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The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
The Illusion of Recovery - Presenation to the JCC (IOM)
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The Illusion of Recovery - Presenation to the JCC (IOM)

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A presentation given to the Isle of Man JCC by Ramsey Crookall: …

A presentation given to the Isle of Man JCC by Ramsey Crookall:

It is hard to believe that three years have passed since the onset of the global credit crisis. In the intervening period equity markets collapsed but due to the intervention by Governments and Central Banks they have now recovered much of the losses. Bond yields on the other hand have fallen to record low levels, while certain commodities, particularly gold and industrial metals have forged ahead amid hopes of a robust global economic recovery. So what does it all mean? Have all the problems gone away, or is it all an illusion?

In this short presentation, Stuart Cowan and Peter Robertson will review the evidence and try to determine what the future holds for global markets. The main assets that will be covered are bonds, equities, gold and other commodities, with a brief mention of currency.

Stuart Cowan FCSI is a Director of Ramsey Crookall. He has forty years career experience working in stock broking and Investment Management.

Peter Robertson FCSI is Senior Investment Manager at Ramsey Crookall. He has twenty years industry experience.

Published in: Economy & Finance, Business
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  1. Licensed by the Isle of Man Financial Supervision Commission Stockbrokers & Investment Managers Junior Chamber of Commerce Hilton Hotel Tuesday 9th November 2010
  2. Licensed by the Isle of Man Financial Supervision Commission Today’s Speakers Stuart Cowan Chartered FCSI Investment Director “Welcome & Introduction” Peter Robertson BA (Hons) Chartered FCSI Senior Investment Manager “The Illusion of Recovery” Stockbrokers & Investment Managers
  3. Licensed by the Isle of Man Financial Supervision Commission Ramsey Crookall & Co Ltd Stockbrokers & Investment Managers Stockbrokers & Investment Managers
  4. Licensed by the Isle of Man Financial Supervision Commission Ramsey Crookall & Co was established in 1946 and is the Isle of Man’s longest established independent firm of stockbrokers and investment managers. Stockbrokers & Investment Managers
  5. Licensed by the Isle of Man Financial Supervision Commission Ramsey Crookall & Co is a full service stockbroker Stockbroking execution only and advisory service Gilts, bonds, stocks, equities, collective investments Investment Management Discretionary and Advisory fee based services Nominee and Global Custody Money Management Stockbrokers & Investment Managers
  6. Licensed by the Isle of Man Financial Supervision Commission Dealing Service A highly efficient Dealing Service forms the cornerstone of operations and provides all clients with fast, straightforward access to all major markets. Dealing Room – direct line access to an experienced and skilled dealing team, equipped with the latest information and dealing technology Best Execution - a straightforward and highly efficient dealing service Stockbrokers & Investment Managers
  7. Licensed by the Isle of Man Financial Supervision Commission Investment Management Services Discretionary Management Ramsey Crookall appointed to manage the client’s portfolio Mandate to reflect the client’s investment objectives Advisory Management For those clients who wish to take an active role in the management of their investment portfolio Stockbrokers & Investment Managers
  8. Stockbrokers & Investment Managers Disclaimer Where Ramsey Crookall has expressed views and opinions, these may change. Where markets and securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Ramsey Crookall and Co Limited is licensed by the Isle of Man Financial Supervision Commission. Licensed by the Isle of Man Financial Supervision Commission
  9. Licensed by the Isle of Man Financial Supervision Commission “The illusion of recovery” Stockbrokers & Investment Managers
  10. Licensed by the Isle of Man Financial Supervision Commission “are we there yet..........” Stockbrokers & Investment Managers
  11. Licensed by the Isle of Man Financial Supervision Commission Stockbrokers & Investment Managers The average length of time a country spends in a deflationary deleveraging phase is SEVEN years......................... (McKinsey)
  12. Stockbrokers & Investment Managers Today’s Presentation • Introduction • Remembering the credit crisis • How the authorities responded • Three years on – where we are now • Quantitative easing • What QE did to economic growth • The economic outlook • The market outlook • Conclusion Licensed by the Isle of Man Financial Supervision Commission
  13. Stockbrokers & Investment Managers Remembering the Credit Crisis – ‘its all about debt’ •Origins in USA - post dot com, Sept 11 2001. ‘Greenspan Put’ •Post Sept 11 recovery driven by cheap debt, easy credit, consumption •US Mortgage Market - securitised •New products •Growth in sub-prime •Single Euro interest rate led to disproportionate growth in Eurozone •Recovery in Emerging Markets post 1998 led to increased trade Licensed by the Isle of Man Financial Supervision Commission
  14. Stockbrokers & Investment Managers US Licensed by the Isle of Man Financial Supervision Commission
  15. Stockbrokers & Investment Managers 2007 – bubble bursts •Credit bubble popped in 2007 – Sub Prime Crisis in US •Mortgage backed securities = global contagion •Banks refused to lend •Stock markets collapsed, banks failed eg Lehman, Bear Stearns Licensed by the Isle of Man Financial Supervision Commission
  16. Stockbrokers & Investment Managers How the Authorities responded • Interest rates cut to record low levels • Temporary fiscal stimulus – eg VAT cut to 15% in UK • Central bank intervention – ‘Quantitative easing’ & supporting ‘toxic assets’ • Government spending to stimulate the economy • Bank bail outs by Governments • Changes in accounting regulations, eg FASB ‘mark to market’ Licensed by the Isle of Man Financial Supervision Commission
  17. Stockbrokers & Investment Managers Three years on – where are we now? 29.10.2007 29.10.2010 Change % 3 month LIBOR 6.26% 0.695% -5.565 UK Base rate 5.75% 0.5% -5.25 US Fed Funds Tgt 4.5% 0.25% -4.25 10 year Gilt Yield 4.84% 3.01 -1.83 FTSE 100 Index 6,706 5,675 -15.3% S&P 500 ($) 1,540.9 1,183.26 -23% Gold ($) 791.8 1,359.4 +71% Bond yields are suggesting low growth. Equities are discounting a ‘V’ shaped recovery. Gold is a hedge against inflation!! How can this be? Licensed by the Isle of Man Financial Supervision Commission
  18. Stockbrokers & Investment Managers ‘Quantitative Easing’ •Central bank intervention – aim to stimulate economic growth •Create money, lend to banks, invest in government and corporate bonds •QE since 2009: • US Federal Reserve: $1.7trn PLUS $600bn to Jun 2011 • UK Bank of England: £200bn • ECB: €750bn emergency measure (loan guarantees) •The impact so far? • Original aims? • On growth, consumer spending? • On assets and economic data? • On inflation? Licensed by the Isle of Man Financial Supervision Commission
  19. Stockbrokers & Investment Managers Licensed by the Isle of Man Financial Supervision Commission
  20. Stockbrokers & Investment Managers What QE did to Economic Growth US GDP •Has recovered from 2009 low •Q3 2010: +2% •QE: $1.2 - $1.5trn •But: • Consumer spending 70% GDP • Unemployment high, housing weak • Business investment constrained by tight credit, and ‘offshoring’ • Gov’t stimulus temporary impact • Total consumer debt $11.7trn Licensed by the Isle of Man Financial Supervision Commission
  21. Stockbrokers & Investment Managers What QE did to Economic Growth United Kingdom GDP •Q3 GDP: 0.8% •QE spend so far: £200bn •Construction has been strong •Weak sterling helping exporters •But: • Austerity measures from 2011 • Credit remains tight • Total personal debt £1.45trn Licensed by the Isle of Man Financial Supervision Commission
  22. Stockbrokers & Investment Managers What QE did to Economic Growth EuroZone GDP •Huge divergences between countries •The €750bn ‘comfort blanket’ •Penal austerity measures across Eurozone •Greece problems have not gone away •Strong Euro will hurt exporters Licensed by the Isle of Man Financial Supervision Commission
  23. Stockbrokers & Investment Managers The economic outlook •Interest Rates •Components of GDP •Credit/debt markets •Inflation •Potential headwinds Licensed by the Isle of Man Financial Supervision Commission
  24. Stockbrokers & Investment Managers The economic outlook - Interest Rates •US: 0.25% UK: 0.5% interest rates at historically low levels Eurozone: 1% •Further QE suggests they will remain at current levels •Expect them to rise sharply once the recovery gains traction •Must keep an eye on inflation •Market rates (bond yields) will provide guidance Licensed by the Isle of Man Financial Supervision Commission
  25. Stockbrokers & Investment Managers The economic outlook – credit/debt markets •Governments are carrying massive debts •Expect the US Government to continue spending, UK and Eurozone embracing austerity •Who will buy the US debt? - Largest holders of US Treasuries: China $868.4bn (Nov 2010) US Federal Reserve $842.0bn Japan $836.6bn •Banks remain reluctant to lend (Basel III, balance sheet rebuilding) •UK mortgage lending sluggish – lending multiples much stricter than pre-credit crisis Licensed by the Isle of Man Financial Supervision Commission
  26. Stockbrokers & Investment Managers The economic outlook - Inflation •UK inflation remains ABOVE Bank of England’s target •Possible food price inflation from 2011 •Oil price just hit a 2 year high ($87) •Little wage inflation at this time – job preservation more important US UK Eurozone CPI (m/m) 0.1% 0.0% 0.2% CPI (y/y) 1.1% 3.1% 1.8% Core CPI (y/y) 0.8% 2.7% 1.0% Licensed by the Isle of Man Financial Supervision Commission
  27. Stockbrokers & Investment Managers The economic outlook – Potential Headwinds •Sovereign Debt crisis – GREECE, IRELAND! •Collapsing US dollar – potential inflationary consequences •30 year US Treasury bond – watch the yield •Further issues in US securitized mortgages market – watch BAC •Austerity measures, higher taxes, eg UK VAT 20% from Jan 2011 •Is the recovery an illusion? Has the credit bubble only part deflated? Licensed by the Isle of Man Financial Supervision Commission
  28. Stockbrokers & Investment Managers Consensus Forecasts 2010 GDP 2010 CPI 2011 GDP 2011 CPI USA 2.7 1.6 2.4 1.4 Japan 3.0 -0.9 1.3 -0.3 Eurozone 1.6 1.5 1.4 1.6 UK 1.5 3.1 2.1 2.6 G7 2.2 1.3 1.8 1.4 Asia ex Japan 8.5 3.9 7.4 3.7 Source: Consensus Economics: 13.09.2010 Licensed by the Isle of Man Financial Supervision Commission
  29. Stockbrokers & Investment Managers The market outlook •Bonds •Equities •Commodities •Currency Licensed by the Isle of Man Financial Supervision Commission
  30. Stockbrokers & Investment Managers The market outlook - Bonds •Bonds are fundamentally expensive (2yr Gilt yields 0.7%; 5yr Gilt 1.5%) •Yields have been ‘juiced’ by QE over last 18 months •Everything depends on outlook for inflation – yields to rise as economy recovers •Only Central Banks (or avid deflationists) will buy bonds at these levels! Bond Price 3rd Apr 2009 GRY Apr 2009 Price 2nd Nov 2010 GRY Oct 2010 Tesco 5% 24.02.2014 £100.00 5.0% £109.07 2.12% Vodafone 4.625% 09.09.2014 £101.20 4.37% £108.05 2.40% Nat’l Grid 6.125% 13.04.2014 £101.50 5.89% £111.52 2.58% Licensed by the Isle of Man Financial Supervision Commission
  31. Stockbrokers & Investment Managers The market outlook - Equities •Equities are cheap compared to bonds! •Dividend yields are attractive (FTSE All Share 3.5%) •Equity markets have been discounting a ‘V’ shaped economic recovery •They remain susceptible to bad news, especially Europe & US! •Note the rise of the Far East Asian and Emerging Markets • Creditor nations • Strong Exports • Increasingly affluent and aspirational consumers Licensed by the Isle of Man Financial Supervision Commission
  32. Stockbrokers & Investment Managers FTSE 100 Index Licensed by the Isle of Man Financial Supervision Commission
  33. Stockbrokers & Investment Managers The market outlook: Commodities •Commodities have benefited from • A weak USD • Rapid growth in the emerging markets • Instruments such as exchange traded funds •Gold and precious metals are now a hedge against economic mis- management •Global demographics support agriculture commodities Licensed by the Isle of Man Financial Supervision Commission
  34. Stockbrokers & Investment Managers Goldman Sachs Commodities Index Reuters CRB Commodities Index Licensed by the Isle of Man Financial Supervision Commission
  35. Stockbrokers & Investment Managers Gold Licensed by the Isle of Man Financial Supervision Commission
  36. Stockbrokers & Investment Managers The market outlook: Currency •USD being ‘debased’ by Federal Reserve • To keep US exports attractive • Eurozone issues have not gone away. Only looks expensive due to • Fed action on US dollar • Austerity measures in Europe • Japan currency market intervention unlikely to succeed • Sterling has benefited from Govt savings review – ‘tackling the deficit’ Licensed by the Isle of Man Financial Supervision Commission
  37. Stockbrokers & Investment Managers US Dollar: Trade Weighted index Long term trend –down! Licensed by the Isle of Man Financial Supervision Commission
  38. Stockbrokers & Investment Managers Conclusion •Strong recovery in asset prices since 2009 •Helped by the actions of Central Banks •But economic recovery in the West remains fragile •Government have taken over the role of borrower from consumers •Double dip still possible. Consumers retrenching, unemployment remains high •Equity markets discounting good news (susceptible to disappointments) •It ‘feels’ illusory! Where would we be without Quantitative easing? Licensed by the Isle of Man Financial Supervision Commission
  39. Stockbrokers & Investment Managers Disclaimer Where Ramsey Crookall has expressed views and opinions, these may change. Where markets and securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. Ramsey Crookall and Co Limited is licensed by the Isle of Man Financial Supervision Commission. Licensed by the Isle of Man Financial Supervision Commission
  40. Stockbrokers & Investment Managers Questions Stuart Cowan Chartered FCSI Director Peter Robertson BA (Hons) Chartered FCSI Senior Investment Manager Licensed by the Isle of Man Financial Supervision Commission

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