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When the Money Runs Out, Stephen King (15.5.13)

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Stephen presents themes from his latest book.

Stephen presents themes from his latest book.

Published in: Business, Economy & Finance

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  • 1. The Great Rotation/When theMoney Runs OutGlobal EconomicsMay 2013View HSBC Global Research at: http://www.research.hsbc.comIssuer of report: HSBC Bank plcDisclosures and Disclaimer This report must be read with the disclosures and the analystcertifications in the Disclosure appendix, and with the Disclaimer, which forms part of itStephen KingChief EconomistHSBC Bank plc+44 20 7991 6700 stephen.king@hsbcib.comTwitter: @KingEconomist
  • 2. 1. China is delivering fifty years of US economic advanceevery decadeNote: GDP per capita is in 1990 International Geary-Khamis dollarsSource: Maddison data
  • 3. 2. India is delivering 30 years of US economic advanceevery decadeNote: GDP per capita is in 1990 International Geary-Khamis dollarsSource: Maddison data
  • 4. 3. The economic centre of gravity has shiftedSource: World Bank WDI, HSBC estimatesGrowth in real GDP per capita over the decades0%20%40%60%80%100%120%140%1964-1973 1974-1983 1984-1993 1994-2003 2004-20130%20%40%60%80%100%120%140%US UK France China India
  • 5. 4. China is now a magnet for global trade…Source: IMF, Thomson Reuters DatastreamCountry Exports to Chinain 2011 (USDbn)Hong Kong 225Japan 162South Korea 134USA 104Australia 74Germany 71Saudi Arabia 45Brazil 44Singapore 43Russia 321.2.3.4.5.6.7.8.9.10.
  • 6. 5. …but not all countries have felt the attraction…Source: IMF, Thomson Reuters DatastreamCountry Exports to Chinain 2011 (USDbn)MalaysiaIran 28Indonesia 23Angola 23India 19Chile 19France 18Canada 17Kazakhstan 16Italy 143011.12.13.14.15.16.17.18.19.20.
  • 7. 6. …with the UK in a lamentable 22ndpositionSource: IMF, Thomson Reuters DatastreamCountry Exports to Chinain 2011 (USDbn)South Africa 12UK 1021.22.
  • 8. 7. Economic borders are thicker in some places than inothersNote: The width of the borders is proportional to a summary measure of each country’s restrictions to the flow of goods, capital,people, and ideas with all other countries. Dark grey areas = insufficient dataSource: WDR 2009 team, World Bank, HSBC
  • 9. 8. What are these economic borders?• Tariffs• Capital controls• Migration• Landlocked countries• Country size• Ethnic, cultural and religious divisions• Conflict• Disease
  • 10. 9. World’s largest container portsNote: *=Twenty-foot equivalent unitsSource: Containerisation International, The Economist
  • 11. 10. Top countries for commercial flightsSource: World Bank_______Order in 1980______ _______ Order in 2008_______1 United States 4962700 1 United States 90544782 United Kingdom 477500 2 China 18530883 Japan 396500 3 Canada 12003614 Canada 382000 4 Germany 11544725 Australia 257700 5 United Kingdom 10562066 France 248400 6 France 8278517 Brazil 232500 7 Japan 6554958 Spain 207900 8 Brazil 6477539 Germany 187300 9 Spain 61689310 Mexico 177100 10 India 592292
  • 12. 11. Car ownership in the emerging world is still in itsinfancySource: World Bank, HSBC
  • 13. 12. Tato NanoSource: High Contrast: Der Tata Nano – Das "People´s Car" aus Indien im Verkehrszentrum des Deutschen Museums - Halle I
  • 14. 13. US cars have regained lost weightSource: US National Highway Traffic Safety Administration
  • 15. 14. Average annual growth in exports (%) 1950-1960Source: IMFTo US Japan Germany France UKFromUS - 13.3 11.3 4.3 10.8Japan 19.7 - 20.6 4.5 16.6Germany 24.2 31.1 - 18.6 19.5France 12.3 20.1 14.6 - 2.1UK 11.5 26.7 12.6 6.0 -
  • 16. 15. China export growth to continents 2010-2050: thethicker the arrow, the bigger the expansionSource: HSBC estimates
  • 17. 16. Brazil export growth to continents 2010-2050: the thickerthe arrow, the bigger the expansionSource: HSBC estimates
  • 18. 17. Profits have soared in the US, but investments areastonishingly weakSource: BEA, Thomson Reuters Datastream10121416186810121495 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12USProfits (LHS) Investment (RHS)% GDP % GDP
  • 19. 18. Why global investment is high, but US investment is lowChina saves more than it investsChina purchases Treasuries
  • 20. 18. Why global investment is high, but US investment is lowChina saves more than it investsChina purchases TreasuriesUS companies invest in China
  • 21. 18. Why global investment is high, but US investment is lowChina saves more than it investsChina purchases TreasuriesUS companies invest in ChinaChinese investment boomsChinese workers with higher wagesChina exports to the US
  • 22. 18. Why global investment is high, but US investment is lowChina saves more than it investsChina purchases TreasuriesUS companies invest in ChinaChinese investment boomsChinese workers with higher wagesChina exports to the USUS consumers end up with cheapergoodsUS workers with lower wagesUS Companies with higher profits
  • 23. 18. Why global investment is high, but US investment is lowChina saves more than it investsChina purchases TreasuriesUS companies invest in ChinaChinese investment boomsChinese workers with higher wagesChina exports to the USUS consumers end up with cheapergoodsUS workers with lower wagesUS Companies with higher profits
  • 24. 19. The economic centre of gravity has shiftedSource: World Bank WDI, HSBC estimatesGrowth in real GDP per capita over the decades0%20%40%60%80%100%120%140%1964-1973 1974-1983 1984-1993 1994-2003 2004-20130%20%40%60%80%100%120%140%US UK France China India
  • 25. 20. Governments are desperate for growth…Source: OBR, HSBC
  • 26. 21. … because their fiscal numbers don’t add upSource: OBR
  • 27. 22. Sterling’s decline on a par with the 1930s…Source: Bank of England70758085909510010511070758085909510010511000 01 02 03 04 05 06 07 08 09 10 11 12 13Index IndexSterling effective exchange rate
  • 28. 23. … but the main effect has been a massive squeeze onreal wagesSource: OBR, HSBC estimates-4-3-2-10123401 02 03 04 05 06 07 08 09 10 11 12 13-4-3-2-101234Real wage growth in the UK% Year % Year
  • 29. 24. From the 2008 peak, the US looks strong relative to itspeersSource: Thomson Reuters Datastream9092949698100102104909294969810010210408 09 10 11 12 13US UK Germany Japan FranceGDP level2008Q1 = 100 2008Q1 = 100
  • 30. 25. By its own standards, the US recovery has been insipidSource: Thomson Reuters Datastream, ECRI Note: T represents peak for the cycle, t+1 represents the next quarter9410010611211812494100106112118124t+5 t+10 t+15 t+201960 1969 1973 19801981 1990 2001 2007GDP levelIndex Index
  • 31. 26. Latest returns not out of line with historical normsSource: Thomson Reuters Datastream, HSBC estimates406080100120140160180200220406080100120140160180200220t t + 5 t + 10 t + 15 t + 201969 1973 1980 19811990 2001 2007Index IndexMSCI USA real total return index
  • 32. 27. The first fat cat
  • 33. 28. The world according to Adam Smith• The progressive state• The dull state• The melancholy state
  • 34. 29. Dystopia• Globalisation in reverse• Mistrust of banks• Mistrust of government• Mistrust of money• The stately home effect• The eurozone crisis• Political extremism
  • 35. 30. Avoiding dystopia• Dealing with space: International creditors and debtors• Dealing with debt: Eurozone crisis• Dealing with debt: Countries with floating exchange rates• Dealing with time: Enfranchising the future• Dealing with the banks• Education for economists
  • 36. Disclosure appendixAnalyst CertificationThe following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subjectsecurity(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensationwas, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Stephen KingImportant DisclosuresThis document has been prepared and is being distributed by the Research Department of HSBC and is intended solely for the clients of HSBC and is not forpublication to other persons, whether through the press or by other means.This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or otherinvestment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personaladvice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investorsshould, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary,seek professional investment and tax advice.Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types ofinvestors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and takeinto account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less thanoriginally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested.Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particularinvestment product is not indicative of future results.Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available atwww.hsbcnet.com/research.* HSBC Legal Entities are listed in the Disclaimer below.Additional disclosures1 This report is dated as at 05 March 2013.2 All market data included in this report are dated as at close 04 March 2013, unless otherwise indicated in the report.3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBCsanalysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independentof HSBCs Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensurethat any confidential and/or price sensitive information is handled in an appropriate manner.
  • 37. This document is issued and approved in the United Kingdom by HSBC Bank plc for the information of its Clients (as defined in the Rules of FSA) and those of its affiliates only. If this research isreceived by a customer of an affiliate of HSBC, its provision to the recipient is subject to the terms of business in place between the recipient and such affiliate. In Australia, this publication has beendistributed by The Hongkong and Shanghai Banking Corporation Limited (ABN 65 117 925 970, AFSL 301737) for the general information of its “wholesale” customers (as defined in the CorporationsAct 2001). Where distributed to retail customers, this research is distributed by HSBC Bank Australia Limited (AFSL No. 232595). These respective entities make no representations that the products orservices mentioned in this document are available to persons in Australia or are necessarily suitable for any particular person or appropriate in accordance with local law. No consideration has been givento the particular investment objectives, financial situation or particular needs of any recipient.The document is distributed in Hong Kong by The Hongkong and Shanghai Banking Corporation Limited and in Japan by HSBC Securities (Japan) Limited. Each of the companies listed above (the“Participating Companies”) is a member of the HSBC Group of Companies, any member of which may trade for its own account as Principal, may have underwritten an issue within the last 36 months or,together with its Directors, officers and employees, may have a long or short position in securities or instruments or in any related instrument mentioned in the document. Brokerage or fees may be earnedby the Participating Companies or persons associated with them in respect of any business transacted by them in all or any of the securities or instruments referred to in this document. In Korea, thispublication is distributed by either The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch ("HBAP SLS") or The Hongkong and Shanghai Banking Corporation Limited,Seoul Branch ("HBAP SEL") for the general information of professional investors specified in Article 9 of the Financial Investment Services and Capital Markets Act (“FSCMA”). This publication is nota prospectus as defined in the FSCMA. It may not be further distributed in whole or in part for any purpose. Both HBAP SLS and HBAP SEL are regulated by the Financial Services Commission and theFinancial Supervisory Service of Korea. This publication is distributed in New Zealand by The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong KongSAR.The information in this document is derived from sources the Participating Companies believe to be reliable but which have not been independently verified. 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All US persons receiving and/or accessing this report and intending to effect transactions in any security discussed herein should do so with HSBCSecurities (USA) Inc. in the United States and not with its non-US foreign affiliate, the issuer of this report. In Singapore, this publication is distributed by The Hongkong and Shanghai BankingCorporation Limited, Singapore Branch for the general information of institutional investors or other persons specified in Sections 274 and 304 of the Securities and Futures Act (Chapter 289) (“SFA”)and accredited investors and other persons in accordance with the conditions specified in Sections 275 and 305 of the SFA. This publication is not a prospectus as defined in the SFA. It may not befurther distributed in whole or in part for any purpose. The Hongkong and Shanghai Banking Corporation Limited Singapore Branch is regulated by the Monetary Authority of Singapore. Recipients inSingapore should contact a "Hongkong and Shanghai Banking Corporation Limited, Singapore Branch" representative in respect of any matters arising from, or in connection with this report. HSBCMéxico, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC is authorized and regulated by Secretaría de Hacienda y Crédito Público and Comisión Nacional Bancaria y de Valores (CNBV).HSBC Bank (Panama) S.A. is regulated by Superintendencia de Bancos de Panama. Banco HSBC Honduras S.A. is regulated by Comisión Nacional de Bancos y Seguros (CNBS). Banco HSBCSalvadoreño, S.A. is regulated by Superintendencia del Sistema Financiero (SSF). HSBC Colombia S.A. is regulated by Superintendencia Financiera de Colombia. Banco HSBC Costa Rica S.A. issupervised by Superintendencia General de Entidades Financieras (SUGEF). Banistmo Nicaragua, S.A. is authorized and regulated by Superintendencia de Bancos y de Otras Instituciones Financieras(SIBOIF).The document is intended to be distributed in its entirety. Unless governing law permits otherwise, you must contact a HSBC Group member in your home jurisdiction if you wish to use HSBC Groupservices in effecting a transaction in any investment mentioned in this document. HSBC Bank plc is registered in England No 14259, is authorised and regulated by the Financial Services Authority and isa member of the London Stock Exchange. (070905)In Canada, this document has been distributed by HSBC Bank Canada and/or its affiliates. Where this document contains market updates/overviews, or similar materials (collectively deemed“Commentary” in Canada although other affiliate jurisdictions may term “Commentary” as either “macro-research” or “research”), the Commentary is not an offer to sell, or a solicitation of an offer to sellor subscribe for, any financial product or instrument (including, without limitation, any currencies, securities, commodities or other financial instruments).© Copyright 2013, HSBC Bank plc, ALL RIGHTS RESERVED. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic,mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Bank plc. MICA (P) 038/04/2012, MICA (P) 063/04/2012 and MICA (P) 110/01/2013Disclaimer* Legal entities as at 8 August 2012‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBCSecurities (Taiwan) Corporation Limited; CA HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBCTrinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited,Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank AsiaLimited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong andShanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, SeoulBranch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple,Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC SaudiArabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SARIssuer of reportHSBC Bank plc8 Canada Square, LondonE14 5HQ, United KingdomTelephone: +44 20 7991 8888Fax: +44 20 7992 4880Website: www.research.hsbc.com