Will the US join Europe and Japan in the land of negative rates? The Trump Administration is demanding it, while the Fed approaches with caution. Join us as we introduce a Negative Rates scenario and provide an update on Climate Disasters - in our new unböring 30-min War Room.

1. Negative Rates
26 September 2019
War Room

2. Negative Rates: 101
Every time global
interest rates fall
below US rates, a
recession follows
sources: HiddenLevers, Macro Tourist
US PMI
Below 50 = Contraction
Unemployment
at record lows
CPI near 2%
US manufacturing at
risk, but employment
and CPI both healthy
– should Fed jump off
the deep end?

3. Negative Rates: No Cure for Europe + Japan
Foreign $$
flowing to
US govt
bonds for
yield
sources: HiddenLevers, OECD, Financial Times 1, Financial Times 2, Country Meters
Country Q2 2019 GDP
(%)
Central Bank
Rate
Pop Growth
(%)
USA 2.0 +1.75 0.6
Denmark 0.8 -0.65 0.4
Japan 0.3 -0.10 -0.1
Switzerland 0.3 -0.75 0.7
Sweden 0.1 -0.25 0.8
Germany -0.1 -0.40 0.1

4. GDP Upside
Surprise
BASELINE
GOOD
S&P 500
2200
-25%
S&P 500
3600
+20%
S&P 500
2900
-3%Rate Cuts Despite
Rising GDP
UGLY
Negative GDP
+ ZIRP
YIELD CURVE INVERSION
+ GLOBAL ECONOMY
POINTING TO RECESSION
US ECONOMY HEALTHY
DESPITE TRADE WAR AND
2019 VOLATILITY
ONLY REASON TO LOWER
RATES IS TO PREVENT
RUST BELT RECESSION
Negative Rates: Scenario Outcomes
GDP
-0.1%
(-2.4)
GDP
+3.3%
(+1.0)
GDP
+2.3%
flat
10y Bond
2.75%
10y Bond
1.5%
10y Bond
1.0%

5. Negative Rates: What to Say
Negative Rates = chemotherapy,
not drugs you take when healthy.
Global rates + yield curve inversion =
bearish signals, but US healthy at present.
Negative rates in USA pose systemic risk
that dwarfs anything in the news.
Manufacturing Recession in US could be
starting – only legit reason to cut rates.

6. Climate Disasters
26 September 2019
War Room

7. Climate Disasters: 101
Early 80s: 3 Billion-dollar disasters/year
= 0.3% of GDP per year
Today: 15 Billion-dollar disasters/year
= 0.75% of GDP per year
sources: HiddenLevers, NOAA, FRED
1980s:
0.3% of GDP/yr
2017-19: 0.75% GDP/yr
Houston
Miami
Tampa
USA
New Orleans
Despite rising disaster costs,
coastal home prices have not
suffered – local GDP growth
still supersedes all else
Cost of
Storms

8. BASELINE
GOOD
S&P 500
2700
-10%
S&P 500
3150
+5%
S&P 500
2900
-3%
UGLY
high risk
real estate
TANKS
high risk
real estate
RISES
high risk
real estate
FALLS
Climate Disasters: Scenario Outcomes
GDP
-1.2%
(-1.1)
GDP
+2.8%
(+0.5)
GDP
+2.0%
(-0.3)$
Insurance +
Infrastructure
Costs Outweigh
GDP Gains
Coastal RE
Correction
Housing
+3%
Housing
-3%
Housing
-11%
GDP

9. Climate Disasters: What to Say
No discounting yet for Land + Property
values for climate vulnerability.
State governments are starting buyouts in
vulnerable areas, but it’s a 5y process.
Infrequent disasters stoke demand and
boost GDP, but frequent disasters are a tax.
US Disaster tax is 0.75% of GDP in 2019, up
from 0.3% in 1980, so more than double.