WilmotML NOTE - Credit Suisse · WilmotML But what if Germany Targeted 2% Inflation? 13.3% 80 160...
Transcript of WilmotML NOTE - Credit Suisse · WilmotML But what if Germany Targeted 2% Inflation? 13.3% 80 160...
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WilmotML Macro Advisory ∙ Machine Learning ∙ Investments
Populism, Robots and the Next Recession
Jonathan Wilmot
March 2017
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WilmotML
Be Prepared To Change Your Mind
“One must learn to look at things all-sidedly… for good things can have bad results and bad things can have good results”.
Mao Ze Dong
The Little Red Book
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WilmotML
Conventional Politics Has Failed
This is the first time in history that a true Populist has become President of the United States, still the most powerful country on earth…
For the first time in its 60 year history the EU looks like the problem not the solution…
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WilmotML
Machine Intelligence
This is the first time in history that humans have had to contemplate the possibility that they will no longer be the most intelligent beings on the planet…
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WilmotML
The Next Recession
This US expansion has just become the third longest in history, and is some 27 months shy of the all time record.
History suggests that we are due a recession before the end of President Trump’s four year term….
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WilmotML
Trump Rally?
-10%
-5%
0%
5%
10%
15%
20
30
40
50
60
70
80
90
Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
IP vs ISM New Orders
Recession ISM new Orders Global IP Momentum
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
Poised for Secular Change?
0
2
4
6
8
10
12
14
Jan-67 Jan-72 Jan-77 Jan-82 Jan-87 Jan-92 Jan-97 Jan-02 Jan-07 Jan-12 Jan-17
G3 10yr Yields
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
Ready for the Final Leg Higher?
5
10
20
40
80
160
320
640
1280
Jan-50 Jan-55 Jan-60 Jan-65 Jan-70 Jan-75 Jan-80 Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
US Real Equity Returns
Recession Real Equity Returns
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
This Is Not a Recession Asset!
80
160
320
640
Jan-87 Jan-92 Jan-97 Jan-02 Jan-07 Jan-12 Jan-17
US Real High Yield Returns
Recession Real High Yield Returns
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
6.1% 5.5% 5.1%
-5%
0%
5%
10%
1893-1900 1932-1939 2009-2016
US Real Bond Returns (CAGR)
-0.8%
-2.4%
-5%
0%
5%
10%
1900-1910 1939-1949 2016-2026
US Real Bond Returns (CAGR)
?
?
11.9%
19.1%
16.1%
0%
5%
10%
15%
20%
25%
1893-1900 1932-1939 2009-2016
US Real Equity Returns (CAGR)
5.7%
3.2%
0%
5%
10%
15%
20%
25%
1900-1910 1939-1949 2016-2026
US Real Equity Returns (CAGR)
Source: Credit Suisse GIRY, Thomson Reuters
Why Passive is Passé: Post-Crisis vs Next Decade
All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML Macro Advisory ∙ Machine Learning ∙ Investments
Populism
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WilmotML
What Is Populism?
“Populists claim that they, and only they, represent the people”
Jan-Werner Muller
What is Populism?
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WilmotML
A Shock But No Surprise
Populism and low ultra-low interest rates go together…
It feeds on a sense of exclusion – cultural, economic, and political…
And usually manifests itself as resentment against elites and immigrants at home, and foreigners abroad.
But after the 1890s depression it didn’t produce disastrous results…
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WilmotML
What is Needed Now?
Fiscal expansion plus deregulation and supply side reform was becoming the new consensus even before Trump was elected…
Both public and private sector investment are running at very depressed levels…
Do we need a big dose of “irresponsible” policy to properly re-energise animal spirits?
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WilmotML
US inflation: PCE Deflator Way Below “Target”
80
160
Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
US PCE Level US Target Level (2%)
4.3%
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
US Unemployment
0
2
4
6
8
10
12
14
16
18
Jan-94 Jan-98 Jan-02 Jan-06 Jan-10 Jan-14
U3 Unemployment U6 Unemployment
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
The Germans Should be Content…
2.2%
80
160
Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
German HCIP Level German Target Level (1.5%)
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
But what if Germany Targeted 2% Inflation?
13.3%
80
160
Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
German HCIP Level US Target Level (2%)
Source: Thomson Reuters All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML
A Bigger Risk than Brexit
50
100
Mar-80 Mar-85 Mar-90 Mar-95 Mar-00 Mar-05 Mar-10 Mar-15
GDP per Capita
Germany Greece Italy
All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
19 Source: Thomson Reuters
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WilmotML
The Real Problem with Tax Reform
50
60
70
80
90
100
110
120
130
140
150
Jan-73 Jan-78 Jan-83 Jan-88 Jan-93 Jan-98 Jan-03 Jan-08 Jan-13
US Dollar Trade Weighted Index (Nominal)
All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
20 Source: Thomson Reuters
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WilmotML Macro Advisory ∙ Machine Learning ∙ Investments
Beyond Robots
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WilmotML
The Future of Intelligence
“Intelligence measures an agent’s ability to achieve goals in a wide range of environments.”
Universal Intelligence: A Definition of Machine Intelligence
by Shane Legg and Marcus Hutter (2007)
“Eventually, I think most jobs will be replaced, like 75-80% of people are not going to work for a living…”
Gary Marcus, Professor of Psychology, New York University.
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WilmotML
McKinsey’s 50 : 5 : 60
• 50%: activities that could be automated with currently viable technologies (worth $2.7 trillion in annual wages in the US). Mostly data analysis or routine physical activities.
• 5%: occupations that are currently easily 100% automatable.
• 60%: occupations where at least 30% of activities can be readily automated – underscoring the importance of humans working alongside machines.
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WilmotML
Worldwide Automation
7%
14.0%
16.0%
12.0% 17.0%
16.0%
18%
Time Spent In US Occupations
Manage Expertise Interface Unpredictable Physcial Collect Data Process Data Predictable Physical
Easy to automate roles 51.0% of jobs
All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
24 Source: Mckinsey Institute Global
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WilmotML
Jobs and Automation
332
60
394
54
35
233
Labour associated with currently technically automatable activities (mn)
Rest of World USA China Europe 5 Japan India
All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
25 Source: Mckinsey Institute Global
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WilmotML
Wages and automation
5.1
2.7
4.1
1.7
1.1
1.1
Wages associated with currently technically automatable activities ($tn)
Rest of World USA China Europe 5 Japan India
All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
26 Source: Mckinsey Institute Global
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WilmotML
The Super Human
“Armed with machine learning, a manager becomes a super-manager,
a scientist a super-scientist, an engineer a super-engineer..”
Pedro Domingos
The Master Algorithm
All material contained in this slide is the intellectual property of Wilmot ML Ltd. Materials have been provided for the clients’ individual use. Past performance is no guarantee of future performance.
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WilmotML Macro Advisory ∙ Machine Learning ∙ Investments
The Case for Super-Full Employment
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WilmotML
Extending the Recovery
Eight years into recovery inflation is way below “target” and the usual markers for
recession are largely absent (outside China)
Energy is in structural over supply
In the medium to long-run the machines are coming
Could there be a better time to aim for an extended recovery in which more
inclusive growth and rising real wages are favoured over short-term inflation
targets and fiscal consolidation?
A premature recession would fuel populist rage (and protectionism)
Perhaps “reckless” is the new prudence
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WilmotML Macro Advisory ∙ Machine Learning ∙ Investments
www.wilmotml.com
Level 39,
One Canada Square, London, E14 5AB