Download Mitchell Stapley - The Goldilocks Nightmare

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2016 Outlook
The Goldilock’s Nightmare
Presented By:
Mitch Stapley, CFA
Chief Investment Officer
For Institutional Investors Only
Don’t Fight the BOJ or the ECB Maybe the Fed
Assets on Central Bank Balance Sheets
(Indexed to 100 in Jan-'07, Local Currency)
550
Fed
BOE
SNB
475
555
525
450
350
329
BOJ
250
234
ECB
150
50
Jan-07
1
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
World QE in Numbers*
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%
Source: Morgan Stanley
*Data from 2014
2
US – We Wrote this Playbook
Increase in the
Monetary Base
3
Source: Bloomberg
Leads to a
weaker USD
And a stronger
S&P 500
Eurozone - Same story, different time zone
Increase in the
Monetary Base
Leads to a
weaker euro
And a stronger
equity market
(STOXX Euro 600)
4
Source: Bloomberg
Japan - Same story, different time zone
Increase in the
Monetary Base
5
Source: Bloomberg
Leads to a
weaker yen
And a stronger
Nikkei
This is All I Get for $3.6 Trillion?
2.9%*
Source: Bloomberg, L.P., IMF, Word Bank
*50 year average
6
The Failure of Quantitative Easing
60% of QE ended back on deposit with the Fed
7
Source: Bloomberg
Regulatory Restrictions in the Financial Sector
8
The Business Cycle is Growing in Length
Avg length of
post-WW2
expansions
(ex-current)
Source: BofA, Merrill Lynch
9
How Solid is the U.S. Economy?
10
Source: Deutsche Bank
Service Sector 80% of Economy, Mfg 20%...
11
Source: Bloomberg
Consumer Balance Sheet Repair Finished?
Debt Outstanding
DPI
Debt
Outstanding/DPI
(Debt Outstanding/DPI) Long Term Avg = .995
12
Housing a 2016 Bright Spot?
Housing Affordability
30yr Mortgage Rate
Rent vs. Buy
Long-term avg.
Household Formations
13
Source: Bloomberg
U.S. Domestic Auto Sales
Long Term Average = 14.62m
14
Source: Bloomberg
Average Hourly Earnings – Key to Rebound
+3.5% Pre Recession
+2.0% Post Recession
15
Source: Bloomberg
Another Headwind to Growth – Higher Savings
Rate Post 2008
+5.7% Post-Recession
+4.0% Pre-Recession
16
Source: Bloomberg
Productivity Collapses
Long Term Average
17
Source: Bloomberg
Dollar Strength in Context – 2016 Headwind
18
Dr. Yellen’s Nightmare
19
Oil - Don’t Expect a Quick Rebound
$70 Target – Long Term
20
Source: Bloomberg
Rig Count Plunges, Oil Productions Doesn’t
21
Falling Oil Prices Do Not Cause Recessions..
22
How Narrow can the Market Get?
23
HY Spread Widening – It’s an Energy Story
24
Where Do You Go For Yield?
Source: Bloomberg (as of 10/31/15)
25
FOMC Dot Plot
26
How High Could Rates Really Go?
27
Source: Stratagas
Knocking on NAIRU’s Door
Target Unemployment
Rate of 5.5%
Fed’s Estimate of NAIRU
Target Inflation Rate* of 2%
28
Source: Bloomberg
* Core PCE
What’s Cheap? Stocks, Bonds or Cash.
29
Source: Strategas
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The information presented in the material is general in nature and is not designed to address your investment
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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.
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represent all of the securities purchased and sold for the portfolio, and it should not be assumed that investment in
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