Transcript Pitchbook

E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
2008 … A Year of Living Anxiously
Jim Glassman
[email protected]
212-270-0778
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
 Recession …
 Inflation …
 Global outlook … ☺
 Financial/real estate outlook …
 Investment opportunities … ∞
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Where we discount eternity ... a view we should respect
Wilshire 5000 index of all publicly traded stocks (index)
18,000
18,000
16,000
16,000
14,000
14,000
12,000
12,000
10,000
10,000
8,000
8,000
6,000
6,000
4,000
4,000
2,000
2,000
0
0
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Source: Bloomberg
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Real GDP growth
% change over the four quarters of the year
2007
2008
United States
2.5
2.6
Europe (EU-11)
2.3
2.1
Japan
2.0
2.0
Newly industrializing
8.1
7.3
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Another view … the Federal Reserve’s
US real GDP (percent change from four quarters earlier)
5
5
Real GDP (thin line is Jim Glassman's forecast)
4
4
3
3
2
2
Fed's central tendency
forecast range
1
0
2003
1
0
2004
2005
2006
2007
2008
2009
2010
Sources: Federal Reserve Board; US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Subpar, not recession, but only for a spell …
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
12
10
8
60
65
70
75
80
85
90
95
00
Bush, 2008 (1%?)
Bush, 2001-03 (-6%)
Clinton, 1993 (minimal)
Reagan, 1981 (-1.7%)
Carter, 1977 (-0.5%)
Nixon, 1970 (-0.6%)
Kennedy-Johnson Tax Cut, 1964 (-0.5%)
Unemployment rise raised the worries …
Unemployment rate (percent of the labor force)
12
10
8
6
6
4
4
2
2
0
0
05
Sources: NBER recession bars; US Department of Labor
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
… but this isn’t the markings of a recession yet
Real GDP (percent change from four quarters earlier)
6
Jobless claims (thousands per week)
250
Jobless claims (right, scale is reversed)
275
5
300
4
325
3
350
2
375
1
400
425
0
450
-1
Real GDP growth over the
most recent two quarters (left)
-2
475
500
-3
1987
525
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
Sources: NBER recession bars; US Department of Labor
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Housing’s down, but …
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
New home building is dragging us down, but …
Contribution of residential construction to year-over-year real GDP growth (percentage points)
1.25
1.00
1.25
Residential construction … (if housing starts remain at 1 million in 2008)
1.00
0.75
0.75
0.50
0.50
0.25
0.25
0.00
0.00
-0.25
-0.25
-0.50
-0.50
-0.75
-0.75
-1.00
-1.00
-1.25
-1.25
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Source: US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
… there’s more to the US economy than housing …
Selected GDP measures (percent change from four quarters earlier)
5
5
Real GDP excluding new home building
Real GDP
5
4
4
4
3
3
3
2
2
2
1
1
1
0
2003
0
2004
2005
2006
2007
2008
Sources: Federal Reserve Board; US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
… there’s more to the US economy than the US economy
Contribution of selected components to real GDP (percentage points, q-4 basis)
1.25
1.25
1.00
1.00
Exports
0.75
0.75
0.50
0.50
0.25
0.25
0.00
0.00
-0.25
-0.25
-0.50
-0.50
-0.75
-0.75
-1.00
-1.00
-1.25
-1.25
Residential construction … (if housing starts remain at 1 million in 2008)
-1.50
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
-1.50
2010
Source: US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Don’t rule out consumers …
13
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Real estate excesses have three cures: prices, income, rates
Nominal income per household and house prices (ratio to 1970 Q1 level)
10
9
8
10
Existing house prices (Case-Shiller National Index)
Gross nominal income per household
9
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
Sources: Standard & Poor’s; US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Income—jobs—is the key to the consumer
Real consumer spending and income (percent change from four quarters earlier)
8
7
Real consumer spending
Real disposable personal income
Real wages and salaries
8
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
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 10
Source: US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
We didn’t spend our housing wealth on boats only
Sources and uses of household balance sheet items (change in billions over the past four quarters)
2,000
1,800
1,600
1,400
1,200
1,000
Household investment (lines):
Net purchases of financial and tangible assets
Net purchases of tangible assets
Sources of household funds (shaded areas):
Personal saving
Net mortgage equity withdrawn
Other borrowings (excluding net
xxxxxmortgage equity withdrawn)
2,000
1,800
1,600
1,400
1,200
1,000
800
800
600
600
400
400
200
200
0
0
91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07
Source: Federal Reserve Board
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Debt service, not debt level, is what they care about
Monthly financial obligations (percent of income)
Household debt (ratio to income)
25
1.4
Consumer debt (right)
1.3
20
1.2
Debt service (homeowners' financial obligations) (left)
1.1
15
1.0
0.9
10
0.8
0.7
5
0.6
0
1960
0.5
1965
1970
1975
1980
1985
1990
1995
2000
2005
Source: Federal Reserve Board
17
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Saving (the verb) fell because savings (the noun) rose
Household saving (percent of income)
16
Net worth (ratio to income)
6.4
Ratio of net worth to income (right)
6.2
6.0
12
5.8
5.6
5.4
8
5.2
Saving rate, the line (left)
5.0
4
4.8
4.6
4.4
0
4.2
4.0
-4
1960
3.8
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Sources: US Department of Commerce; Federal Reserve Board
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
P.S. inflation … curve the grade
19
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Inflation is tame, all things considered
Core consumer inflation (percent change from 12 months earlier)
Oil (dollars per barrel)
10
100
Core chain PCE prices (left)
90
8
80
70
6
60
50
4
40
30
2
20
10
Petroleum, blue shaded area (right)
0
1960
0
1965
1970
1975
1980
1985
1990
1995
2000
2005
Sources: NBER recession bars; Federal Reserve Board; US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
The financial shock …
21
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Securitized finance—modern finance—under siege
Assets held at financial intermediaries (share of all assets held at financial intermediaries)
100
Life Insurance Companies
90
Pension Funds
80
70
Brokers and Dealers, Finance,
Mortgage, and Other Insurance
Companies, and Funding
Corporations
60
Money Market Mutual Funds
50
40
Mutual Funds, Closed-End Funds,
Exchange-Traded Funds, and REITs
30
Government-Sponsored Enterprises,
Federally Related Mortgage Pools,
and Issuers of Asset-Backed
Securities
20
10
Banks, Savings Institutions, and
Credit Unions
0
50
53
56
59
62
65
68
71
74
77
80
83
86
89
92
95
98
01
04
07
Source: Federal Reserve Board
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
The policy response is changing the game …
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
The policy wheels are in motion … monetary policy …
Federal funds rate less 10-year Treasury yield (percentage points)
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
1960
1970
1980
1990
2000
Sources: NBER recession bars; Federal Reserve Board
24
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
… and fiscal
Major Fiscal Initiatives
Impact on High-Employment Budget as a % of GDP, Percentage Points
Kennedy-Johnson tax cut (1964)
Vietnam War (1962 - 67)
Nixon (1970)
Carter (1977)
Reagan (1981)
Clinton (1993)
Bush (2001- 03)
Bush (2008)
Consumer rebates
Business investment incentives
Mortgage proposals
Other (ui insurance, food stamps)
-0.5%
-1.7
-0.6
-0.5
-1.7
Minimal
-6.0
-1.6
-0.7
-0.4
-0.3
-0.2
$168 billion +
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Best global economy since the dinosaurs …
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Planet Earth awakens …
Global real GDP (percent change from four quarters earlier)
6
6
5
5
4
4
3
3
2
2
1
1
0
0
-1
-1
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: JPMorgan Chase & Co.
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
… all over the place
Selected real GDP (percent change from four quarters earlier)
10
9
8
10
9
Emerging economies in Asia, Eastern Europe and
Latin America
8
7
7
6
6
US (black)
EU-11 (blue)
Japan (gold)
5
4
5
4
3
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
2000
-3
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: JPMorgan Chase & Co.
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
The falling dollar reflects a more balanced global economy
Real trade weighted dollar index (March 1973 = 100)
135
135
Nominal tradeweighted dollar
index versus G10
countries (1972-76
= 100)
125
115
Broad real trade-weighted
dollar index
125
115
105
105
95
95
85
85
75
1965
75
1970
1975
1980
1985
1990
1995
2000
2005
Source: Federal Reserve Board
29
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Consumer aren’t the only ones benefiting
Profits (percent of Gross Domestic Income)
9
9
After-tax GDP profits from current production
8
8
7
7
6
6
5
5
4
4
3
3
After-tax S&P 500 operating earnings
2
2
1
1
0
0
47
52
57
62
67
72
77
82
87
92
97
02
07
Sources: NBER recession bars; US Department of Commerce; Standard & Poor’s
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
The US trade deterioration was a “pay it forward” story
US current account balance (percent of GDP)
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
-7
-7
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: US Department of Commerce
31
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Conclusion: what makes greatness?
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Waking giants … who’s afraid of the big bad wolf?
China’s real per capita GDP (percent of the US level)
1.0
1.0
0.9
0.9
0.8
0.8
0.7
0.7
0.6
0.6
0.5
0.5
0.4
0.4
0.3
0.3
0.2
0.2
0.1
0.1
0.0
0.0
1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050
Source: JPMorgan Chase & Co.
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
“Who Shrank the Superpower?” … right idea
Share of global GDP (percent)
100%
80%
Asia
60%
40%
United States
20%
0%
2007
Europe
Latin America
MIddle East and Africa
2012
2017
2022
2027
2032
2037
2042
2047
Source: JPMorgan Chase & Co.
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
It’s about idea creation, not how busy we are (GDP)
Percentage of patents coming from the US versus others
100%
90%
80%
70%
Others
60%
50%
United States
40%
30%
20%
10%
0%
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
Source: US Patent and Trademark Office
35
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
It’s not about how much GDP we produce
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
This is the face of trauma …
Nominal and real 10-year Treasury yield (percent)
16
16
14
14
12
12
10
10
Nominal 10-year Treasury yield
8
8
6
6
4
4
2
2
Real 10-year Treasury yield (nominal
less 1-year trailing core inflation rate)
0
0
50
55
60
65
70
75
80
85
90
95
00
05
Sources: NBER recession bars; Federal Reserve Board; US Department of Commerce
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E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
There’s more to wealth than real estate
Real consumer spending and income (percent change from four quarters earlier)
6.50
Ratio of net worth to income (right)
6.00
5.50
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
Value of real estate holdings (right)
1.00
Real estate net worth (right)
0.50
0.00
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: US Department of Commerce
39
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
Oil can’t be in equilibrium
Crude petroleum (West Texas Intermediate, dollars per barrel)
100
100
90
90
80
80
70
70
60
60
50
50
40
40
30
30
20
20
10
10
0
0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
Source: Bloomberg
40
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
It takes time to respond to new incentives
Oil exploration rig count
7,000
90
80
6,000
70
Global rig count (left)
Saudi Arabia's rig count (right)
5,000
60
50
4,000
40
3,000
30
20
2,000
10
1,000
0
81
83
85
87
89
91
93
95
97
99
01
03
05
07
Source: Baker Hughes
41
E C O N O M I C O U T L O O K D I S C U S S I O N, U C I H E A L T H C A R E C O N F E R E N C E, F E B R U A R Y 2 19, 2 0 0 8
… and we don’t have unrealistic expectations
Wilshire 5000 P/E ratio
Profits ($ trillions)
30
1,300
1,200
1,100
25
Price-earnings multiple: ratio of Wilshire 5000 to GDP
after-tax profits (left)
1,000
900
20
800
700
15
600
500
10
5
400
300
After-tax economic GDP
profits (right)
200
100
0
1950 1955
0
1960 1965 1970 1975
1980 1985 1990 1995
2000 2005
Sources: Bloomberg; US Department of Commerce
42