Download View the Two Different Worlds presentation

fullermoney.com
Our theme: Empowerment Through Knowledge
48th Annual Contrary Opinion Forum
David Fuller 7th October 2010
Two
Different Worlds
fullermoney.com
Our theme: Empowerment Through Knowledge
The old labels are misleading:
‘old world, new world,
developed, developing, emerging…’
What do all economies
have in common?
They are either progressing or regressing
on an absolute or relative basis.
fullermoney.com
Our theme: Empowerment Through Knowledge
Progressing Economies Have:
•
•
•
•
•
•
•
Superior economic governance
Relatively strong GDP growth
Current account surpluses
Low levels of government debt
High personal savings rates
Sound banking sectors
Young, motivated & educated workers
fullermoney.com
Our theme: Empowerment Through Knowledge
Regressing Economies Have:
•
•
•
•
•
•
•
Poor economic governance
Relatively weak GDP growth
Current account deficits
Increasing government debt
Low personal savings and high debt
Weak, dysfunctional banking sectors
A shortage of skilled workers
fullermoney.com
Our theme: Empowerment Through Knowledge
How do countries transform from
regressing to progressing?
• Governance is everything! It starts with
good leadership and is a top-down process.
• Luck helps: climate, water, indu. resources
• Empowerment of women & minorities
• Education and equal opportunity
• A ‘Can Do’ attitude and strategic planning
• Favourable demographics
fullermoney.com
Our theme: Empowerment Through Knowledge
How do countries go from
progressing to regressing?
• A failure of governance: pork, shorttermism, CEOs game the system, a morally
bankrupt financial sector
• Bad luck: drought, floods, few resources
• Deteriorating educational standards
• An entitlement mentality - hubris
• Impoverishment by military commitments
• Social divisiveness - loss of confidence
fullermoney.com
Our theme: Empowerment Through Knowledge
Stock market question:
Do two severe bear markets within
eight years make it more or less
likely that another dramatic decline
will occur within a few years?
fullermoney.com
Our theme: Empowerment Through Knowledge
S&P 500 Index since 1953
David,
SPX historic, semi-log here
Secular
valuation
contraction
Secular valuation
contraction
Box and label the valuation contraction cycles
1967 to 1982
2000 to 2015?
fullermoney.com
Our theme: Empowerment Through Knowledge
Many US economic commentators
say that America is in a depression!
We also heard this in 1974, 1987 and
2001.
This crisis is more serious, but…
fullermoney.com
Our theme: Empowerment Through Knowledge
What we actually have is the worst
credit crisis recession since the 1930s.
‘100 years of history
show that it takes five to seven years
for an economy to recover from a
credit crisis recession.’
The US economy has been helped by
stronger Asian-led growth.
fullermoney.com
Our theme: Empowerment Through Knowledge
With the US economy still in trouble
why shouldn’t the S&P 500 Index
fall to new lows as many forecast?
“It’s not about the economy, stupid.”
Russell Napier of CLSA
10 September 2010
Equity investors buy companies…
not the economy.
fullermoney.com
Our theme: Empowerment Through Knowledge
NASDAQ 100 Index
(weekly)
David, put NDX chart here with comment:
Does this look like a depression or even
A bear market to you?
Does the action since the
Nov 2008 low look like a
depression or even a
bear market to you?
fullermoney.com
Our theme: Empowerment Through Knowledge
Bonds or equities?
Baby boomers have been pouring
savings into bonds
and selling stocks.
“An estimated $179 billion has been put in bond funds this
year, while $35 billion has been pulled from stock funds,
according to the Investment Company Institute, a trade
group for the mutual fund industry.” 24 Sep 2010
But does this make sense today?
fullermoney.com
Our theme: Empowerment Through Knowledge
September
1981
US 10-Yr Bond Yield
David, put historic US 10-year yield here
Annotate with question:
Does it make sense to buy at these yields?
Does it make sense to
buy bonds at these yields?
fullermoney.com
Our theme: Empowerment Through Knowledge
‘Bond markets are taking their cue
from the developed economies,
equities from the developing.’
Mike Lenhoff of Brewin Dolphin Securities
24 September 2010
This astute observation explains why
investors in bonds see little recovery,
unlike investors in equities.
fullermoney.com
Our theme: Empowerment Through Knowledge
fullermoney.com
Our theme: Empowerment Through Knowledge
Norfolk Southern in 100-year issue –
Financial Times 24 Aug 2010
The company sold $250m in bonds with a yield of just 5.59 percent – an
attractive rate for a company rated Baa1 by Moody’s Investors Service.
“We decided to [issue the bonds] because rates are so low and there is strong
appetite for 100-year bonds,” said Robin Chapman, a spokesman for Norfolk
Southern.
“You are giving a company money for a long period of time with no ability to
foresee the conditions in that period of time and for a very low interest rate,”
said Jason Brady, a portfolio manager at Thornburg Investment Mgt.
Investors who bought Ford’s century debt at a higher rate in an issue from
1997 saw their bonds fall to less than 15 cents on the dollar when the US car
industry was in crisis over the past few years, Mr Brady said. They have since
recovered but still trade at less than 90 cents on the dollar. The price of bonds
also falls when rates rise.
fullermoney.com
Our theme: Empowerment Through Knowledge
US equities: Is this irrational pessimism
and gratuitous gloom?
Press reports:
“death crosses”
“DJIA 400”, says…
“Hindenburg Omen”
Meanwhile, progressing markets lead
a resumption of the bull trend.
fullermoney.com
Our theme: Empowerment Through Knowledge
Indonesia (monthly)
Asia’s market leader among larger population counties
330m people
Brobdingnagian base
Uncoupled from Wall St in June
Due for some reversion towards rising MA mean
fullermoney.com
Our theme: Empowerment Through Knowledge
ASEAN uncoupling
from S&P 500 in June
fullermoney.com
Our theme: Empowerment Through Knowledge
Thailand
(monthly)
fullermoney.com
Our theme: Empowerment Through Knowledge
Singapore (weekly)
The new Switzerland
fullermoney.com
Our theme: Empowerment Through Knowledge
Shanghai Composite Index
(weekly)
Supply to increase
bank reserves
Currently
undervalued
co-favourite
BRIC
fullermoney.com
Our theme: Empowerment Through Knowledge
Hong Kong Hang Seng Index
(weekly)
fullermoney.com
Our theme: Empowerment Through Knowledge
Vietnam SE Index (weekly)
shunned due to devaluation
Asia’s lowest
valuations
fullermoney.com
Our theme: Empowerment Through Knowledge
Vietnamese Dong
USD/VND (weekly)
devaluation should be
nearly over
fullermoney.com
Our theme: Empowerment Through Knowledge
India BSE Sensex Index (monthly)
Brobdingnagian base
Advance temporarily overextended
near 2008 peak
Fantastic long-term story
co-favourite BRIC
fullermoney.com
Our theme: Empowerment Through Knowledge
Bombay Banks Index
(weekly)
Contrast this performance
with western banks
fullermoney.com
Our theme: Empowerment Through Knowledge
Chile General Index
(weekly)
Susceptible to temporary
mean reversion towards the MA
fullermoney.com
Brazil Bovespa Index
(weekly)
Fullermoney’s 3rd
favourite BRIC
Our theme: Empowerment Through Knowledge
fullermoney.com
Our theme: Empowerment Through Knowledge
Germany DAX Index (weekly)
exporters leveraged to
global economy
fullermoney.com
Our theme: Empowerment Through Knowledge
Canada TSX (weekly)
Completing
consolidation
fullermoney.com
Our theme: Empowerment Through Knowledge
S&P 500 Index
(weekly)
Bloomberg: ‘best
September gain
since 1939’
fullermoney.com
Our theme: Empowerment Through Knowledge
Fiat Currencies
The least bad in this environment:
Those of Asia-led growth economies, resources
exporters, financial currencies (Swiss franc &
Singapore $)
Higher risk:
Debtor currencies – US$ appeal mainly as a liquid
reserve currency and haven in times of crisis
In the distant future:
Chinese Renminbi will be the next global reserve
currency but probably not before 2050
fullermoney.com
Our theme: Empowerment Through Knowledge
Asian Dollar Index (monthly)
Brobdingnagian base
fullermoney.com
Our theme: Empowerment Through Knowledge
Singapore Dollar USD/SGD (monthly)
the new Swiss Franc
fullermoney.com
Our theme: Empowerment Through Knowledge
Commodities
Secular bull market, but volatile:
‘Supply inelasticity meets rising demand’
Gold has been remonetised in the eyes of
investors
Commodity price inflation – an opportunity
and also the next big risk
fullermoney.com
Our theme: Empowerment Through Knowledge
Continuous Commodity Index (Old CRB) since 1954
Brobdingnagian base
fullermoney.com
Our theme: Empowerment Through Knowledge
Gold bullion (monthly)
Sep ‘09
Secular bull markets
usually end with a dramatic
upward acceleration
Sep ‘07
Sep ‘05
Sep ‘03
Sep ‘01
fullermoney.com
Platinum divided by Gold
Ratio currently 1.27
historic range 0.97 to 2.3
arguably better value
than gold today
Our theme: Empowerment Through Knowledge
fullermoney.com
Platinum (weekly)
Has catch-up potential
Our theme: Empowerment Through Knowledge
fullermoney.com
Palladium (weekly)
rumours that Russian
stockpile running out
Our theme: Empowerment Through Knowledge
fullermoney.com
Our theme: Empowerment Through Knowledge
Copper CMX
China stockpiling
new highs likely in this cycle
fullermoney.com
Tin LME (weekly)
Leading the way up
among industrial metals
currently overextended
Our theme: Empowerment Through Knowledge
fullermoney.com
Our theme: Empowerment Through Knowledge
Uranium (weekly) since 2001
Currently the cheapest metal
and bottoming out
fullermoney.com
Crude oil NYME
The next upside breakout
will be a warning
All spikes in crude oil
have caused recessions
Our theme: Empowerment Through Knowledge
July 2008
fullermoney.com
Rogers International
Agriculture Commodity Index
Our theme: Empowerment Through Knowledge
Feb 2008
Base completion
Food price inflation
would be a problem
fullermoney.com
Our theme: Empowerment Through Knowledge
Medium to longer-term risks
•
•
•
•
•
•
•
•
•
Industrial commodity price inflation
Food price inflation
Progressing economy inflation (current)
Regressing economy stagflation
Higher interest rates
Trade protectionism
Commodity ‘wars’
High frequency trading (another WMD)
Global warming
fullermoney.com
Our theme: Empowerment Through Knowledge
Current bull points
•
•
•
•
•
•
•
•
Monetary policy is accommodative
Interest rates are low
CPI inflation is low
Progressing economies are healthy
The West’s recovery is only 15 months old
Household savings are rising
Equity valuations are reasonable
Corporate balance sheets are mostly strong*
* (Where leveraged to the global economy)
fullermoney.com
Our theme: Empowerment Through Knowledge
Fullermoney summary forecasts
• The Asian, resources and tech-led global
stock market recovery is resuming
• This cyclical bull market should have several
more years to run, provided energy and food
prices do not spike higher
• The USA will avoid a double-dip recession
with the help of progressing economies
• The three-decade bull market in US
government bonds is ending – yields will
range higher over the medium to long term
fullermoney.com
Our theme: Empowerment Through Knowledge
Fullermoney summary forecasts
• Gold’s secular bull market has at least several
more years before it is halted by higher rates
• The secular bull for industrial commodities
will continue, punctuated by recessions
• Progressing Asian and resources economy
stock markets will continue to lead
• US and European multinationals leveraged to
the global economy will outperform
• Leading or promising sectors include:
technology, healthcare, mining, agriculture,
global infrastructure, and dividend increasers
fullermoney.com
Our theme: Empowerment Through Knowledge
Thank you very much
Fullermoney is a
Global Strategy Service
produced by
David Fuller
&
Eoin Treacy
We invite you to visit our site