Download US Competitive Advantages - NC-CCIM

Presented by
John B. Jung Jr.
Senior Managing Director, BB&T Capital Markets
CCIM – Cary, NC
March 19, 2014
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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
US Real GDP per Capita (2009 Dollars)
$50,000
2009
$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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2013
2006
2000
Internet
Stock
Bubble
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
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)
2000
200
1.2
1800
180
1
1600
160
1400
140
0.8
1200
120
1000
0.6
100
800
80
0.4
600
60
400
0.2
40
200
0
2002
20
0
2003
2004
2005
2006
2007
S&P 500
Source: FactSet, data as of December 31, 2013
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2008
2009
S&P 500 EPS
2010
2011
2012
2013
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.
160
$12,000
140
$11,500
$11,000
Index (1985=100)
120
$10,500
100
$10,000
80
$9,500
60
$9,000
$8,500
40
$8,000
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Consumer Spending ($ billions)
U.S. Consumer Confidence/Spending
$7,500
0
$7,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2010 2011 2012 2013
Consumer Confidence
Consumer Spending ($ in billions)
Source: Bureau of Economic Analysis
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Key Measures of the US Economy
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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 500,000+ manufacturing jobs
Industrial Production
Industrial Production – measure of physical output in factories, mines and utilities
Index Value (2007 = 100)
105
100
95
90
85
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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Pre- and Post- Great Recession 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%
27.0% 26.8%
Current Cycle (6 years from the end of 2007)
20.0%
25.0%
23.8%
15.0%
21.7%
10.0%
15.4% 14.7%
6.9%
5.0%
16.9%
13.0%
0.0%
11.6% 11.4%
6.5%
2.1%
1.1%
(0.4%)
(5.0%)
7.0%
(3.7%)
(10.0%)
5%
(15.0%)
0%
(20.0%)
(17.1%)
2009 - 2013 were the five largest deficits in modern history, totaling $6.1 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,
1950-2013
22.0%
22.0%
Outlays
Source: US Treasury, Congressional Budget Office
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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,
1950-2013
22.0%
22.0%
20.0%
20.0%
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
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 (about 6% in
2013)
•
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 – 2013 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
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
12.0%
1960
12.0%
1955
14.0%
1950
14.0%
“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 2005 2010
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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“New Economy” Characteristics - Employment
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Workforce participation is at a 35 year low – 62.8%. 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 1948
Total U.S. Employment – Since 2000
150
140
Total US Employment (Millions)
Total US Employment (Millions)
160
120
100
80
145
140
135
130
60
40
125
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013
2000
2002
Source: U.S. Department of Labor; Bureau of Labor Statistics; FactSet, Associated Press
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2004
2006
2008
2010
2012
“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
$30,000
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
0
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
•
At the bottom of the housing market we saw $6 trillion worth of housing value
destruction.
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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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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.
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“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
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If the future of our economy is competing globally, we have to compete globally.
Fiscal Responsibility
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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
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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
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Innovation is essential
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Compromise is paramount
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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
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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
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Innovation is essential
•
Compromise is paramount
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Establish clearly defined objectives
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Get it right the first time
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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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