Download Stress Testing After the US Election

Stress Testing After the US Election
PRIMA
Stress Testing for
Financial Institutions
November 8, 2012
Presented by:
Angus Watt Advisory Group
Disclaimer
National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The
National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).
** The securities or sectors mentioned herein are not suitable for all types of investors. Please
consult your investment advisor to verify whether the securities or sectors suit your investor’s
profile as well as to obtain complete information, including the main risk factors, regarding
those securities or sectors.
*** The information contained herein has been prepared by Angus Watt, an Investment
Advisor with National Bank Financial; the opinions expressed do not necessarily reflect those of
National Bank Financial.
**** While opinions expressed are based on analysis and interpretation of historical data
believed to be accurate the underlying data is not necessarily guaranteed as to accuracy.
Stress Testing After the US Election
Messages over the Years
Dr. Allard
Top 3 Principles
when Investing
in Real Estate.
True in business
as well.
We are
“addicted” to
oil
“We are
addicted to
growth”
Rex Tillerson,
Chairman & CEO, Exxon
Stress Testing After the US Election
Market Size
Global debt markets
$72 trillion
Global equity markets
$47 trillion
Global commodity markets
US Housing market
US Economy/GDP
$ 2 trillion
$10-$12 trillion
$14.5 trillion
US Government Debt (Nov/12) $16.2 trillion
Stress Testing After the US Election
United States of America
National
Since 2008.
Debt. .Since 2008. . .
Year
Total National Debt
December, 2008
10.7 trillion
December, 2009
$12.3 trillion
December, 2010
$14.0 trillion
December, 2011
$15.2 trillion
December, 2012 Estimate
$16.4 trillion
2015 Estimate
$19.0 trillion
Stress Testing After the US Election
When Will Debt Ratios Peak?
NBFG Economy & Strategy (data via International Monetary Fund , July 2012)
Stress Testing After the US Election
Monetary Stimulus
Federal Reserve
European Central Bank
+ Keeping interest rates at
+ Maintaining liquidity and
historically low levels
Increasing the amount of
money available through
QE by increasing money
supply
Effective lowers the
value of $US, increasing
potential for inflation
low interest rates
Buying bonds with
maturity > 3 years
“Sterilizing”: purchasing
bonds of one security
while selling another for
a net neutral position
+
+
+
+
Will there be effective Fiscal Policy?
Stress Testing After the US Election
Economic Probabilities
Inflation
Deflation
Stagflation
Stress Testing After the US Election
C&I Loans – USA Commercial Banks
1,640
1,600
1,560
1,520
1,480
1,440
1,400
1,360
1,320
1,280
1,240
1,200
1,160
2007
2008
2009
2010
2011
2012
NBFG Economy & Strategy
Stress Testing After the US Election
Profit Margins: Non-Financial
Corporations
16
15
14
13
12
11
10
9
8
7
6
1970
1975
1980
1985
1990
1995
2000
2005
2010
NBFG Economy & Strategy
Stress Testing After the US Election
Financial Stress in the USA
6.0
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
NBFG Economy & Strategy
Stress Testing After the US Election
Leading Indicator: USA
148
144
140
136
132
128
124
120
116
112
108
104
2005
ECRI
2006
2007
2008
2009
2010
2011
2012
2013
NBFG Economy & Strategy (data via ECRI)
Stress Testing After the US Election
USA: Jobs
NBFG Economy & Strategy
Stress Testing After the US Election
USA: Consumers have deleveraged
%
19.2
18.8
Financial
Obligation
Ratio
18.4
18.0
17.6
17.2
16.8
16.4
16.0
15.6
15.2
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
NBFG Economy & Strategy (data via Federal Reserve)
Stress Testing After the US Election
USA: Inventory of Unsold Homes on
Resale Market
4.0
3.8
3.6
3.4
3.2
3.0
2.8
2.6
2.4
2.2
2.0
1.8
2000 2001 2002 2003 2004
2005 2006 2007 2008 2009 2010 2011 2012
NBFG Economy & Strategy
Stress Testing After the US Election
USA: Home Resales
NBFG Economy & Strategy
Stress Testing After the US Election
USA: Home Prices on Resale Market
20
% (y/y)
16
12
8
4
0
-4
-8
-12
-16
-20
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
NBFG Economy & Strategy
Stress Testing After the US Election
US Housing Starts (Annual Rate)
3,000
(Thousands)
2,500
2,000
1,500
1,000
500
0
Source: Bureau of Census, US Commerce
Department
Stress Testing After the US Election
US Housing Affordability
Median Priced
Monthly Payment
Existing Single Mortgage
P&I
as % of
Family Home
Rate
Payment Income
172,100
5.14
751
14.8
173,100
4.89
734
14.4
166,200
4.67
687
13.6
Year
2009
2010
2011
2011
2011
2011
2011
2011
2012
2012
2012
2012
2012
2012
2012
2012
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
June
July
Aug
171,200
165,400
161,100
164,000
162,600
154,600
156,100
165,100
174,100
180,200
189,600
188,600
188,700
4.69
4.51
4.32
4.33
4.27
4.37
4.21
3.96
4.04
3.92
3.81
3.78
3.70
710
671
639
652
641
617
611
628
668
682
708
701
695
13.9
13.2
12.6
12.9
12.6
12.1
12.0
12.4
13.1
13.4
13.9
13.6
13.5
Median
Affordability
Family Qualifying
Index
Income Income** Composite
61,082
36,048
169.4
60,609
35,232
174.0
61,455
32,976
174.6
61,510
61,526
61,591
61,545
61,604
61,558
61,603
61,637
61,648
61,666
61,688
61,708
61,717
34,080
32,208
30,672
31,296
30,768
29,616
29,328
30,144
32,064
32,736
33,984
33,648
33,360
180.5
191.0
200.8
196.7
200.2
207.9
210.0
204.5
192.3
188.4
181.5
183.4
185.0
©2012 National Association of REALTORS®
Stress Testing After the US Election
US Housing
US Demographics remain positive (Population 21-40 yrs)
4.6% between 2009 and 2015
0% between 2000 and 2008
Source: NBF Economy & Strategy (data via
Census Bureau)
Stress Testing After the US Election
PIMCO – Near Term
+ Home prices are gradually increasing again. . .
+
+
+
+
. . . but not as much as the headline numbers indicate
Delinquencies are dropping, and current loans are
performing better
Credit is still very hard to get: many buyers are
investors
New construction has been too low for years
Housing finance reform is difficult and will take a
long time
Stress Testing After the US Election
Current to 30 Transition Rate by Vintage
PIMCO, CoreLogic: Sept 20/12
Stress Testing After the US Election
Key Themes: PIMCO
+ 2-3 million foreclosures still need to take place; most
+
+
are behind us
Recent originations are going delinquent at very low
rates
Investors are buying more units and renting them out
Stress Testing After the US Election
Most Newly Forming Households: Rentals
Annual Change in Households
(thousands)
Homeownership Rate
%
PIMCO, JCHS tabulations of US Census Bureau, Housing Vacancy Surveys
Stress Testing After the US Election
Canada: House Prices rose 5.4% in June on
a YoY Basis
House Price Composite Index,
Canada and USA seasonally
adjusted
House price composite index Teranet-National Bank and S&P
Stress Testing After the US Election
Canadian Housing Affordability
Sep-12
Median
Family
Income*
Median
Monthly
Payment
Priced Family
P&I
as % of Qualifying Affordability
Home
Payment** Income Income***
Index
Toronto
$68,810
$503,662
$2,117
36.92%
$101,616
67.72
Vancouver
$67,090
$722,681
$3,038
54.34%
$145,824
46.01
Calgary
$89,490
$402,756
$1,693
22.70%
$81,264
110.12
Edmonton
$87,930
$323,803
$1,361
18.57%
$65,328
134.60
* Based on 2012 Statistics Canada data, Median total income (all census families).
** National Bank of Canada 5 Year Fixed Mortgage Rate of 3.99%
*** Based on a 25% qualifying ratio for monthly housing expense to gross monthly income with a
20% down payment over 25 years.
Sources: Statistics Can 2012
CREA, July 2012
National Bank Financial Group 2012
Stress Testing After the US Election
USA: Auto Sales on the Rise
22
21
20
19
18
17
16
15
14
13
12
11
10
9
8
1980
1985
1990
1995
2000
2005
2010
NBFG Economy & Strategy (data via Bureau of Economic Analysis)
Stress Testing After the US Election
USA: Vehicle Stock has Never Been as Old
12
11
Average
Age
(Years)
That is not the American dream !
10
9
8
7
6
5
1941 1952 1960 1968 1976 1984 1991 1995 1999 2003 2007 2011
NBFG Economy & Strategy (data via Polk)
Stress Testing After the US Election
USA: Outlook calls for Relatively Stable
Consumption
Total Energy Consumption:
Actual and current EIA
Forecast
NBFC Economy & Strategy (data via US Energy Information Administration {EIA})
Stress Testing After the US Election
USA: It was Supposed to be Much
Stronger than that!
A comparison
between the EIA’s
2008 forecast and
current forecast
NBFG Economy & Strategy
Stress Testing After the US Election
USA: Where is the Production Coming
From?
Primary Energy
Production
NBFG Economy & Strategy (data via EIA)
Stress Testing After the US Election
USA: Key Imports are Falling
Imports of Natural
Gas
(monthly data)
NBFG Economy & Strategy (data via EIA)
Stress Testing After the US Election
USA: Outlook for Energy Imports
A Comparison
between EIA’s
2008 forecast and
current forecast
NBFG Economy & Strategy (data via EIA)
Stress Testing After the US Election
World: A New World Order in 2012
Share of World
GDP
NBFG Economy & Strategy (data via IMF)
Stress Testing After the US Election
World: Outlook for Energy Consumption
770
Total Energy
Demand
NBFG Economy & Strategy (data via EIA)
Stress Testing After the US Election
Summary
Audit
• Corporate Balance Sheets
• US Housing Recovery
• US Auto Industry
• US Dollar
• US Employment
Green
Yellow
Yellow
Yellow
Yellow
Stress Testing
• US Currency Volatility
• Interest Rates
• Global Problems (Greece, France, Japan/China, Israel)
Stress Testing After the US Election
780 412-6644
[email protected]
anguswatt.com
Stress Testing After the US Election