Marko Papic Chief Strategist Geopolitical Strategy BCA Dialogue March – April 2013 Webcast March...

Marko PapicChief Strategist Geopolitical Strategy

BCA DialogueMarch – April 2013

WebcastMarch 26, 2013

Ian MacFarlaneChief Strategist Global Asset Allocation

TAIL RISK COMPRESSION AT THE COST OF GERMAN ANGST

2

© BCA Research 2013© BCA Research 2013

3.5

3.0

2.5

2.0

1.5

1.0

.5

2011 2012

3.5

3.0

2.5

2.0

1.5

1.0

.5

JAN JUL JAN JUL JAN

EURO BOND SPREAD EURO AREA* VS. U.S. EURO AREA* VS. U.K.

* EXCLUDES LUXEMBURG, CYPRUS, SLOVAKIA AND SLOVENIA.

50

40

30

20

06 08 10 12

50

40

30

20

GERMANY:PERCENT OF RESPONDENTS WHOTEND TO NOT TRUST THE ECB

% %

SOURCE: EU COMMISSION.

LTRO rally

“Whatever it takes” rally

German distrust of Euro institutions

3


MONITORING DEPOSITS IN LIGHT OF CYPRUS

1100

1050

1000

950

08 10 12

950

900

850

TOTAL RETAIL AND CORPORATE DEPOSITS:

ITALY (LS) SPAIN (RS)

BnEuro

NOTE: SHADING DENOTES AUTUMN 2011 EURO BREAK-UP RISK.

BnEuro

70

60

50

06 08 10 12

70

60

50

PERCENT OF RESPONDENTSIN FAVOR OF THE EURO:

ITALY CYPRUS

% %

SOURCE: EU COMMISSION.

Autumn 2011 euro breakup risk

Cypriots are not wild about the euro

4

PERIPHERY AND OFFICIAL SECTOR CONTROL (MORE) OF EUROPE’S FATE

© BCA Research 2013

ITALY* SPAIN**

30%

6%

21%

3%

40%

3%

54% 31%

10%

2%

REST OF THE WORLDCENTRAL BANKSBANKSINVESTMENT FUNDSOTHER

REST OF THE WORLDNON-FINANCIAL CORPORATIONSGENERAL GOVERNMENTHOUSEHOLDS & NON-PROFIT INSTITUTIONSFINANCIAL INSTITUTIONS

* AS OF AUGUST 2012.** AS OF Q3 2012.SOURCE: NATIONAL BANKS.

Foreign holdings down from 50%

5

WILL GEOPOLITICS SPOIL THE PARTY?


100

80

60

40

20

2012

10

0

-10

-20

JAN APR JUL OCT JAN

GOOGLE IRAN REFERENCES* (LS) BRENT PRICE DEVIATION FROM FAIR VALUE MODEL** (RS)

USD

* INDICATOR REPRESENTS NUMBER OF GOOGLE SEARCHES OF "ISRAEL ATTACK IRAN" RELATIVE TO PAST SEARCHES OF THE TERM. THE INDICATOR IS NORMALIZED AND MEASURED ON A 0-100 SCALE. ** BCA FAIR VALUE PROPRIETARY MODEL BASED ON GLOBAL INDUSTRIAL PRODUCTION, GLOBAL OIL CONSUMPTION, AND INVENTORIES.

2000

1900

1800

1700

1600

2010

2000

1900

1800

1700

1600

JAN APR JUL OCT

SOUTH KOREA: KOSPI INDEX

NOTE: FIRST ATTACK OCCURRED ON MARCH 26, 2010, WHEN NORTH KOREA SUNK THE ROKS CHEONAN. AND THE SECOND ATTACK OCCURRED ON NOVEMBER 23, 2010, WHEN THE NORTH KOREAN MILITARY BOMBARDED YEONPYEONG ISLAND.

Recent military skirmishes

IRAN - ISRAEL NORTH KOREA

6

VALUATION EROSION IS OCCURRING

1

0

-1

-2

85 90 95 2000 05 10

1

0

-1

-2

BCA GLOBAL EQUITY VALUE INDICATOR

Inexpensive

Expensive

Fair

SOURCE: BCA CALCULATION.


7

LIQUIDITY: POSITIVE TRENDS SLOWING

400

300

200

100

08 09 10 11 12

400

300

200

100

CENTRAL BANK BALANCE SHEET:TOTAL ASSETS*

U.S.U.K.EURO AREAJAPAN

* REBASED TO JANUARY 2008 = 100; LOCAL CURRENCY.


8

ON THE CUSP OF A SECULAR BULL…

350

300

250

200

150

100

50

350

300

250

200

150

100

50

U.S. REAL S&P 500 TOTAL RETURN*

JAN 1909 - DEC 1929SEPT 1929 - AUG 1949**NOV 1968 - OCT 1988**AUG 2000 - TODAY

* DEFLATED BY CPI. ALL SERIES REBASED TO STARTING POINT = 100.** ADVANCED IN ORDER TO MATCH UP STARTING POINTS.


9

…BUT INTEREST RATE NORMALIZATION TO COME

20

10

0

-10

60 80 1900 20 40 60 80 2000

20

10

0

-10

U.S. REAL* 10-YEAR GOVERNMENT BOND YIELDS% %

*DEFLATED BY CONSUMER PRICE INFLATION; SOURCE: THOMSON REUTERS, BCA CALCULATIONS.


10

RETAIL SECTOR IS APPEARING

10

0

92 96 2000 04 08 12

10

0

20

10

0

-10

20

10

0

-10

40 20 0

-20-40

40 20 0-20-40

NET SALES OF GOVERNMENT & GNMA BOND FUNDS12-MONTH MOVING AVERAGE

Bil.$ Bil.$

NET SALES OF CORPORATE BOND FUNDS12-MONTH MOVING AVERAGE

Bil.$ Bil.$

U.S.: NET SALES OF DOMESTIC EQUITY MUTUAL FUNDS12-MONTH MOVING AVERAGE

Bil.$ Bil.$

NOTE: MONTHLY DATA.


Marko Papic Chief Strategist Geopolitical Strategy BCA Dialogue March – April 2013 Webcast March...

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