hang
eShale Production States National Aggregate ex Shale
Source: Bureau of Labor Statistics
-2
-1
0
1
2
3
4
5
2007 2008 2009 2010 2011 2012 2013 2014
Hou
rly
Wag
es, I
nfla
tion-
adju
sted
, % C
hang
eShale Production States National Aggregate ex Shale
Forever Young(length of post-WW2 expansions, months)
Source: National Bureau of Economic Research, Bureau of Economic Analysis
62%
63%
64%
65%
66%
67%
68%
69%
70%
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Renting in Multifamily Structures
Source: Census Bureau
Source: National Bureau of Economic Research
14%
16%
18%
20%
22%
24%
26%
1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1988 1992 1996 2000 2004 2008 2012
1947-presenthistoric average
120
140
160
180
200
220
24020
06
2007
2008
2009
2010
2011
2012
2013
2014
2015
PPI: Lumber (nsa) PPI: Lumber (sa)
Source: Bureau of Labor Statistics
Source: CollegeBoard
Tuition and Fees
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,00019
73
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
2015
Private Nonprofit Four-Year Public Four-Year
Year Tuition andFees
Tuition and Fees +Room and Board
2000 $15,518 $21,475
2015 $31,231 $42.419
Source: CollegeBoard
Tuition and Fees
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%20
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
One-Year % Change (private-four year)
One-Year % Change (public four-year)
Source: CollegeBoard
Tuition and Fees + Room and Board
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%20
00
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
One-Year % Change (private-four year)
One-Year % Change (public four-year)
Yields Down, Interest Expense Up?
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%Net Interest Paid as % GDP Baa Bond Yield
One Man’s Junk?
13.0
13.5
14.0
14.5
15.0
15.5
16.0
6
7
8
9
10
11
12
Apr
-05
Aug
-05
Dec
-05
Apr
-06
Aug
-06
Dec
-06
Apr
-07
Aug
-07
Dec
-07
Apr
-08
Aug
-08
Dec
-08
Apr
-09
Aug
-09
Dec
-09
Apr
-10
Aug
-10
Dec
-10
Apr
-11
Aug
-11
Dec
-11
Apr
-12
Aug
-12
Dec
-12
Apr
-13
Aug
-13
Dec
-13
Apr
-14
First Time Issuers: LTM Average Coupon (LHS)
First Time Issuers: LTM Average Rating (RHS)
The Incredible Shrinking Float
Avg. S&P 500Market cap since
2005:
$11.9 trillion
S&P Buybackssince Q4 2005:
$3.7 trillion
Hitting the Basement
Source: Bank of America Merrill Lynch
792
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Ann
ual H
ouse
hold
For
mat
ion
Δ:(0
00's
)
Total Number of Households (Thous)
$4.5 Trillion and Counting
Source: Haver Analytics
0
2
4
6
8
10
12
2
4
6
8
10
12
14
16
18
1983
-Q3
1985
-Q1
1986
-Q3
1988
-Q1
1989
-Q3
1991
-Q1
1992
-Q3
1994
-Q1
1995
-Q3
1997
-Q1
1998
-Q3
2000
-Q1
2001
-Q3
2003
-Q1
2004
-Q3
2006
-Q1
2007
-Q3
2009
-Q1
2010
-Q3
2012
-Q1
2013
-Q3
2015
-Q5
Fed
Fun
ds T
arge
t: %
GD
P (t
n)
Real GDP (LHS) Fed Funds Target (RHS)
MalinvestmentIn 1940, Ludwig von Mises wrote, "The popularity of inflationand credit expansion, the ultimate source of the repeatedattempts to render people prosperous by credit expansion, andthus the cause of the cyclical fluctuations of business, manifestsitself clearly in the customary terminology. The boom is calledgood business, prosperity, and upswing. Its unavoidableaftermath, the readjustment of conditions to the real data of themarket, is called crisis, slump, bad business, depression.
People rebel against the insight that the disturbing element is tobe seen in the malinvestment and the overconsumption of theboom period and that such an artificially induced boom isdoomed. They are looking for the philosophers' stone to make itlast."
Confidence in Eye of Holder
0
20
40
60
80
100
120
140
160
0
500
1000
1500
2000
2500
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Con
sum
er C
onfi
denc
e In
dex
S&P
500
Inde
x
S&P 500 Index (LHS)Consumer Confidence: Household Income <15K (RHS)Consumer Confidence: Household Income 50K+ (RHS)
A Zero Sum Game?
Source: Haver Analytics
0.0
1.0
2.0
3.0
4.0
5.0
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15
% Fed Funds Target
The Disappearing American Dream
30
40
50
60
70
80
90
100
'89 '92 '95 '98 '01 '04 '07 '10 '13
$ (0
00's
): C
hain
ed 2
013
Median income
Mean income
60% incomegap
90%incomegap
60
160
260
360
460
560
660
'89 '92 '95 '98 '01 '04 '07 '10 '13
$ (0
00's
): C
hain
ed 2
013
Median net worth
Mean net worth
400%wealthgap
660%wealthgap
Is Risk Being Rewarded?
11%25%
48%
75%
0
10
20
30
40
50
60
70
80
BB B CCC CC to C
% 5 Yr Cumulative Default Rate
Source: Alliance Bernstein, Barclays
Let Them Drive (Used) Cars!
-30
-20
-10
0
10
20
30
40
Nov-94 Nov-98 Nov-02 Nov-06 Nov-10 Nov-14
Used Motor VehiclesYear-on-year, % change
U.S. Nonfinancial Debt Scales Fresh Heights
Source: Haver Analytics, Federal Reserve Board
Q1 '15:43.6%
20
25
30
35
40
45
50
Sep-
52
Mar
-55
Sep-
57
Mar
-60
Sep-
62
Mar
-65
Sep-
67
Mar
-70
Sep-
72
Mar
-75
Sep-
77
Mar
-80
Sep-
82
Mar
-85
Sep-
87
Mar
-90
Sep-
92
Mar
-95
Sep-
97
Mar
-00
Sep-
02
Mar
-05
Sep-
07
Mar
-10
Sep-
12
Mar
-15
% US: Nonfinancial Corporations Debt Outstanding as a % of SAAR GDP (%)
U.S. Nonfinancial Debt Scales Fresh Heights
Source: Haver Analytics, Federal Reserve Board
Q1 '15:43.6%
20
25
30
35
40
45
50
Sep-
52
Mar
-55
Sep-
57
Mar
-60
Sep-
62
Mar
-65
Sep-
67
Mar
-70
Sep-
72
Mar
-75
Sep-
77
Mar
-80
Sep-
82
Mar
-85
Sep-
87
Mar
-90
Sep-
92
Mar
-95
Sep-
97
Mar
-00
Sep-
02
Mar
-05
Sep-
07
Mar
-10
Sep-
12
Mar
-15
% US: Nonfinancial Corporations Debt Outstanding as a % of SAAR GDP (%)
Fixed Income Yields Relative to Pension Needs
-10
-5
0
5
10
15
'00 '02 '04 '06 '08 '10 '12 '14
Junk Reative to Pension Need Investment-Grade Relative to Pension Need Fed Fund Target Relative to Pension Need
Source: IBM, Bloomberg, ML, CS
Insult Meets Injury
0
5
10
15
20
25
30
35
'10 '11 '12 '13 '14
% Proportion of Homes with Negative Equity
30
18
11
0
5
10
15
20
25
30
35
Zillow: Percent ofHomes with NegativeEquity - Bottom Tier
Zillow: Percent ofHomes with NegativeEquity - Middle Tier
Zillow: Percent ofHomes with Negative
Equity - Top Tier
%Majority of Homes withNegative Equity are inthe Bottom Tier
Stocks & Buybacks: A Happy Couple
Source: Standard and Poors
0
50
100
150
200
250
-400
100
600
1100
1600
2100
Jun-
98
Mar
-99
Dec
-99
Sep-
00
Jun-
01
Mar
-02
Dec
-02
Sep-
03
Jun-
04
Mar
-05
Dec
-05
Sep-
06
Jun-
07
Mar
-08
Dec
-08
Sep-
09
Jun-
10
Mar
-11
Dec
-11
Sep-
12
Jun-
13
Mar
-14
Dec
-14
$ bn
Inde
x
SPX (LHS) Share Buybacks + Div (RHS)
The Cost of EducationThen…(1982)
• Textbook: Principles ofEconomics by GregMankiw
• Textbook price: $250.00• Minimum Wage: $7.14• Number of hours worked
to afford the book: 35hours
Now… (2015)• Textbook: Principles of
Economics by GregMankiw
• Textbook price: $20.00• Minimum Wage: $3.35• Number of hours
worked to afford thebook: 6 hours
Inflation