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James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
James Glassman - Global Renewal Presentation
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James Glassman - Global Renewal Presentation

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Mr. James E. Glassman is a Managing Director and Senior Economist with JP Morgan Chase & Co. This is his presentation at the Northwest Growth Financing Conference in 2010

Mr. James E. Glassman is a Managing Director and Senior Economist with JP Morgan Chase & Co. This is his presentation at the Northwest Growth Financing Conference in 2010

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  • 1. Global Renewal Happy one-year anniversary …
  • 2. The rhythm of the economy … it’s a familiar story … GDP gap (deviation of real GDP from potential as a percent of potential real GDP) Source: NBER Macroeconomics Database
  • 3. … and it seems the economic tide is coming back in US real GDP (chained 2000 dollars) Sources: US Department of Commerce; Macroeconomic Advisers LLC
  • 4. The (abstract) drivers of recovery …
  • 5. Four biggies … <ul><li>Potential growth </li></ul><ul><li>Pent-up demand (economic slack) </li></ul><ul><li>Fed policy </li></ul><ul><li>Fiscal policy </li></ul>
  • 6. Caveat … financial shocks may be more challenging Market value of all publicly traded stocks (Wilshire 5000 index) Source: Dow Jones
  • 7. It’s the “dust off the projects” that drives the accelerators Business investment (ratio to GDP) Source: US Department of Commerce
  • 8. Demographics have something to say too Employment status by age (ratio of employment to population of selected age cohorts) Source: US Department of Labor 55+ 45-54 35-44 25-34 20-24 18-19 16-17
  • 9. An industry where “pent-up” has a lot of room to run US light vehicle sales and domestic production (millions of units annualized) Sources: US Department of Commerce; Federal Reserve Board
  • 10. So far, so good …
  • 11. Over there … Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co.
  • 12. … and over here US real GDP (annualized percent change from the previous quarter) Source: US Department of Commerce
  • 13. Layoffs are ending … Real GDP (% ch from four quarters earlier) Initial claims for unemployment benefits (thousands weekly) Sources: US Department of Labor; US Department of Commerce
  • 14. … they’re normal … it’s now up to hiring Layoffs and new hires (percent of private employment) Source: US Department of Labor
  • 15. Jobs are coming back … Real GDP and nonfarm payrolls (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
  • 16. … but jobs are only part of the picture … Real GDP, nonfarm payrolls and total private hours worked (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
  • 17. … in fact, it’s what’s in the paycheck that counts … Real GDP, payrolls total private hours, and compensation (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
  • 18. … for consumers Real consumer spending, disposable income, and wages and salaries (% change from 12 months earlier) Source: US Department of Commerce
  • 19. Profits have lots of stories to tell … After-tax GDP profits (percent of nominal Gross Domestic Income) Source: US Department of Commerce
  • 20. … and one of them is about the world … Global and US real GDP (2000 dollars) Sources: US Department of Commerce; JPMorgan Chase & Co.
  • 21. … cap X is another Business investment for capital goods and software (percent change from a year earlier) Sources: US Department of Commerce; Federal Reserve Board
  • 22. ‘ Low-for-really long’ Fed rates …
  • 23. The Fed will have little reason to let off the gas for a while Federal funds rate and the 10-year Treasury yield (percent) Source: Federal Reserve Board
  • 24. Unemployment is too high … US unemployment rate (percent of the labor force) ¹ Range of FOMC members’ views Sources: NBER recession bars; US Department of Labor; Federal Reserve Board
  • 25. … inflation’s tame … Selected consumer price indexes (percent change from 12 months earlier) Sources: NBER recession bars; US Department of Commerce; US Department of Labor
  • 26. … too low … Selected core consumer price indexes (percent change from 12 months earlier) Sources: NBER recession bars; US Department of Commerce; US Department of Labor
  • 27. Two added and unprecedented challenges … (1) Weaning from fiscal stimulus (2) Regulatory reform and the cost of credit
  • 28. Have demand, will create jobs … The private sector, not economists, knows where they will be …
  • 29. Manufacturing’s transformation is stabilizing US factory jobs (millions of jobs) Source: US Department of Commerce
  • 30. Construction won’t be what she used to be … Real construction outlays (ratio to 2006 Q1) Source: US Department of Commerce Public construction Nonresidential construction Residential construction
  • 31. Home building will be a little subdued for a while … Starts of new houses (millions annualized) Months supply of unsold new homes Source: US Department of Commerce
  • 32. This won’t be the employer it was for a while Nominal residential construction (billions of dollars) Housing-related employment (thousands) Source: US Department of Commerce
  • 33. The big story …
  • 34. An un-flat world feeds the drive to develop … US real GDP per capita (ratio to 2009 level) (chained 2000 dollars) Sources: US Department of Commerce; NBER
  • 35. … that will remap global GDP … Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co.
  • 36. … to look more like the distribution of the population Distribution of real GDP (percent of global output) Sources: NBER recession bars; US Department of Commerce; various academic sources
  • 37. Conclusion … what it means
  • 38. Recovery puts the focus on high-tide for asset values … Market value of all publicly traded stocks (Wilshire 5000 index) Source: Dow Jones
  • 39. … and that makes the market look cheap … Equity P-E Wilshire 5000 index Source: US Department of Labor
  • 40. … and for bonds, the market has been too bearish … Nominal and real 10-year Treasury yield (percent) Sources: NBER recession bars; Federal Reserve Board; US Department of Labor
  • 41. … especially when businesses have options Market value of all publicly traded stocks (Wilshire 5000 index) Source: Dow Jones
  • 42. The retail sector faces the biggest challenge … Consumer spending share of GDP (percentage of GDP ) Source: US Department of Commerce
  • 43. Appendix I. The runs of August (2007)
  • 44. The unsustainable can’t be sustained Nominal gross income per household and house prices (ratio to 1970 Q1 level) Sources: Loan Performance Corporation; US Department of Commerce
  • 45. The home building correction was manageable Contribution of new home building to quarterly real GDP growth (percentage points annualized) Source: US Department of Commerce
  • 46. When the cure became the problem Selected rates in the interbank funding markets (percent) Sources: BBA; Federal Reserve Board
  • 47. The weakest links were shut down Long-term yield on noninvestment grade debt less 10-year Treasury yield (basis points) Sources: JPMorgan Chase & Co.; Bloomberg
  • 48. Appendix II. Inflation … R.I.P.
  • 49. “ Low levels of resource utilization”, the big idea US unemployment rate (percent of the labor force) ¹ Range of FOMC members’ views Sources: NBER recession bars; US Department of Labor; Federal Reserve Board
  • 50. Unemployment … but what you don’t see counts too … Ratio of selected worker status to the population Source: US Department of Labor
  • 51. … deviations from a normal economy Status of selected people in the labor pool (thousands) Source: US Department of Labor
  • 52. Remember how recessions work on inflation … slowly Core chain PCE inflation (annualized percent change) Source: US Department of Commerce
  • 53. Working with the cycle, the Fed’s long-run strategy Core chain PCE inflation (annualized percent change) Actual unemployment less Nairu Source: US Department of Commerce
  • 54. Appendix III. The monetary base(less)
  • 55. The textbook story about money creation … Federal Reserve assets (billions of dollars outstanding) Source: Federal Reserve Board
  • 56. … doesn’t apply in today’s case … Federal Reserve liabilities (billions of dollars outstanding) Source: Federal Reserve Board
  • 57. … because the Fed’s reserves remain it its vaults Monetary base (billions of dollars) M2 (billions of dollars) Source: Federal Reserve Board
  • 58. Appendix IV. Fiscal hysteria … get a grip
  • 59. Wanted … a new conversation about fiscal issues The airwaves are full of nonsense (like global warming, it’s not about the seasonal shifts) Tedious … we don’t need you to repeat the front pages Pointless … we’re not going to cut the deficit in recession Misdirected focus … the $1.5 trillion – $1 trillion due to recession – isn’t the issue It’s the underlying (long-term) issue Left on auto pilot, spending doubles as a share of the economy (CBO) Five options: (1) Double the tax burden … not happening (2) Deficit finance … over the market’s (and economy’s) dead body (3) Defer to an outsider (the government) to continually whittle health care spending (4) Incentivize the industry to find the best solution … users need to be more involved (5) Change the conversation about economics (raise economic literacy): * Endogenize the retirement decision * Spur national saving (eliminate the tax on saving, consumption-based income tax) * Eliminate the corporate income tax (people pay taxes) * Eliminate the employer deductibility of health care expenses * Tort reform
  • 60. Bonds to pundits: it’s not about today’s red ink … Federal budget balance (percent of GDP) 10-year Treasury yield (percent) Sources: NBER recession bars; Congressional Budget Office; Federal Reserve Board
  • 61. The red ink, scary of course, in absolute terms … Federal budget balance (billions of dollars over the most recent 12 months) Sources: NBER recession bars; NBER Macroeconomic database
  • 62. … up close Federal budget balance (billions of dollars over the most recent 12 months) Sources: NBER recession bars; NBER Macroeconomic database
  • 63. Scaled to the size economy … Federal budget balance (percent of GDP) Sources: NBER recession bars; NBER Macroeconomic database
  • 64. … up close Federal budget balance (percent of GDP) Sources: NBER recession bars; NBER Macroeconomic database
  • 65. … here’s how much … Actual budget balance and excluding the impact of the recession (percent of GDP) Sources: NBER recession bars; Congressional Budget Office; JPMorgan Chase & Co.
  • 66. … or, if you want the numbers Cyclical (temporary) factors boosting the federal deficit (billions of dollars, fiscal year basis) Sources: Congressional Budget Office; JPMorgan Chase & Co.
  • 67. Appendix V. The healthcare challenge
  • 68. The health care expansion isn’t the real issue <ul><li>PPACA morphs an inhumane, dysfunctional system to merely a dysfunctional one </li></ul><ul><li>Agnostic about the net impact of the health initiative on the amount of national resources consumed by health care: </li></ul><ul><ul><li>Shifting from the ER model, a private/public-subsidized system to a federal-subsidized system, will raise the government’s health care costs by 8-10%, but could in theory lower the stealth private subsidy </li></ul></ul><ul><ul><li>Validating the present government/employer-provided health insurance model disengages users from health care decisions. A system that is financed by the public purse or taxes on investment income with users not accountable is economically dysfunctional (lesson of the ethanol mandate) </li></ul></ul><ul><li>Most employers offer benefits and shouldn’t be affected. 70% of employees are at firms that employ 26 or more people and 87-98% of those firms offer benefits. 55-65% of employees are covered by those company plans, implying some take coverage in other (spousal) systems. Small businesses will benefit some. </li></ul><ul><li>Firms will continue to offer health care benefits, even if penalties are less than the cost of benefits, for the same reason they now offer benefits despite no penalty if not. The competitive advantage and federal subsidy remains. </li></ul><ul><li>85% of typical health care outlays for the average person occur after 65 years of age, implying that Medicare and Medicaid are the elephant in the room </li></ul>
  • 69. CBO gives you the starting point … CBO’s government spending projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
  • 70. … and they say spending will outstrip revenues* Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
  • 71. The electorate won’t accept (1) a doubled tax burden … Long-term projections (percent of GDP) Source: Congressional Budget Office
  • 72. The bond market won’t accept (2) a mounting debt service … Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
  • 73. The (3.5%) growth* option … Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
  • 74. … keeps the spending share in line with revenues Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
  • 75. The growth* option … why it’s an issue Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
  • 76. It’s a political (not a market) issue … <ul><li>Deficit financing would be economic suicide </li></ul><ul><li>Two political choices </li></ul><ul><ul><li>Allow federal spending to grow and come up with the revenues (hence the talk about a Value Added Tax) </li></ul></ul><ul><ul><li>Control government health care spending and enhance incentives to grow </li></ul></ul>
  • 77. Appendix VI. US consumer myths
  • 78. The consumer’s footprint may shrink in coming years … Consumer spending share of GDP (percentage of GDP ) Source: US Department of Commerce
  • 79. … as pressures build to save more … Selected measures of saving (percent of disposable personal income) Sources: US Department of Commerce; Federal Reserve Board
  • 80. … with balance sheets down for now … Saving (% of income) Net worth (ratio to income) Sources: US Department of Commerce; Federal Reserve Board
  • 81. … depending on how we view our wealth … Household net worth (billions of dollars) (ratio to disposable personal income) Source: Federal Reserve Board
  • 82. … [it’s mostly about stocks, not real estate] Household net worth (ratio to disposable personal income) Source: Federal Reserve Board
  • 83. Household leverage is reversing … Household debt (ratio to disposable personal income) Source: Federal Reserve Board
  • 84. … in the mortgage area … Interest rates (percent) Selected household debt measures (ratio to disposable income) Source: Federal Reserve Board
  • 85. … and mortgage debt service is kinda normal … Debt service (% of income) Household mortgage debt (ratio to income) Source: Federal Reserve Board
  • 86. … same for servicing credit card debt … Financial obligations of folks who rent (% of income) Non-mortgage debt level (ratio to income) Source: Federal Reserve Board
  • 87. … for homeowners and renters alike Financial obligations of folks who rent (% of income) Non-mortgage debt level (ratio to income) Source: Federal Reserve Board
  • 88. Appendix VII. Stealth energy revolution
  • 89. New realities spur a quiet revolution for transportation Prices of petroleum and natural gas (dollars per barrel, thermally-equivalent basis) Sources: American Petroleum Institute; Bloomberg
  • 90. Analysts’ Compensation: The research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors and overall firm revenues. The firm’s overall revenues include revenues from its investment banking and fixed income business units. Principal Trading: JPMorgan and/or its affiliates normally make a market and trade as principal in the securities discussed in this report. Legal Entities: JPMorgan is the marketing name for JPMorgan Chase & Co. and its subsidiaries and affiliates worldwide. J.P. Morgan Securities Inc. is a member of NYSE and SIPC. JPMorgan Chase Bank, N.A. is a member of FDIC and is authorized and regulated in the UK by the Financial Services Authority. J.P. Morgan Futures Inc. is a member of the NFA. J.P. Morgan Securities Ltd. (JPMSL) is a member of the London Stock Exchange and is authorized and regulated by the Financial Services Authority. J.P. Morgan Equities Limited is a member of the Johannesburg Securities Exchange and is regulated by the FSB. J.P. Morgan Securities (Asia Pacific) Limited (CE number AAJ321) is regulated by the Hong Kong Monetary Authority. JPMorgan Chase Bank, Singapore branch is regulated by the Monetary Authority of Singapore. J.P. Morgan Securities Asia Private Limited is regulated by the MAS and the Financial Services Agency in Japan. J.P. Morgan Australia Limited (ABN 52 002 888 011/AFS License No: 238188) (JPMSAL) is a licensed securities dealer General: Information has been obtained from sources believed to be reliable but JPMorgan does not warrant its completeness or accuracy except with respect to any disclosures relative to JPMSI and/or its affiliates and the analyst’s involvement with the issuer. Opinions and estimates constitute our judgment as at the date of this material and are subject to change without notice. Past performance is not indicative of future results. The investments and strategies discussed here may not be suitable for all investors; if you have any doubts you should consult your investment advisor. The investments discussed may fluctuate in price or value. Changes in rates of exchange may have an adverse effect on the value of investments. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. JPMorgan and/or its affiliates and employees may act as placement agent, advisor or lender with respect to securities or issuers referenced in this report. Clients should contact analysts at and execute transactions through a JPMorgan entity in their home jurisdiction unless governing law permits otherwise. This report should not be distributed to others or replicated in any form without prior consent of JPMorgan. U.K. and European Economic Area (EEA): Investment research issued by JPMSL has been prepared in accordance with JPMSL’s Policies for Managing Conflicts of Interest in Connection with Investment Research. This report has been issued in the U.K. only to persons of a kind described in Article 19 (5), 38, 47 and 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (all such persons being referred to as “relevant persons”). This document must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is only available to relevant persons and will be engaged in only with relevant persons. In other EEA countries, the report has been issued to persons regarded as professional investors (or equivalent) in their home jurisdiction. Australia: This material is issued and distributed by JPMSAL in Australia to “wholesale clients” only. JPMSAL does not issue or distribute this material to “retail clients.” The recipient of this material must not distribute it to any third party or outside Australia without the prior written consent of JPMSAL. For the purposes of this paragraph the terms “wholesale client” and “retail client” have the meanings given to them in section 761G of the Corporations Act 2001. Korea : This report may have been edited or contributed to from time to time by affiliates of J.P. Morgan Securities (Far East) Ltd, Seoul branch. Copyright 2010 JPMorgan Chase & Co. All rights reserved. Additional information available upon request.

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