The Goldilocks Nightmare - CFA Institute · 525 234 475 555 329 50 150 250 350 450 550 Jan-07...
Transcript of The Goldilocks Nightmare - CFA Institute · 525 234 475 555 329 50 150 250 350 450 550 Jan-07...
Presented By:
Mitch Stapley, CFAChief Investment Officer
For Institutional Investors Only
This presentation has been provided to you for use in a private and confidential meeting to discuss potential or existing investment advisory relationship. This presentation is not
an advertisement and is not intended for public use or distribution beyond our private meeting.
2016 OutlookThe Goldilock’s Nightmare
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Assets on Central Bank Balance Sheets
(Indexed to 100 in Jan-'07, Local Currency)
BOJ
ECB
SNBFed
BOE
Don’t Fight the BOJ or the ECB� Maybe the Fed
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UK Japan US Eurozone
Amount £375bn ¥1.4trn $3.6trn €836bn
% of GDP 21% 26% 20% 9%
% of Bond Market 27% 16% 26% 14%
% of Annual Net Issuance
107% 347% 139% 262%
World QE in Numbers*
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Source: Morgan Stanley*Data from 2014
Increase in the Monetary Base
Leads to a weaker USD
And a stronger S&P 500
US – We Wrote this Playbook
Source: Bloomberg3
Increase in the Monetary Base
Leads to a weaker euro
And a stronger equity market (STOXX Euro 600)
Eurozone - Same story, different time zone
Source: Bloomberg4
Increase in the Monetary Base
Leads to a weaker yen
And a stronger Nikkei
Japan - Same story, different time zone
Source: Bloomberg5
2.9%*
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Source: Bloomberg, L.P., IMF, Word Bank*50 year average
This is All I Get for $3.6 Trillion?
The Failure of Quantitative Easing
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60% of QE ended back on deposit with the Fed
Source: Bloomberg
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Regulatory Restrictions in the Financial Sector
The Business Cycle is Growing in Length
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Avg length of post-WW2 expansions (ex-current)
Source: BofA, Merrill Lynch
How Solid is the U.S. Economy?
10 Source: Deutsche Bank
Service Sector 80% of Economy, Mfg 20%...
Source: Bloomberg11
Consumer Balance Sheet Repair Finished?
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Debt Outstanding
DPI
Debt Outstanding/DPI
(Debt Outstanding/DPI) Long Term Avg = .995
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Housing Affordability
30yr Mortgage Rate
Rent vs. Buy
Household Formations
Housing a 2016 Bright Spot?
Source: Bloomberg
Long-term avg.
Source: Bloomberg
U.S. Domestic Auto Sales
Long Term Average = 14.62m
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Average Hourly Earnings – Key to Rebound
+2.0% Post Recession
+3.5% Pre Recession
Source: Bloomberg15
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Another Headwind to Growth – Higher Savings Rate Post 2008
+4.0% Pre-Recession
+5.7% Post-Recession
Source: Bloomberg
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Long Term Average
Productivity Collapses
Source: Bloomberg
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Dollar Strength in Context – 2016 Headwind
Dr. Yellen’s Nightmare
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Oil - Don’t Expect a Quick Rebound
$70 Target – Long Term
Source: Bloomberg
Rig Count Plunges, Oil Productions Doesn’t
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Falling Oil Prices Do Not Cause Recessions..
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How Narrow can the Market Get?
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HY Spread Widening – It’s an Energy Story
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Where Do You Go For Yield?
Source: Bloomberg (as of 10/31/15)
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FOMC Dot Plot
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How High Could Rates Really Go?
Source: Stratagas
Target UnemploymentRate of 5.5%
Target Inflation Rate* of 2%
Knocking on NAIRU’s Door
Source: Bloomberg * Core PCE28
Fed’s Estimate of NAIRU
What’s Cheap? Stocks, Bonds or Cash�.
Source: Strategas29
General Disclosures
ClearArc Capital, Inc., formerly known as Fifth Third Asset Management, Inc., is an investment adviser registered under the Investment Advisers Act of 1940. Registration as an investment adviser does not imply any level of skill or training. The information presented in the material is general in nature and is not designed to address your investment objectives, financial situation or particular needs. Prior to making any investment decision, you should assess, or seek advice from a professional regarding whether any particular transaction is relevant or appropriate to your individual circumstances. Although taken from reliable sources, ClearArc Capital cannot guarantee the accuracy of the information received from third parties.
The opinions expressed herein are those of ClearArc Capital and may not actually come to pass. This information is current as of the date of this presentation and is subject to change at any time, based on market and other conditions. Index performance used throughout this presentation is intended to illustrate historical market trends and performance. Indexes are unmanaged and do not incur investment management fees. An investor is unable to invest in an index. The performance shown may not reflect a ClearArc Capital portfolio. Past performance is no guarantee of future results.
The mention of specific securities and sectors illustrates the application of our investment approach only and is not to be considered a recommendation by ClearArc Capital. The specific securities identified and described above do not represent all of the securities purchased and sold for the portfolio, and it should not be assumed that investment in these securities were or will be profitable. There is no assurance that the securities purchased remain in the portfolio or that securities sold have not been repurchased. Charts, diagrams and graphs, by themselves, cannot be used to make investment decisions.
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