Gathering Momentum at Last

Stephen Slifer
NumberNomics
www.NumberNomics.com
The Highlights
The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup.
The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup....
The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup....
The Highlights
1. GDP growth gradually accelerating to 3.3% in 2014.
2. All four sectors will contribute to growth pickup....
GDP (Real)

6.0%

GDP (Real)
Year-over-year
4.0%

2.0%

0.0%

-2.0%

GDP growth is expected to accelerate to 3.3%
in 2014....
GDP Components
Investment
15%

Trade
10.0%

Government
15.0%

Consumption
60%
Consumer Sentiment

100.0

95.0

90.0

85.0

Recession

The consumer is feeling good and is
justified in feeling that way....
1800

S&P 500

1600

1400

1200

1000

800

600

Stock prices are currently at a record high level
despite higher long-ter...
2.7%

Case Shiller Home Price Index
10.0%

Home prices have risen steadily for the past two years.
1.7%

In fact, in the p...
$75.0

Consumer Net Worth (Trillions $)

$70.0

$65.0

$60.0

$55.0

$50.0

$45.0

$40.0

$35.0

Between the rising stock ...
19.0%

Financial Obligations Ratio
18.5%

18.0%

Consumers have paid down enormous
amounts of debt in the past several yea...
Won’t higher mortgage rates
and higher home prices
slow the housing market?
Won’t higher mortgage rates
and higher home prices
slow the housing market?
Not much.
May-13

Sep-12

Jan-12

May-11

Sep-10

Jan-10

May-09

Sep-08

Jan-08

May-07

Sep-06

Jan-06

May-05

Sep-04

Jan-04

Ma...
245.00

Case Shiller Home Price Index

235.00

225.00

While home prices have risen 13.6% in the past year
home prices rem...
Housing Affordability Index
200

180

Housing is far less affordable today than
it was at the beginning of the year.
Howev...
Nov 2013

Sep 2013

Jul 2013

May 2013

Mar 2013

Jan 2013

Nov 2012

Sep 2012

Jul 2012

May 2012

Mar 2012

Jan 2012

No...
Oct 2013

Jul 2013

Apr 2013

Jan 2013

Oct 2012

Jul 2012

Apr 2012

Jan 2012

Oct 2011

Jul 2011

Apr 2011

Jan 2011

Oc...
2.7%

Case Shiller Home Price Index
10.0%

…is why home prices have risen 13.6% in the past year
and will continue to clim...
Housing Starts
1900

We need 1.3 million new homes or apartments each year
to keep pace with growth in the population.

17...
1. Stock market climb boosts confidence.
2. Net worth is at a record high level.

3. Debt burden is quite comfortable.
4. ...
Consumption Spending (%)
4.0%

2.0%

0.0%

Consumption spending
-2.0%

-4.0%

-6.0%

Year-over-Year

Despite all these pos...
-500

Typically in good times we expect
employment to rise 225
thousand per month.

-700

Oct-13

Jul-13

Apr-13

Jan-13

...
Part Time Workers (% Total)

20.0%

19.5%

19.0%

…many of those jobs are part time
positions and temps.

18.5%

Also, man...
Oct 2013

Jul 2013

Apr 2013

Jan 2013

Oct 2012

Jul 2012

Apr 2012

Jan 2012

Oct 2011

Jul 2011

Apr 2011

Jan 2011

Oc...
11.0

Unemployment Rate

10.0

9.0

As the economy gathers momentum
and jobs become more plentiful the
unemployment rate w...
Jan-14

Oct-13

Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

Jul-11

Apr-11

Jan-11

Oct-10

Jul-10

Ap...
Discouraged Workers
1200

1000

The labor force is not shrinking
because long-term unemployed workers
have given up lookin...
20.5
19.5
18.5
17.5
16.5

Unemployment Rate -- 16-24 years
As the labor market tightens firms will increasingly
turn to se...
16.5%
Sep-13

May-…

Jan-13

Sep-12

May-…

Jan-12

Sep-11

May-…

Jan-11

Sep-10

May-…

Jan-10

18.0%

Sep-09

May-…

Ja...
Consumption Spending (%)
4.0%

2.0%

0.0%

Consumption spending
-2.0%

-4.0%

-6.0%

Year-over-Year

If jobs growth climbs...
GDP Components
Investment
15%

Trade
10.0%

Government
15.0%

Consumption
60%
U.S. CEO Confidence
64

61

58

55

Despite fiscal policy and health
insurance worries, CEO’s remain
relatively upbeat.

5...
1800

S&P 500

1600

1400

1200

1000

Rising stock prices allow many firm
to raise capital by issuing more stock.
800

60...
$2,200
$2,100

65.0%

Corporate Profits with IVA and CC
Corporate Profits

$2,000
$1,900
$1,800
$1,700

Corporations are n...
11.0

Corporate Bond Rates

10.0

9.0

Aaa
Baa
8.0

7.0

6.0

5.0

4.0

3.0

Even with the recent backup, corporate
borrow...
25.0%

C & I Loans (%)

13.0%

C & I Loans (L)

15.0%

8.0%

Year-Over-Year (R)

3.0%

5.0%

-2.0%
-5.0%
-7.0%

Credit is ...
11.0%

Corporate Cash / Assets (%)
10.5%

Firms have plenty of cash available
for investment.
10.0%

9.5%

9.0%

8.5%

8.0...
1. CEO’s feel relatively confident.
2. Profits are soaring.

3. Interest rates are near record low levels.
4. Credit is re...
Nonresidential Investment
20.0%

Nonresidential Invest.
Year-over-year
10.0%

0.0%

-10.0%

Investment spending has been g...
Why are firms being so cautious?
Why are firms being so cautious?
1. Recession
Why are firms being so cautious?
1. Recession
2. Health Care
Why are firms being so cautious?
1. Recession
2. Health Care
3. Fiscal Gridlock
Nonresidential Investment
20.0%

Nonresidential Invest.
Year-over-year
10.0%

0.0%

-10.0%

-20.0%

-30.0%

Having said al...
GDP Components
Investment
15%

Trade
10.0%

Government
15.0%

Consumption
60%
Net Exports

-380.000

-390.000

-400.000

-410.000

-420.000

-430.000

-440.000

The trade deficit has been steadily shr...
Production of crude oil and gas is exploding.
By 2040 91.6% of our energy needs will be
produced domestically -- 76% today.
Far less reliant on OPEC sources to satisfy ...
European Union Confidence
63

60

Global Index

57

European Union

54

51

48

Business confidence in Europe is now
more ...
Japanese Confidence
64.0

61.0

58.0

Japan’s economy has been in a slump for 20 years.
Prime Minister Obe’s decision to p...
Nikkei 225
17000

15000

13000

11000

9000

7000

The Japanese stock market has risen
75% in the past 14 months.
Net Exports

-380.000

-390.000

-400.000

-410.000

-420.000

-430.000

-440.000

The trade deficit has been steadily shr...
GDP Components
Investment
15%

Trade
10.0%

Government
15.0%

Consumption
60%
13.0%

Federal Government
Federal Government

8.0%

Year-over-year

3.0%

-2.0%

-7.0%

Federal government spending -- def...
4.0%

3.5%

GDP Growth vs. Private Sector
Government spending has
reduced GDP growth by about
0.4% in each of the past 2 y...
2013-2014 Forecasts
2012 2013 2014
GDP
2.0% 2.7% 3.3%
Unemploy. Rate
7.8% 6.7% 6.0%
Inflation Rate
1.9% 1.8% 1.9%
Fed Fund...
Default on our Debt?
Default on our Debt?

Absolutely Not!
Our policy makers will not let that happen.
Our policy makers will not let that happen.

Debt ceiling increased 14 times since 2001.
Our policy makers will not let that happen.

Debt ceiling increased 14 times since 2001.
Never once has the Treasury defau...
Won’t Obamacare Ruin Everything?
Won’t Obamacare Ruin Everything?

No.
Lots of Countries Have Universal Health Care.

1.
2.
3.
4.
5.

Germany
France
Italy
U.K.
Canada
Lots of Countries Have Universal Health Care.

1. Their stock markets continue to climb.
Lots of Countries Have Universal Health Care.

1. Their stock markets continue to climb.
2. Their economies continue to gr...
Lots of Countries Have Universal Health Care.

1. Their stock markets continue to climb.
2. Their economies continue to gr...
Obamacare is Causing Major Dislocations
Obamacare is Causing Major Dislocations

1. Firms want to have fewer than 50 workers.
Obamacare is Causing Major Dislocations

1. Firms want to have fewer than 50 workers.
2. Firms try to cut hours to less th...
Obamacare is Causing Major Dislocations

1. Firms want to have fewer than 50 workers.
2. Firms try to cut hours to less th...
Obamacare is Causing Major Dislocations

1.
2.
3.
4.

Firms want to have fewer than 50 workers.
Firms try to cut hours to ...
Economy is Adjusting to the Law.
Obamacare is a Tradeoff
Obamacare is a Tradeoff

Good: Universal Health Care Coverage
Obamacare is a Tradeoff

Good: Universal Health Care Coverage
Bad: Much Bigger Government Sector
Government is Inherently Inefficient.
Countries with Universal Health End Up With
Countries with Universal Health End Up With

1.
2.
3.
4.

Slower growth in productivity
Slower GDP growth
Less employment
...
Standards of Living

1.80

1.70

U.S.

That means slower growth in their
standards of living (GDP per capita).

1.60

Obam...
GDP Components
Investment
15%

Trade
10.0%

Government
15.0%

Consumption
60%
2013-2014 Forecasts
2012 2013 2014
GDP
2.0% 2.7% 3.3%
Unemploy. Rate
7.8% 6.7% 6.0%
Inflation Rate
1.9% 1.8% 1.9%
Fed Fund...
When Will the Fed Change Policy?
It Will Be a 2-step Process
It Will Be a 2-step Process

1. Reduced bond purchases. Long rates rise.
December 2013
It Will Be a 2-step Process

1. Reduced bond purchases. Long rates rise.
December 2013
2. Fed begins to raise short rates....
8

Fed Funds Rate

7

Pre-2008 the way to gauge Fed policy
was to look at the funds rate.

6

Once that rate dropped to 0%...
Oct-13

May-13

Dec-12

Jul-12

Feb-12

Sep-11

Apr-11

Nov-10

Jun-10

Jan-10

Aug-09

Mar-09

Oct-08

May-08

Dec-07

Ju...
2,500

Excess Reserves
The Fed buys a security and pays for it
by putting money in a bank’s checking account
at the Fed.

...
3,000

Excess Reserves -- Projected

2,500

The Fed is currently buying $75 billion of
bonds every single month.

2,000

T...
8.50

10-year Treasury and Mortgage Rates
7.50

10-year Treasury Note
30-year mortgages
6.50

5.50

4.50

3.50

As the Fed...
4.0

Spread -- 10-year vs. Fed Funds

3.0

2.0

1.0

0.0

-1.0

Long rates rarely exceed short rates by more than 3.5%.
By...
0
Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

Jan-…

6

Jan-…

7

Jan-…

Jan-…

Ja...
11.0

Unemployment Rate
10.0

9.0

Fed has said it will not begin to raise the funds
rate until the unemployment rate has ...
9

Fed Funds Rate

8

If the Fed begins to alter is policy in mid-2015
it will take until mid-2017 for the funds rate
to r...
20.0

15.0

Fed Funds Rate
The U.S. economy has never gone
into recession unless the funds rate
has been higher than “neut...
In Conclusion
In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.
In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.

3....
In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.

3....
In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.

3....
In Conclusion
1. GDP growth gradually accelerating to 3.3% in 2014.
2. Monetary policy will remain very accommodative.

3....
What’s Not To Like!

Stephen Slifer
NumberNomics
www.NumberNomics.com
2013 Year In Review Market Update - Stephen Slifer's Presentation
Upcoming SlideShare
Loading in …5
×

2013 Year In Review Market Update - Stephen Slifer's Presentation

1,872 views

Published on

Stephen Slifer's presentation from the 2013 Year in Review Market Update event in Charleston, SC on January 14, 2014. Hosted by the Charleston Trident Association of Realtors. A review of the housing market activity in the Charleston, South Carolina metro area and the economic factors affecting market activity in 2013.

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,872
On SlideShare
0
From Embeds
0
Number of Embeds
1,324
Actions
Shares
0
Downloads
14
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

2013 Year In Review Market Update - Stephen Slifer's Presentation

  1. 1. Gathering Momentum at Last Stephen Slifer NumberNomics www.NumberNomics.com
  2. 2. The Highlights
  3. 3. The Highlights 1. GDP growth gradually accelerating to 3.3% in 2014.
  4. 4. The Highlights 1. GDP growth gradually accelerating to 3.3% in 2014. 2. All four sectors will contribute to growth pickup.
  5. 5. The Highlights 1. GDP growth gradually accelerating to 3.3% in 2014. 2. All four sectors will contribute to growth pickup. 3. Debt ceiling. Obamacare.
  6. 6. The Highlights 1. GDP growth gradually accelerating to 3.3% in 2014. 2. All four sectors will contribute to growth pickup. 3. Debt ceiling. Obamacare. 4. The Fed will begin to alter policy for first time in 7 yrs
  7. 7. The Highlights 1. GDP growth gradually accelerating to 3.3% in 2014. 2. All four sectors will contribute to growth pickup. 3. Debt ceiling. Obamacare 4. The Fed will begin to alter policy for first time in 7 yrs 5. No recession until 2018 at earliest.
  8. 8. GDP (Real) 6.0% GDP (Real) Year-over-year 4.0% 2.0% 0.0% -2.0% GDP growth is expected to accelerate to 3.3% in 2014. -4.0% -6.0% -8.0% -10.0% 2006q1 2007q1 2008q1 2009q1 2010q1 2011q1 2012q1 2013q1 2014Q1
  9. 9. GDP Components Investment 15% Trade 10.0% Government 15.0% Consumption 60%
  10. 10. Consumer Sentiment 100.0 95.0 90.0 85.0 Recession The consumer is feeling good and is justified in feeling that way. 80.0 75.0 70.0 65.0 60.0 55.0 50.0 Jan 20072007 Oct 200720082008 Oct 200820092009 Oct 200920102010 Oct 201020112011 Oct 201120122012 Oct 201220132013 Oct 20132014 Apr Jul 2007 Jan Apr Jul 2008 Jan Apr Jul 2009 Jan Apr Jul 2010 Jan Apr Jul 2011 Jan Apr Jul 2012 Jan Apr Jul 2013 Jan
  11. 11. 1800 S&P 500 1600 1400 1200 1000 800 600 Stock prices are currently at a record high level despite higher long-term interest rates.
  12. 12. 2.7% Case Shiller Home Price Index 10.0% Home prices have risen steadily for the past two years. 1.7% In fact, in the past year home prices have risen 13.6%. 5.0% 0.0% 0.7% -5.0% -0.3% -10.0% -1.3% -15.0% Home Prices Year-Over-Year (R) -2.3% -20.0%
  13. 13. $75.0 Consumer Net Worth (Trillions $) $70.0 $65.0 $60.0 $55.0 $50.0 $45.0 $40.0 $35.0 Between the rising stock market and higher home prices consumer net worth has risen to a record high level. These developments bolster confidence.
  14. 14. 19.0% Financial Obligations Ratio 18.5% 18.0% Consumers have paid down enormous amounts of debt in the past several years. Their debt in relation to income is at a record low level. 17.5% 17.0% 16.5% Trend 16.0% 15.5% 15.0% Consumers clearly have the ability to pick up their pace of spending if they choose to do so.
  15. 15. Won’t higher mortgage rates and higher home prices slow the housing market?
  16. 16. Won’t higher mortgage rates and higher home prices slow the housing market? Not much.
  17. 17. May-13 Sep-12 Jan-12 May-11 Sep-10 Jan-10 May-09 Sep-08 Jan-08 May-07 Sep-06 Jan-06 May-05 Sep-04 Jan-04 May-03 Sep-02 Jan-02 May-01 Sep-00 Jan-00 May-99 Sep-98 Jan-98 May-97 Sep-96 Jan-96 May-95 Sep-94 Jan-94 May-93 Sep-92 Jan-92 May-91 3.9 Sep-90 Jan-90 10.9 30-year Mortgage Rate 9.9 8.9 7.9 6.9 5.9 4.9 While 30-year mortgage rates have risen 1.0% since June to 4.5% they are the lowest mortgage rates in 50 years. 2.9
  18. 18. 245.00 Case Shiller Home Price Index 235.00 225.00 While home prices have risen 13.6% in the past year home prices remain 21% lower than they were at the peak of the housing market back in 2006. 215.00 205.00 195.00 185.00 175.00 165.00 155.00 Jul 2013 Jan 2013 Jul 2012 Jan 2012 Jul 2011 Jan 2011 Jul 2010 Jan 2010 Jul 2009 Jan 2009 Jul 2008 Jan 2008 Jul 2007 Jan 2007 Jul 2006 Jan 2006 Jul 2005 Jan 2005 145.00
  19. 19. Housing Affordability Index 200 180 Housing is far less affordable today than it was at the beginning of the year. However, consumers still have 70% more income than is necessary to buy a median priced home. 160 140 120 100 2007 2008 2009 2010 2011 2012 2013-Jan. 2013-Nov.
  20. 20. Nov 2013 Sep 2013 Jul 2013 May 2013 Mar 2013 Jan 2013 Nov 2012 Sep 2012 Jul 2012 May 2012 Mar 2012 Jan 2012 Nov 2011 3,300 Sep 2011 Jul 2011 May 2011 Mar 2011 Jan 2011 Nov 2010 Sep 2010 Jul 2010 May 2010 Mar 2010 Jan 2010 Nov 2009 Sep 2009 Jul 2009 May 2009 Mar 2009 Jan 2009 Existing Home Sales 5,300 4,800 4,300 Sales surged in the summer as borrowers raced to close before mortgage rates rose. 3,800 Many of those sales were borrowed from the fall. The trend has not changed much.
  21. 21. Oct 2013 Jul 2013 Apr 2013 Jan 2013 Oct 2012 Jul 2012 Apr 2012 Jan 2012 Oct 2011 Jul 2011 Apr 2011 Jan 2011 Oct 2010 Jul 2010 Apr 2010 Jan 2010 Oct 2009 Jul 2009 Apr 2009 Jan 2009 Oct 2008 Jul 2008 5 Apr 2008 6 Jan 2008 Oct 2007 Jul 2007 Apr 2007 Jan 2007 13 Inventory of Unsold Existing Homes 12 11 10 9 8 7 As sales have quickened, a shortage of available homes for sale has emerged in many parts of the country which... 4
  22. 22. 2.7% Case Shiller Home Price Index 10.0% …is why home prices have risen 13.6% in the past year and will continue to climb. 1.7% 5.0% 0.0% 0.7% -5.0% -0.3% -10.0% -1.3% -15.0% Home Prices Year-Over-Year (R) -2.3% -20.0%
  23. 23. Housing Starts 1900 We need 1.3 million new homes or apartments each year to keep pace with growth in the population. 1700 Builders are only providing about 1.0 million. 1500 1300 1100 Demand continues to far exceed supply. Thus, home prices will continue to rise. 900 Housing Starts Trend 700 500 Jan 2006Jul 2006Jan 2007Jul 2007Jan 2008Jul 2008Jan 2009Jul 2009Jan 2010Jul 2010Jan 2011Jul 2011Jan 2012Jul 2012Jan 2013Jul 2013
  24. 24. 1. Stock market climb boosts confidence. 2. Net worth is at a record high level. 3. Debt burden is quite comfortable. 4. Interest rates are near record low levels. 5. Housing is in short supply. Sales and prices rising.
  25. 25. Consumption Spending (%) 4.0% 2.0% 0.0% Consumption spending -2.0% -4.0% -6.0% Year-over-Year Despite all these positive factors consumer spending has been growing at a moderate 2.0% pace for some time.
  26. 26. -500 Typically in good times we expect employment to rise 225 thousand per month. -700 Oct-13 Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 Oct-10 Jul-10 Apr-10 Jan-10 Oct-09 Jul-09 Apr-09 Jan-09 Oct-08 Jul-08 Apr-08 Jan-08 Oct-07 Jul-07 Apr-07 Jan-07 Oct-06 Jul-06 Apr-06 Jan-06 Oct-05 Jul-05 Apr-05 Jan-05 500 Private Employment 300 100 -100 Private Employ. 3-mo. average -300 We are seeing almost 200 thousand but... -900
  27. 27. Part Time Workers (% Total) 20.0% 19.5% 19.0% …many of those jobs are part time positions and temps. 18.5% Also, many of those jobs are in the low paying food and beverage industry and in retail. 18.0% 17.5% 17.0% 16.5% Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
  28. 28. Oct 2013 Jul 2013 Apr 2013 Jan 2013 Oct 2012 Jul 2012 Apr 2012 Jan 2012 Oct 2011 Jul 2011 Apr 2011 Jan 2011 Oct 2010 -1.0% Jul 2010 Apr 2010 Jan 2010 Oct 2009 Jul 2009 Apr 2009 Jan 2009 Oct 2008 Jul 2008 Apr 2008 Jan 2008 Oct 2007 Jul 2007 Apr 2007 Jan 2007 6.0% Real Disposable Income 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Because many jobs are in low paying industries or part-time positions income is growing but only about 1.0%. -2.0% -3.0%
  29. 29. 11.0 Unemployment Rate 10.0 9.0 As the economy gathers momentum and jobs become more plentiful the unemployment rate will continue to fall. 8.0 7.0 6.0 Full Employment 5.0 4.0 3.0 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
  30. 30. Jan-14 Oct-13 Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 Jul-11 Apr-11 Jan-11 Oct-10 Jul-10 Apr-10 Jan-10 Oct-09 Jul-09 Apr-09 Jan-09 Oct-08 Jul-08 Apr-08 Jan-08 Oct-07 Jul-07 Apr-07 Jan-07 Oct-06 Jul-06 Apr-06 -100 Jan-06 -50 Oct-05 Jul-05 Apr-05 Jan-05 250 Labor Force 200 150 100 50 0 The unemployment rate is declining rapidly because the labor force is shrinking. But why is the labor force declining? -150 -200
  31. 31. Discouraged Workers 1200 1000 The labor force is not shrinking because long-term unemployed workers have given up looking for employment. 800 600 The labor force is shrinking because the baby boomers are retiring. They were born between 1946-1964. They will retire between 2011-2039. 400 Thus, the drop in the unemployment rate is legitimate. Jan-05 Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 200
  32. 32. 20.5 19.5 18.5 17.5 16.5 Unemployment Rate -- 16-24 years As the labor market tightens firms will increasingly turn to sectors where unemployment is high to find workers. The unemployment rate amongst our youth is 13.5%, double the official rate of 6.7%. 15.5 14.5 By the end of this year it might fall to 11.5% which is where it was at the beginning of the recession. 13.5 12.5 11.5 10.5 9.5 8.5 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
  33. 33. 16.5% Sep-13 May-… Jan-13 Sep-12 May-… Jan-12 Sep-11 May-… Jan-11 Sep-10 May-… Jan-10 18.0% Sep-09 May-… Jan-09 Sep-08 May-… Jan-08 Sep-07 May-… Jan-07 Sep-06 May-… Jan-06 Sep-05 May-… Jan-05 Part Time Workers (% Total) 20.0% 19.5% 19.0% 18.5% At the same time some of those part time workers could be offered full time positions. 17.5% 17.0%
  34. 34. Consumption Spending (%) 4.0% 2.0% 0.0% Consumption spending -2.0% -4.0% -6.0% Year-over-Year If jobs growth climbs above 200 thousand per month and the quality of jobs improves, consumer spending can easily quicken from 2.0% to 2.6%.
  35. 35. GDP Components Investment 15% Trade 10.0% Government 15.0% Consumption 60%
  36. 36. U.S. CEO Confidence 64 61 58 55 Despite fiscal policy and health insurance worries, CEO’s remain relatively upbeat. 52 49 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13
  37. 37. 1800 S&P 500 1600 1400 1200 1000 Rising stock prices allow many firm to raise capital by issuing more stock. 800 600
  38. 38. $2,200 $2,100 65.0% Corporate Profits with IVA and CC Corporate Profits $2,000 $1,900 $1,800 $1,700 Corporations are not only making record profits, growth in profits continues at a 5.7% pace. Year-over-year 45.0% 25.0% $1,600 $1,500 $1,400 5.0% $1,300 $1,200 -15.0% $1,100 $1,000 $900 -35.0%
  39. 39. 11.0 Corporate Bond Rates 10.0 9.0 Aaa Baa 8.0 7.0 6.0 5.0 4.0 3.0 Even with the recent backup, corporate borrowing rates are as low as they have been anytime in the past 50 years. Low rates allow firms to re-finance debt which lowers costs and increases profit.
  40. 40. 25.0% C & I Loans (%) 13.0% C & I Loans (L) 15.0% 8.0% Year-Over-Year (R) 3.0% 5.0% -2.0% -5.0% -7.0% Credit is fairly readily available. -15.0% Bank loans to businesses are growing at a relatively robust 8.0% pace. -25.0% -12.0% -17.0% Jul 2013 Apr 2013 Jan 2013 Oct 2012 Jul 2012 Apr 2012 Jan 2012 Oct 2011 Jul 2011 Apr 2011 Jan 2011 Oct 2010 Jul 2010 Apr 2010 -22.0% Jan 2010 -35.0%
  41. 41. 11.0% Corporate Cash / Assets (%) 10.5% Firms have plenty of cash available for investment. 10.0% 9.5% 9.0% 8.5% 8.0%
  42. 42. 1. CEO’s feel relatively confident. 2. Profits are soaring. 3. Interest rates are near record low levels. 4. Credit is readily available. 5. Firms have accumulated a mountain of cash.
  43. 43. Nonresidential Investment 20.0% Nonresidential Invest. Year-over-year 10.0% 0.0% -10.0% Investment spending has been growing, but at about a 2.0% pace. -20.0% -30.0% Firms continue to be cautious.
  44. 44. Why are firms being so cautious?
  45. 45. Why are firms being so cautious? 1. Recession
  46. 46. Why are firms being so cautious? 1. Recession 2. Health Care
  47. 47. Why are firms being so cautious? 1. Recession 2. Health Care 3. Fiscal Gridlock
  48. 48. Nonresidential Investment 20.0% Nonresidential Invest. Year-over-year 10.0% 0.0% -10.0% -20.0% -30.0% Having said all that, we expect investment spending to pick up from a 2.0% pace currently to 7.0% in 2014.
  49. 49. GDP Components Investment 15% Trade 10.0% Government 15.0% Consumption 60%
  50. 50. Net Exports -380.000 -390.000 -400.000 -410.000 -420.000 -430.000 -440.000 The trade deficit has been steadily shrinking. -450.000 It is all oil related and has been caused by improvements in technology – -460.000 Hydraulic fracturing and horizontal drilling. 2014Q3 2014Q1 2013q3 2013q1 2012q3 2012q1 2011q3 2011q1 -470.000
  51. 51. Production of crude oil and gas is exploding.
  52. 52. By 2040 91.6% of our energy needs will be produced domestically -- 76% today. Far less reliant on OPEC sources to satisfy oil needs. The U.S. will surpass Saudi Arabia and Russia to become the world’s largest oil producer.
  53. 53. European Union Confidence 63 60 Global Index 57 European Union 54 51 48 Business confidence in Europe is now more in line with other regions. Europe at last appears to be emerging from recession. The E.U. economy is bigger than the U.S.
  54. 54. Japanese Confidence 64.0 61.0 58.0 Japan’s economy has been in a slump for 20 years. Prime Minister Obe’s decision to pursue a Fed-like monetary policy has turned the economy around. 55.0 52.0 49.0 Japan is the world’s 3rd largest economy. 46.0
  55. 55. Nikkei 225 17000 15000 13000 11000 9000 7000 The Japanese stock market has risen 75% in the past 14 months.
  56. 56. Net Exports -380.000 -390.000 -400.000 -410.000 -420.000 -430.000 -440.000 The trade deficit has been steadily shrinking and should continue to do so in 2014. -450.000 -460.000 2014Q3 2014Q1 2013q3 2013q1 2012q3 2012q1 2011q3 2011q1 -470.000
  57. 57. GDP Components Investment 15% Trade 10.0% Government 15.0% Consumption 60%
  58. 58. 13.0% Federal Government Federal Government 8.0% Year-over-year 3.0% -2.0% -7.0% Federal government spending -- defense spending in particular -- has been falling for the past two years because -12.0% The U.S. winds down of two wars. The sequester has further reduced spending. -17.0%
  59. 59. 4.0% 3.5% GDP Growth vs. Private Sector Government spending has reduced GDP growth by about 0.4% in each of the past 2 years. In 2014 we expect govt. spending to be essentially unchanged versus a drop of 1.2% last year. 3.0% 2.5% 2.0% 1.5% 1.0% 2011q1 2011q2 2011q3 2011q4 2012q1 2012q2 2012q3 2012q4 2013q1 2013q2 2013q3
  60. 60. 2013-2014 Forecasts 2012 2013 2014 GDP 2.0% 2.7% 3.3% Unemploy. Rate 7.8% 6.7% 6.0% Inflation Rate 1.9% 1.8% 1.9% Fed Funds Rate 0.1% 0.1% 0.1% 10-year Note 1.7% 2.9% 3.6% 30-year Mortgage 3.4% 4.4% 5.0%
  61. 61. Default on our Debt?
  62. 62. Default on our Debt? Absolutely Not!
  63. 63. Our policy makers will not let that happen.
  64. 64. Our policy makers will not let that happen. Debt ceiling increased 14 times since 2001.
  65. 65. Our policy makers will not let that happen. Debt ceiling increased 14 times since 2001. Never once has the Treasury defaulted.
  66. 66. Won’t Obamacare Ruin Everything?
  67. 67. Won’t Obamacare Ruin Everything? No.
  68. 68. Lots of Countries Have Universal Health Care. 1. 2. 3. 4. 5. Germany France Italy U.K. Canada
  69. 69. Lots of Countries Have Universal Health Care. 1. Their stock markets continue to climb.
  70. 70. Lots of Countries Have Universal Health Care. 1. Their stock markets continue to climb. 2. Their economies continue to grow.
  71. 71. Lots of Countries Have Universal Health Care. 1. Their stock markets continue to climb. 2. Their economies continue to grow. 3. Their standards of living continue to rise.
  72. 72. Obamacare is Causing Major Dislocations
  73. 73. Obamacare is Causing Major Dislocations 1. Firms want to have fewer than 50 workers.
  74. 74. Obamacare is Causing Major Dislocations 1. Firms want to have fewer than 50 workers. 2. Firms try to cut hours to less than 30 hours.
  75. 75. Obamacare is Causing Major Dislocations 1. Firms want to have fewer than 50 workers. 2. Firms try to cut hours to less than 30 hours. 3. Many policy holders are losing coverage.
  76. 76. Obamacare is Causing Major Dislocations 1. 2. 3. 4. Firms want to have fewer than 50 workers. Firms try to cut hours to less than 30 hours. Many policy holders are losing coverage. Annual premiums are rising.
  77. 77. Economy is Adjusting to the Law.
  78. 78. Obamacare is a Tradeoff
  79. 79. Obamacare is a Tradeoff Good: Universal Health Care Coverage
  80. 80. Obamacare is a Tradeoff Good: Universal Health Care Coverage Bad: Much Bigger Government Sector
  81. 81. Government is Inherently Inefficient.
  82. 82. Countries with Universal Health End Up With
  83. 83. Countries with Universal Health End Up With 1. 2. 3. 4. Slower growth in productivity Slower GDP growth Less employment Slower growth in income.
  84. 84. Standards of Living 1.80 1.70 U.S. That means slower growth in their standards of living (GDP per capita). 1.60 Obamacare is moving the U.S. in that direction. 1.50 1.40 1.30 France Germany Italy U.S. Canada 1.20 1.10 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984 1983 1982 1981 1980 1.00
  85. 85. GDP Components Investment 15% Trade 10.0% Government 15.0% Consumption 60%
  86. 86. 2013-2014 Forecasts 2012 2013 2014 GDP 2.0% 2.7% 3.3% Unemploy. Rate 7.8% 6.7% 6.0% Inflation Rate 1.9% 1.8% 1.9% Fed Funds Rate 0.1% 0.1% 0.1% 10-year Note 1.7% 2.9% 3.6% 30-year Mortgage 3.4% 4.4% 5.0%
  87. 87. When Will the Fed Change Policy?
  88. 88. It Will Be a 2-step Process
  89. 89. It Will Be a 2-step Process 1. Reduced bond purchases. Long rates rise. December 2013
  90. 90. It Will Be a 2-step Process 1. Reduced bond purchases. Long rates rise. December 2013 2. Fed begins to raise short rates. Mid-2015
  91. 91. 8 Fed Funds Rate 7 Pre-2008 the way to gauge Fed policy was to look at the funds rate. 6 Once that rate dropped to 0% the Fed had to do something else. 5 4 3 2 1 0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13
  92. 92. Oct-13 May-13 Dec-12 Jul-12 Feb-12 Sep-11 Apr-11 Nov-10 Jun-10 Jan-10 Aug-09 Mar-09 Oct-08 May-08 Dec-07 Jul-07 Feb-07 Sep-06 Apr-06 Nov-05 Jun-05 Jan-05 Aug-04 Mar-04 7.50 Oct-03 May-03 Dec-02 Jul-02 Feb-02 Sep-01 Apr-01 Nov-00 2.50 Jun-00 Jan-00 8.50 10-year Treasury and Mortgage Rates 10-year Treasury Note 30-year mortgages 6.50 5.50 4.50 3.50 It decided to push long term interest rates lower. It has been relatively successful. 1.50
  93. 93. 2,500 Excess Reserves The Fed buys a security and pays for it by putting money in a bank’s checking account at the Fed. 2,000 1,500 1,000 Excess reserves have climbed from $2 billion In 2008 to $2.4 trillion currently. 500 Excess reserves represent the supply of funds available to the banking system to lend. Nov 2013 Sep 2013 Jul 2013 May 2013 Jan 2013 Mar 2013 Nov 2012 Sep 2012 Jul 2012 May 2012 Mar 2012 Jan 2012 Nov 2011 Sep 2011 Jul 2011 May 2011 Jan 2011 Mar 2011 Nov 2010 Sep 2010 Jul 2010 May 2010 Jan 2010 Mar 2010 Nov 2009 Sep 2009 Jul 2009 May 2009 Jan 2009 Mar 2009 Nov 2008 Sep 2008 Jul 2008 May 2008 Mar 2008 Jan 2008 0
  94. 94. 3,000 Excess Reserves -- Projected 2,500 The Fed is currently buying $75 billion of bonds every single month. 2,000 The Fed continues to steadily ease monetary policy. 1,500 1,000 If the Fed slows its pace of bond purchases it is not “tightening”. 500 It is merely slowing its pace of easing. Oct 2014 Jul 2014 Apr 2014 Jan 2014 Oct 2013 Jul 2013 Apr 2013 Jan 2013 Oct 2012 Jul 2012 Apr 2012 Jan 2012 Oct 2011 Jul 2011 Apr 2011 Jan 2011 Oct 2010 Jul 2010 Apr 2010 Jan 2010 Oct 2009 Jul 2009 Apr 2009 Jan 2009 Oct 2008 Jul 2008 Apr 2008 Jan 2008 0
  95. 95. 8.50 10-year Treasury and Mortgage Rates 7.50 10-year Treasury Note 30-year mortgages 6.50 5.50 4.50 3.50 As the Fed slows its pace of bond buying long rates will rise. 2.50 Expect 10-year note to yield 3.6% by end of 2014 (versus 2.9%). 30-year mortgage rate of 5.0% (versus 4.5%). Aug-14 Mar-14 Oct-13 May-13 Dec-12 Jul-12 Feb-12 Sep-11 Apr-11 Nov-10 Jun-10 Jan-10 Aug-09 Mar-09 Oct-08 May-08 Dec-07 Jul-07 Feb-07 Sep-06 Apr-06 Nov-05 Jun-05 Jan-05 Aug-04 Mar-04 Oct-03 May-03 Dec-02 Jul-02 Feb-02 Sep-01 Apr-01 Nov-00 Jun-00 Jan-00 1.50
  96. 96. 4.0 Spread -- 10-year vs. Fed Funds 3.0 2.0 1.0 0.0 -1.0 Long rates rarely exceed short rates by more than 3.5%. By yearend 2014 10-year rate = 3.6%, funds = 0.1%. Difference = 3.5%. -2.0
  97. 97. 0 Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… 6 Jan-… 7 Jan-… Jan-… Jan-… 8 Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… 9 Fed Funds Rate The funds rate today is 0%. It would be “neutral” when it is about 4.25%. 5 4 3 2 1
  98. 98. 11.0 Unemployment Rate 10.0 9.0 Fed has said it will not begin to raise the funds rate until the unemployment rate has declined “well beyond” 6.5%. 6.0%?? 5.5%?? 8.0 Given a moderate pace of economic expansion that should occur by mid-2015. 7.0 6.0 Full Employment 5.0 4.0 3.0 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
  99. 99. 9 Fed Funds Rate 8 If the Fed begins to alter is policy in mid-2015 it will take until mid-2017 for the funds rate to return to “neutral”. 7 6 5 4 3 2 Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… Jan-… 0 Jan-… 1
  100. 100. 20.0 15.0 Fed Funds Rate The U.S. economy has never gone into recession unless the funds rate has been higher than “neutral”. Earliest date for a recession? 2018? 10.0 5.0 0.0
  101. 101. In Conclusion
  102. 102. In Conclusion 1. GDP growth gradually accelerating to 3.3% in 2014.
  103. 103. In Conclusion 1. GDP growth gradually accelerating to 3.3% in 2014. 2. Monetary policy will remain very accommodative.
  104. 104. In Conclusion 1. GDP growth gradually accelerating to 3.3% in 2014. 2. Monetary policy will remain very accommodative. 3. Profits will continue to climb.
  105. 105. In Conclusion 1. GDP growth gradually accelerating to 3.3% in 2014. 2. Monetary policy will remain very accommodative. 3. Profits will continue to climb. 4. Stock market will rise.
  106. 106. In Conclusion 1. GDP growth gradually accelerating to 3.3% in 2014. 2. Monetary policy will remain very accommodative. 3. Profits will continue to climb. 4. Stock market will rise. 5. Unemployment rate will continue to decline.
  107. 107. In Conclusion 1. GDP growth gradually accelerating to 3.3% in 2014. 2. Monetary policy will remain very accommodative. 3. Profits will continue to climb. 4. Stock market will rise. 5. Unemployment rate will continue to decline. 6. No recession for at least another 4 years.
  108. 108. What’s Not To Like! Stephen Slifer NumberNomics www.NumberNomics.com

×