Download US Competitive Advantages - Real Estate Investment Society

Presented by
John B. Jung Jr.
Senior Managing Director,
BB&T Capital Markets
Fort Myers, FL
March 10, 2015
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Securities. This material is presented for general information only and is not intended to provide specific advice or recommendations
for any individual.
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“If you can’t explain it simply, you don’t understand it well
enough.”
- Albert Einstein
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Goal Number One: Long-Term Growth in the Standard of Living
Long-Term Real Growth in U.S. GDP Per Capita (1860-2012)
$60,000
Fiscal
Crisis
2007
$50,000
2013
US Real GDP per Capita (2009 Dollars)
2006
2000
Internet
Stock
Bubble
$40,000
1987
Stock
Crash
1973
Arab Oil
Embargo
$30,000
1982
1968
$20,000
1944
1929
Stock
Crash
$10,000
1906
$0
1860
Source: Measuring Worth
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2009
SpanishAmerican
War
1880
1900
1936
1916
WWI
Roaring 20s
1920
Great
Depression
WWII
1940
Korean
War
Persian
Gulf
War
Vietnam War
1960
1980
War in Afghanistan
Iraq War
Financial Crisis
2000
2014
U.S. Competitive Advantages
• Government Stability – same system since 1789
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U.S. Competitive Advantages
• Government Stability
• Geography – no wars on U.S soil since 1865
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U.S. Competitive Advantages
• Government Stability
• Geography
• Arable Land – we can feed ourselves and much of the world
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U.S. Competitive Advantages
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Government Stability
Geography
Arable Land
Raw Materials – iron ore and lumber and limestone and …..
U.S. Competitive Advantages
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Government Stability
Geography
Arable Land
Raw Materials
Energy Costs – shale play a game changer
U.S. Competitive Advantages
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Government Stability
Geography
Arable Land
Raw Materials
Energy Costs
Transportation Infrastructure – highways, airports, ports, rivers,
railroads
U.S. Competitive Advantages
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Government Stability
Geography
Arable Land
Raw Materials
Energy Costs
Transportation Infrastructure
Education – everybody wants to go to college in the U.S.
U.S. Competitive Advantages
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Government Stability
Geography
Arable Land
Raw Materials
Energy Costs
Transportation Infrastructure
Education
Work Ethic / Productivity – Puritan or not, we have it (and it is
quantifiable)
U. S. Global Competitiveness
•
United States Labor Productivity is up almost 50% in the last twenty years – driven by
technology and process improvement
•
The United States Worker is the most productive worker in the world
$65,000
$65
$60,000
$60
$55,000
$55
$50,000
$50
$45,000
$45
$40,000
$40
$35,000
$35
$30,000
1990
$30
1995
Real GDP per Capita
2000
2005
Real GDP per Hour Worked
Source: U.S. Department of Labor; Bureau of Labor Statistics
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2010
Real GDP per Hour Worked
GDP Per Capita
U.S. Labor Productivity
Competing in the Global Marketplace
•
North American “Global Powerhouse”
– Energized by NAFTA
– Trade / Immigration / Education
– 25% of global GDP
•
China (third largest global trading partner)
– Globally competitive
– Massive infrastructure needs / Misplaced stimulus?
•
Latin America (second largest global trading partner)
– Abundant arable land and raw materials
– Held back by government instability?
•
European Union (largest global trading partner)
– Historical center of commerce and trade
– Sovereign financial difficulties / uneven work ethic
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Key Measures of the US Economy
•
Earnings growth in the last decade has outpaced growth in the S&P 500 index; resulting in
a lower price to earnings ratio.
•
Much of the growth in earnings is tied to the growth in the global economy.
•
Stock market performance is a big driver of consumer confidence.
S&P 500 and S&P Corporate Earnings (EPS)
200
1.2
2500
180
1
160
2000
140
0.8
1500
120
0.6
100
1000
80
0.4
60
500
0.2
40
0
2002
2003
2004
2005
2006
2007
2008
S&P 500
Source: FactSet, data as of January 1, 2015
15
2009
S&P 500 EPS
2010
2011
2012
2013
2014
20
0
2015
Key Measures of the US Economy
•
Consumer confidence has trended up since the all-time low in February 2009
and consumer spending continues to recover.
U.S. Consumer Confidence/Spending
160
Index (1985=100)
120
$11,000
100
$10,000
80
60
$9,000
40
$8,000
Consumer Spending ($ billions)
$12,000
140
20
0
$7,000
2003 2004 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Consumer Confidence
Consumer Spending ($ in billions)
Source: Bureau of Economic Analysis
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Key Measures of the US Economy
•
Although the U.S. has lost nearly 8 million factory jobs (40% of total) since
manufacturing employment peaked in mid-1979, the U.S. remains the No. 1
manufacturing country in the world, doubling output since 1979 and currently outproducing No. 2 China by 25%
•
Since 2010 the United States has added 650,000+ manufacturing jobs
Industrial Production
Industrial Production – measure of physical output in factories, mines and utilities
110
Index Value (2007 = 100)
105
100
95
90
85
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
80
Source: US Federal Reserve - Industrial Production and Capacity Utilization Report
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“History may not repeat itself, but it rhymes.”
- Mark Twain
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Old versus New Economies
Old (Pre-Great Recession) Economy
(1946 – 2007)
New (Post-Great Recession) Economy
(2008 - ?)
1. Rising Asset
Prices
1. Stabilizing
Asset Prices
2. Declining
Risk Premium
4. Increased
Leverage
3. Aggressive
Investing
 Strong Growth
 Low Unemployment – Low Inflation
 Aggressive Consumer Spending
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2. Increasing
Risk Premium
4. Reduced
Leverage
3. Need for
Liquidity
 Limited Growth
 High Unemployment – Deflation
 Slower Consumer Spending
The effects of the Great Recession
Percentage Change in Economic Indicators Following Recession
What is normal?
Is this the new normal?
Average, 3 Years After The Start of Recession (1)
30%
25%
20%
15%
10%
5%
27.0% 26.8%
Current Cycle (7 years from the end of 2007)
20.0%
25.0%
23.8%
15.0%
21.7%
10.0%
16.9%
17.6%
11.8%
7.5%
5.0%
13.0%
5.7%
3.5%
2.9%
1.7%
0.0%
11.6% 11.4%
7.0%
(5.0%)
(4.2%)
(10.0%)
(9.9%)
(15.0%)
0%
(20.0%)
2009 - 2014 were the five largest deficits in modern history, totaling $6.3 trillion (8% of GDP on average); the above
draws into question the value of stimulus spending.
(1) Covers eight recession cycles going back to 1950 (does not include the truncated 1980 recession)
Source: Haver Analytics, Gluskin Sheff, U.S. Census, U.S. Bureau of Economic Analysis, U.S. Federal Reserve, U.S. Treasury
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“New Economy” Characteristics – Large Public Deficits and Debt
Total U.S. Government Outlays as a % of GDP
26.0%
26.0%
24.0%
24.0%
Outlays
Average Outlays,
1950-2015E
22.0%
22.0%
Outlays
Source: US Treasury, Congressional Budget Office
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2015E
2010
2005
2000
1995
12.0%
1990
12.0%
1985
14.0%
1980
14.0%
1975
16.0%
1970
16.0%
1965
18.0%
1960
18.0%
1955
20.0%
1950
20.0%
“New Economy” Characteristics – Large Public Deficits and Debt
Total U.S. Government Outlays and Revenues as a % of GDP
26.0%
26.0%
24.0%
24.0%
Outlays
Average Outlays,
1950-2015E
22.0%
22.0%
20.0%
20.0%
18.0%
18.0%
Average Revenues,
1950-2015E
Revenues
16.0%
16.0%
Revenues
Source: US Treasury, Congressional Budget Office
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Outlays
2015E
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
12.0%
1960
12.0%
1955
14.0%
1950
14.0%
“New Economy” Characteristics – Large Public Deficits and Debt
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Since the 1950’s we have borrowed on average 2.3% of GDP
•
In the first four years of the current administration we averaged 8.7% of GDP.
•
In 2014, the deficit declined to 2.8% of GDP, the lowest since 2005
•
This is the only period post WWII when we have broken out of the range on both outlays
and revenues
Average net borrowing as a % of GDP
26.0%
26.0%
24.0%
24.0%
Outlays
Average Outlays,
1950-2013
22.0%
22.0%
20.0%
20.0%
1950 – 2015E Average Net Borrowing as a % of GDP: 2.3%
18.0%
18.0%
Average Revenues,
1950-2013
Revenues
16.0%
16.0%
Revenues
Source: US Treasury, Congressional Budget Office
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Outlays
2015E
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
12.0%
1960
12.0%
1955
14.0%
1950
14.0%
“New Economy” Characteristics – Large Public Deficits and Debt
Total U.S. Government Expenditures and Debt
$7,000
$20,000
$18,000
$6,000
$5,000
$14,000
$12,000
$4,000
$10,000
$3,000
$8,000
$6,000
$2,000
$4,000
$1,000
$2,000
$0
$0
1981
1984
1987
1990
1993
1996
1999
U.S. Government Expenditures ($ in billions)
Source: US Treasury, Congressional Budget Office, U.S. Office of Management and Budget
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2002
2005
2008
2011
2014
U.S. Government Debt ($ in billions)
U.S. Government Debt ($ billions)
U.S. Government Expenditures ($ billions)
$16,000
“New Economy” Characteristics – Consumer De-Leveraging
U.S. Household Debt as a Percent of GDP
100%
80%
60%
The Great
Recession
40%
The Great
Depression
20%
0%
1920
1925
1930
1935
1940
1945
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
Household debt / GDP
Source: U.S. Census, U.S. Federal Reserve Flow of Funds. Shading represents National Bureau of Economic Research Recessionary Periods
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2005
2010 2015
“New Economy” Characteristics - Employment
•
Workforce participation is at a 35 year low – 62.7%. 2014 workforce much different in
makeup than in 1978
•
7 to 9 million jobs below anticipated employment – reflected in consumer confidence and
governmental revenues
Total U.S. Employment – Since 1949
Total U.S. Employment – Since 2000
Source: U.S. Department of Labor; Bureau of Labor Statistics; FactSet, Associated Press
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“New Economy” Characteristics – Median Household Income and Housing Prices
Real U.S. Median Household Income
Case-Shiller Home Price Index
250
200
$60,000
Case-Schiller Index
Median Household Income
$70,000
$50,000
150
100
$40,000
50
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
$30,000
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
•
At the bottom of the housing market we saw $6 trillion worth of housing value
destruction
•
Housing prices are recovering but remain nationwide about 20% below the 2006 peak
•
Median Household income flat for 25 years – symptom or the cure?
Source: U.S. Census Bureau, Bureau of Labor Statistics, National Association of Realtors, Standard & Poor’s, Financial Times, NY Times
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“In any moment of decision, the best thing you can do is the right
thing…The worst thing you can do is nothing.”
- Theodore Roosevelt
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How much of a role should the Federal Government play in the economy?
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Housing - FHA / Fannie Mae / Freddie Mac
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Healthcare – Medicare / Medicaid / ACA
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Education – Student Loans
Regulatory climate – Dodd-Frank / Sarbanes-Oxley / EPA / OSHA / NLRB
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•
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Interest rates – ZIRP
The companies and organizations and governments who reacted rationally to the
“New Normal” are already the winners - if the financial system is sound and the
capitalist system is allowed to work (compete!) we will continue to recover and
grow.
“The nicest thing about not planning is that failure comes as a
complete surprise, rather than being preceded by a period
of worry and depression.”
- Sir John Harvey-Jones
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Planning to Grow / Planning to Compete
1.
2.
3.
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Tax Code Reform
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Cost of complexity / Uncertainty over rates
•
Highest marginal corporate tax rates
•
Special interest provisions (housing /charities / municipal bonds)
Regulatory Overhaul / Exit of Private Enterprises
•
The regulatory burden and cost to our economy is significant and growing
•
Government involvement in private enterprises is anti-competitive
•
If the future of our economy is competing globally, we have to compete globally.
Fiscal Responsibility
•
Do we have the political will to address spending / which by definition includes
entitlements and defense
•
Are we positioned to continue to compete globally unless we continue to invest in
education and technology and infrastructure – thereby spurring growth
“We can’t solve problems by using the same kind of thinking we
used when we created them”
- Albert Einstein
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Compete and Grow
•
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Innovation is essential - especially if it’s disciplined and focused on competitive
growth
Compete and Grow
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Innovation is essential
•
Compromise is paramount – my way or the highway is not an option, compromise
must lead to competitive growth
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Compete and Grow
•
Innovation is essential
•
Compromise is paramount
•
Establish clearly defined objectives - $20.7 trillion in the war on poverty / 15%
poverty level for the last 50 years / have we created opportunity?
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Compete and Grow
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Innovation is essential
•
Compromise is paramount
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Establish clearly defined objectives
•
Get it right the first time – as time goes by our opportunities to be wrong diminish, as
do our chances to lead the competitive growth of the world economy
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Compete and Grow
•
Innovation is essential
•
Compromise is paramount
•
Establish clearly defined objectives
•
Get it right the first time
•
Focus on Growth and Competing – nothing else is relevant
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“Men (or Women) make history, and not the other way around.
In periods where there is no leadership, society stands still.
Progress occurs when courageous, skillful leaders seize the
opportunity to change things (for the better).”
- Harry S Truman
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Success starts here.
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