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Laird Research - Economics
January 11, 2015
Where we are now . . . . . . . . . . . . . . . . . . . . . . . . 1
Indica...
Indicators for US Economy
Leading indicators are indicators that usually change before the
economy as a whole changes. The...
Global Financial Markets
Global Stock Market Returns
Country Index Name Close Date Current
Value
Weekly
Change
Monthly
Cha...
S&P 500 Composite Index
The S&P 500 Composite Index is widely regarded as the best single
gauge of the large cap U.S. equi...
S&P 500 Composite Distributions
This is a view of the price performance of the S&P 500 index com-
panies. The area of each...
US Equity Valuations
A key valuation metric is Tobin’s q: the ratio between the market
value of the entire US stock market...
US Mutual Fund Flows
Fund flows describe the net investments in equity and bond mutual
funds in the US market, as described...
US Key Interest Rates
Interest rates are often leading indicators of stress in the financial
system. The yield curve show t...
US Inflation
Generally, the US Fed tries to anchor long run inflation expectations
to approximately 2%. Inflation can be meas...
QE Taper Tracker
The US has been using the program of Quantitative Easing to pro-
vide monetary stimulous to its economy. ...
Exchange Rates
10 Week Moving Average CAD Exchange Rates
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
0.620...
US Banking Indicators
The banking and finance industry is a key indicator of the health
of the US economy. It provides cruc...
US Employment Indicators
Unemployment rates are considered the “single best indicator of
current labour conditions” by the...
There are a number of other ways to measure the health of employ-
ment. The U6 Rate includes people who are part time that...
US Business Activity Indicators
Business activity is split between manufacturing activity and non-
manufacturing activity....
US Consumption Indicators
Variations in consumer activity are a leading indicator of the
strength of the economy. We track...
US Housing
Housing construction is only about 5-8% of the US economy, how-
ever a house is typically the largest asset own...
US Housing - FHFA Quarterly Index
The Federal Housing Finance Agency provides a quarterly survey
on house prices, based on...
Global Business Indicators
Global Manufacturing PMI Reports
The Purchasing Managers’ Index (PMI) is an indicator reflecting...
Global Manufacturing PMI Chart
This is an alternate view of the global PMI reports. Here, we look
at all the various PMI d...
OECD International Trade Data
The OECD calculates import and export values for member coun-
tries. Figures are seasonally ...
Canadian Indicators
Retail Trade (SA)
YoYPercentChange
−50510
median: 4.76
Oct 2014: 4.85
Total Manufacturing Sales Growth...
6.8 7.0 7.2 7.4 7.6
1.31.41.51.61.71.81.9
Beveridge Curve (Mar 2011 − Sep 2014)
Unemployment Rate
Vacancyrate(Industrial)
...
European Indicators
Unemployment Rates
Percentage
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
051015202530...
Government Bond YieldsLongTermYields%
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
0246810
Economic Sentime...
Chinese Indicators
Tracking the Chinese economy is a tricky. As reported in the Fi-
nancial Times, Premier Li Keqiang confi...
Global Climate Change
Temperature and precipitation data are taken from the US National
Climatic Data Center and presented...
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Global Economics Update - January 2015

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A monthly summary of global economic performance including employment, trade, business conditions, leading indicators and regional data.

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Global Economics Update - January 2015

  1. 1. .... Laird Research - Economics January 11, 2015 Where we are now . . . . . . . . . . . . . . . . . . . . . . . . 1 Indicators for US Economy . . . . . . . . . . . . . . . . . . . 2 Global Financial Markets . . . . . . . . . . . . . . . . . . . . 3 US Key Interest Rates . . . . . . . . . . . . . . . . . . . . . . 8 US Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 QE Taper Tracker . . . . . . . . . . . . . . . . . . . . . . . . . 10 Exchange Rates . . . . . . . . . . . . . . . . . . . . . . . . . . 11 US Banking Indicators . . . . . . . . . . . . . . . . . . . . . . 12 US Employment Indicators . . . . . . . . . . . . . . . . . . . 13 US Business Activity Indicators . . . . . . . . . . . . . . . . 15 US Consumption Indicators . . . . . . . . . . . . . . . . . . 16 US Housing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Global Business Indicators . . . . . . . . . . . . . . . . . . . 19 Canadian Indicators . . . . . . . . . . . . . . . . . . . . . . . 22 European Indicators . . . . . . . . . . . . . . . . . . . . . . . 24 Chinese Indicators . . . . . . . . . . . . . . . . . . . . . . . . 26 Global Climate Change . . . . . . . . . . . . . . . . . . . . . 27 Where we are now Welcome to the Laird Report. We present a selection economic data from around the world to help figure where we are today. In theory, this is the best of times in North America. Unemploy- ment is dropping like a stone, inflation is low, oil prices cracked in half and companies are reporting a general increase in tone across the board (assuming you aren’t an oil services company). Canada seems okay, de- spite the fears over housing prices and Western Canada is bracing for mass layoffs in the next few months as oil prices have cracked. There’s a real feeling of anxiousness across the globe. Despite all the debt that governments have taken on to help their economies and the risks from slowdowns in major markets like Europe and China, interest rates are at all time lows - if you look at interest rates as indicators of risk, then you will have a hard time making these two pictures fit together. Perhaps the strangest thing is (the lack of) inflation. Certainly there is the standard chorus that “the government is lying” however even 3rd party sources like TheBillionPricesProject at MIT are showing that the CPI isn’t far off the mark in the US and elsewhere. As much as we look at core CPI and PCE to ignore the price swings of oil and food - new oil prices are very helpful to consumers. See page 25 - Europe is essentially in deflation, even with employment high (though improv- ing). It’s like stagflation’s evil twin brother - deflation actually makes debt loads worse. And its not like the usual government level of interest rates is helpful here - everyone is already close to zero. It just doesn’t make any sense. Formatting Notes The grey bars on the various charts are OECD recession indicators for the respective countries. In many cases, the last available value is listed, along with the median value (measured from as much of the data series as is available). Subscription Info For a FREE subscription to this monthly re- port, please visit sign up at our website: www.lairdresearch.com Laird Research, January 11, 2015
  2. 2. Indicators for US Economy Leading indicators are indicators that usually change before the economy as a whole changes. They are useful as short-term predictors of the economy. Our list includes the Philly Fed’s Leading Index which summarizes multiple indicators; initial jobless claims and hours worked (both decrease quickly when demand for employee services drops and vice versa); purchasing manager indicies; new order and housing per- mit indicies; delivery timings (longer timings imply more demand in the system) and consumer sentiment (how consumers are feeling about their own financial situation and the economy in general). Leading Index for the US Index:Est.6monthgrowth −3−11234 median: 1.41 Nov 2014: 1.71 Growth Contraction Initial Unemployment Claims 1000'sofClaimsperWeek 200400600 median: 351.25 Jan 2015: 290.50 Manufacturing Ave. Weekly Hours Worked Hours 394041424344 median: 40.60 Dec 2014: 42.20 ISM Manfacturing − PMI Index:SteadyState=50 3040506070 median: 53.40 Dec 2014: 55.50 expanding economy contracting economy Manufacturers' New Orders: Durable Goods BillionsofDollars 150200250300 median: 183.11 Nov 2014: 241.56 ISM Manufacturing: Supplier Deliveries Index 40506070 median: 51.65 Dec 2014: 59.30 Slower Deliveries Faster Deliveries Capex (ex. Defense & Planes) Percentchange(3months) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −10−505 median: 0.86 Nov 2014: −0.98 Chicago Fed National Activity Index IndexValue 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −4−202 median: 0.08 Nov 2014: 0.73 U. Michigan: Consumer Sentiment Index1966Q1=100 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 507090110 median: 88.30 Dec 2014: 93.60 www.lairdresearch.com January 11, 2015 Page 2
  3. 3. Global Financial Markets Global Stock Market Returns Country Index Name Close Date Current Value Weekly Change Monthly Change 3 month Change Yearly Change Corr to S&P500 Corr to TSX North America USA S&P 500 Jan 09 2,044.8 -0.7% J -0.7% J 6.0% I 11.2% I 1.00 0.73 USA NASDAQ Composite Jan 09 4,704.1 -0.5% J -1.3% J 7.4% I 13.2% I 0.94 0.68 USA Wilshire 5000 Total Market Jan 09 21,497.1 -0.8% J -0.2% J 6.2% I 9.6% I 0.99 0.75 Canada S&P TSX Jan 09 14,384.9 -2.5% J 1.3% I -0.5% J 5.5% I 0.73 1.00 Europe and Russia France CAC 40 Jan 09 4,179.1 -1.7% J -2.0% J 0.9% I -1.1% J 0.59 0.48 Germany DAX Jan 09 9,648.5 -1.2% J -1.5% J 7.1% I 2.4% I 0.55 0.43 United Kingdom FTSE Jan 09 6,501.1 -0.7% J -0.4% J 1.1% I -2.8% J 0.59 0.51 Russia Market Vectors Russia ETF Jan 09 15.2 2.8% I -9.7% J -26.6% J -41.6% J 0.35 0.39 Asia Taiwan TSEC weighted index Jan 09 9,215.6 -1.0% J 0.9% I 2.8% I 8.2% I 0.25 0.12 China Shanghai Composite Index Jan 06 3,351.4 5.9% I 11.0% I 40.7% I 63.8% I -0.09 -0.24 Japan NIKKEI 225 Jan 09 17,197.7 -1.5% J -3.5% J 11.1% I 8.3% I 0.07 0.00 Hong Kong Hang Seng Jan 09 23,920.0 0.3% I 1.8% I 1.6% I 5.0% I 0.18 0.03 Korea Kospi Jan 09 1,924.7 -0.1% J -2.3% J -0.8% J -1.1% J 0.19 0.10 South Asia and Austrailia India Bombay Stock Exchange Jan 09 27,458.4 -1.5% J -1.2% J 3.1% I 32.6% I 0.28 0.19 Indonesia Jakarta Jan 09 5,216.7 -0.5% J 1.8% I 4.5% I 24.2% I 0.02 -0.02 Malaysia FTSE Bursa Malaysia KLCI Jan 09 1,732.4 -1.2% J -0.3% J -5.3% J -5.2% J 0.42 0.23 Australia All Ordinaries Jan 09 5,440.1 0.5% I 3.5% I 2.8% I 2.1% I 0.14 0.07 New Zealand NZX 50 Index Gross Jan 09 5,584.8 0.3% I 0.8% I 6.1% I 14.8% I 0.15 0.08 South America Brasil IBOVESPA Jan 09 48,840.0 0.7% I -2.7% J -14.7% J -1.0% J 0.31 0.37 Argentina MERVAL Buenos Aires Jan 09 8,459.6 -2.4% J -4.8% J -17.1% J 57.4% I 0.45 0.46 Mexico Bolsa index Jan 09 42,382.4 0.6% I 0.1% I -3.9% J 1.9% I 0.64 0.47 MENA and Africa Egypt Market Vectors Egypt ETF Jan 09 58.9 0.4% I -6.8% J -12.6% J 10.6% I 0.33 0.08 (Gulf States) Market Vectors Gulf States ETF Jan 09 26.2 -0.0% J -3.7% J -19.1% J -2.6% J 0.47 0.30 South Africa iShares MSCI South Africa Index Jan 09 65.5 3.1% I 3.4% I 3.5% I 10.8% I 0.64 0.51 (Africa) Market Vectors Africa ETF Jan 09 25.7 -1.3% J -1.3% J -13.0% J -12.0% J 0.54 0.49 Commodities USD Spot Oil West Texas Int. Jan 05 $50.0 -6.4% J -24.0% J -44.6% J -46.3% J 0.19 0.45 USD Gold LME Spot Jan 09 $1,211.2 2.3% I 0.4% I -1.3% J -1.2% J -0.06 -0.06 Note: Correlations are based on daily arithmetic returns for the most recent 100 trading days. www.lairdresearch.com January 11, 2015 Page 3
  4. 4. S&P 500 Composite Index The S&P 500 Composite Index is widely regarded as the best single gauge of the large cap U.S. equities market. A key figure is the valua- tion level of the S&P500 as measured by the Price/Earnings ratio. We present two versions: (1) a 12-month trailing earnings version which reflects current earnings but is skewed by short term variances and (2) a cyclically adjusted version which looks at the inflation adjusted earn- ings over a 10 year period (i.e. at least one business cycle). Forecasted earnings numbers are estimates provided by S&P. S&P 500 Profit Margins and Overall Corporate Profit Margins (Trailing 12 months) Percent 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 Percent Total Corporate Profits (% of GDP) − median: 6.2%, Q3/14: 10.8% Net Profit Margin (S&P 500 Earnings / Revenue) − median: 6.6%, Q3/14: 9.2% S&P Quarterly Earnings (USD$ Inflation Adjusted to current prices) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 −5.00 0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 Tech Bubble Japanese Asset Bubble House BubbleAsian Financial Crisis US Financial Crisis Eurozone crisis Oil Crisis I Oil Crisis II Gulf War Savings and Loans Crisis High Inflation Period Afganistan/Iraq WarVietnam War Reported Earnings Operating Earnings Trailing P/E Ratios for S&P500 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0 10 20 30 40 50 0 10 20 30 40 50 Multiple Multiple 12−month P/E ( median = 17.4, Jan = 18.1) 10−year CAPE ( median = 19.4, Jan = 25.1) www.lairdresearch.com January 11, 2015 Page 4
  5. 5. S&P 500 Composite Distributions This is a view of the price performance of the S&P 500 index com- panies. The area of each box is proportional to the company’s market cap, while the colour is determined by the percentage change in price over the past month. In addition, companies are sorted according to their industry group. AAPL −2.7% MSFT −2.9% GOOG −7% FB 3.5% ORCL 3.1% INTC −1.1% V 0.92% IBM −1.5% CSCO 0.72% QCOM 3.7% MA EMC ACN TXN MU NFLX EA CA BRK−A 0.97% WFC −2.1% JPM −1.1% BAC 1.4% C AXP GS USB AIG MS SPG BLK MET BK AMT TRV BEN STT ALL AFL ICE CB AVB VTR PLD STI WY HST HIG IVZ L RF JNJ −2.9% PFE 4.4% MRK 4.1% GILD 1.7% AMGN ABBV BMY UNH BIIB LLY MDT ACT ABT AGN ESRX TMO BAX ALXN SYK AET CI BDX ZTS MYL BSX STJ DVA A DIS 3% CMCSA −0.55% HD AMZN −8.9% MCD NKE FOXA TWX LOW F GM TGT TJX DTV TWC LB M CMG DLPH GPS UA WMT 4.2% PG KO PEP −2.2% PM −4.4% CVS 8.6% MO 0.6% WBA CL KR GIS ADM EL K LO GE −7.6% UTX MMM 2.2% UNP UPS BA LMT CAT GD RTN PCP NSC ETN NOC GLW DE LUV CMI WM IR XOM −0.27% CVX −3.2% SLB −4.3% COP OXY KMI PSX HAL NOV VLO BHI DVN APA SE HES PXD DD MON DOW LYB PX ECL SHW IP AA CF DUK NEE SO D ED VZ −6.5% T −4.7% Information Technology Financials Health Care Consumer Discretionary Consumer Staples Industrials Energy Materials Utilities Telecommunications Services <−25.0% −20.0% −15.0% −10.0% −5.0% 0.0% 5.0% 10.0% 15.0% 20.0% >25.0% % Change in Price from Dec 1, 2014 to Jan 9, 2015 Average Median Median Median Sector Change P/Sales P/Book P/E Utilities 3.8% I 1.7 1.8 20.1 Health Care 1.6% I 3.4 4.2 25.9 Consumer Staples 1.1% I 2.1 5.7 23.4 Consumer Discretionary 0.5% I 1.6 4.4 20.9 Materials 0.2% I 1.7 3.8 23.4 Average Median Median Median Sector Change P/Sales P/Book P/E Financials 0.2% I 3.1 1.6 18.1 Industrials -0.7% J 1.7 3.4 19.8 Information Technology -0.9% J 3.4 4.0 21.2 Energy -3.3% J 1.4 1.4 11.8 Telecommunications Services -5.8% J 1.4 4.4 29.9 www.lairdresearch.com January 11, 2015 Page 5
  6. 6. US Equity Valuations A key valuation metric is Tobin’s q: the ratio between the market value of the entire US stock market versus US net assets at replacement cost (ie. what you pay versus what you get). Warren Buffet famously follows stock market value as a percentage of GNP, which is highly (93%) correlated to Tobin’s q. We can also take the reverse approach: assume the market has valuations correct, we can determine the required returns of future es- timated earnings. These are quoted for both debt (using BAA rated securities as a proxy) and equity premiums above the risk free rate (10 year US Treasuries). These figures are alternate approaches to under- standing the current market sentiment - higher premiums indicate a demand for greater returns for the same price and show the level of risk-aversion in the market. Tobin's q (Market Equity / Market Net Worth) and S&P500 Price/Sales 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0.25 0.50 0.75 1.00 1.25 1.50 1.75 0.25 0.50 0.75 1.00 1.25 1.50 1.75 Buying assets at a discount Paying up for growth Tobin Q (median = 0.75, Sep = 1.09) S&P 500 Price/Sales (median = 1.32, Sep = 1.73) Equity and Debt Risk Premiums: Spread vs. Risk Free Rate (10−year US Treasury) 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0% 2% 4% 6% 8% 10% 0% 2% 4% 6% 8% 10% Implied Equity Premium (median = 4.2%, Dec = 4.9%) Debt (BAA) Premium (median = 2.0%, Dec = 2.6%) www.lairdresearch.com January 11, 2015 Page 6
  7. 7. US Mutual Fund Flows Fund flows describe the net investments in equity and bond mutual funds in the US market, as described in ICI’s “Trends in Mutual Fund Investing” report. Note however that this is only part of the story as it does not include ETF fund flows - part of the changes are investors entering or leaving the market, and part is investors shifting to ETF’s from mutual funds. US Net New Investment Cash Flow to Mutual Funds US$billions(monthly) 2007 2008 2009 2010 2011 2012 2013 2014 −40−2002040 Domestic Equity World Equity Taxable Bonds Municipal Bonds US Net New Investment Cash Flow to Mutual Funds US$billions(Monthly) 2007 2008 2009 2010 2011 2012 2013 2014 −60−40−200204060 Flows to Equity Flows to Bonds Net Market Flows www.lairdresearch.com January 11, 2015 Page 7
  8. 8. US Key Interest Rates Interest rates are often leading indicators of stress in the financial system. The yield curve show the time structure of interest rates on government bonds - Usually the longer the time the loan is outstanding, the higher the rate charged. However if a recession is expected, then the fed cuts rates and this relationship is inverted - leading to negative spreads where short term rates are higher than long term rates. Almost every recession in the past century has been preceeded by an inversion - though not every inversion preceeds a recession (just most of the time). For corporate bonds, the key issue is the spread between bond rates (i.e. AAA vs BAA bonds) or between government loans (LIBOR vs Fedfunds - the infamous “TED Spread”). Here a spike correlates to an aversion to risk, which is an indication that something bad is happen- ing. US Treasury Yield Curves ForwardInstantaneousRates(%) 14 15 16 17 18 19 20 21 22 23 24 0.0 0.5 1.0 1.5 2.0 2.5 3.0 0.0 0.5 1.0 1.5 2.0 2.5 3.0Jan 8, 2015 (Today) Dec 8, 2014 (1 mo ago) Oct 8, 2014 (3 mo ago) 08 Jan 2014 (1 yr ago) 3 Month & 10 Yr Treasury Yields 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0% 1% 2% 3% 4% 5% 6% 7% 0% 1% 2% 3% 4% 5% 6% 7% 10 Yr Treasury 3 Mo Treasury Spread AAA vs. BAA Bond Spreads 4% 5% 6% 7% 8% 9% 4% 5% 6% 7% 8% 9% Percent AAA BAA 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 median: 91.00 Jan 2015: 96.00 0 100 200 300 0 100 200 300 Spread(bps) LIBOR vs. Fedfunds Rate 0% 1% 2% 3% 4% 5% 6% 7% 0% 1% 2% 3% 4% 5% 6% 7% Percent 3 mos t−bill LIBOR 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 median: 36.62 Jan 2015: 22.56 0 100 200 300 0 100 200 300 Spread(bps) www.lairdresearch.com January 11, 2015 Page 8
  9. 9. US Inflation Generally, the US Fed tries to anchor long run inflation expectations to approximately 2%. Inflation can be measured with the Consumer Price Index (CPI) or the Personal Consumption Expenditures (PCE) index. In both cases, it makes sense to exclude items that vary quickly like Food and Energy to get a clearer picture of inflation (usually called Core Inflation). The Fed seems to think PCI more accurately reflects the entire basket of goods and services that households purchase. Finally, we can make a reasonable estimate of future inflation ex- pectations by comparing real return and normal bonds to construct an imputed forward inflation expectation. The 5y5y chart shows expected 5 year inflation rates at a point 5 years in the future. Neat trick that. Consumer Price Index Percent 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −1% 0% 1% 2% 3% 4% 5% 6% −1% 0% 1% 2% 3% 4% 5% 6% US Inflation Rate YoY% (Nov = 1.3%) US Inflation ex Food & Energy YoY% (Nov = 1.7%) Personal Consumption Expenditures Percent(YearoverYear) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −10123456 PCE Inflation Rate YoY% (Nov = 1.2%) PCE Core Inflation YoY% (Nov = 1.4%) 5−Year, 5−Year Forward Inflation Expectation Rate Percent 08 09 10 11 12 13 14 15 16 17 18 19 −10123456 5 year forward Inflation Expectation Actual 5yr Inflation (CPI measure) Actual 5yr Inflation (PCE Measure) www.lairdresearch.com January 11, 2015 Page 9
  10. 10. QE Taper Tracker The US has been using the program of Quantitative Easing to pro- vide monetary stimulous to its economy. The Fed has engaged in a series of programs (QE1, QE2 & QE3) designed to drive down long term rates and improve liquidity though purchases of treasuries, mor- gage backed securites and other debt from banks. The higher demand for long maturity securities would drive up their price, but as these securities have a fixed coupon, their yield would be decreased (yield ≈ coupon / price) thus driving down long term rates. In 2011-2012, “Operation Twist” attempted to reduce rates without increasing liquidity. They went back to QE in 2013. The Fed chairman suggested in June 2013 the economy was recover- ing enough that they could start slowing down purchases (“tapering”). The Fed backed off after a brief market panic. The Fed announced in Dec 2013 that it was starting the taper, a decision partly driven by seeing key targets of inflation around 2% and unemployment being less than 6.5%. In Oct 2014, they announced the end of purchases. QE Asset Purchases to Date (Treasury & Mortgage Backed Securities) Trillions 0.0 0.5 1.0 1.5 2.0 2.5 0.0 0.5 1.0 1.5 2.0 2.5 QE1 QE2 Operation Twist QE3 TaperTreasuries Mortgage Backed Securities Total Monthly Asset Purchases (Treasury + Mortgage Backed Securities) Billions −100 −50 0 50 100 150 200 −100 −50 0 50 100 150 200 Month to date Jan 07: $−0.1 Inflation and Unemployment − Relative to Targets Percent 0 2 4 6 8 10 0 2 4 6 8 10 Target Unemployment 6.5% Target Inflation 2% U.S. 10 Year and 3 Month Treasury Constant Maturity Yields Percent 0 1 2 3 4 5 0 1 2 3 4 5 2008 2009 2010 2011 2012 2013 2014 Short Term Rates: Once at zero, Fed moved to QE Long Term Rates: Moving up in anticipation of Taper? www.lairdresearch.com January 11, 2015 Page 10
  11. 11. Exchange Rates 10 Week Moving Average CAD Exchange Rates 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0.620.710.810.901.001.09 USA/CAD 0.550.610.660.720.770.82 Euro/CAD 59.1674.7190.26105.81121.36136.91 Japan/CAD 0.380.440.490.550.610.67 U.K./CAD 0.590.981.361.742.122.51 Brazil/CAD CAD Appreciating CAD Depreciating Change in F/X: Dec 1 2014 to Jan 2 2015 (Trade Weighted Currency Index of USD Trading Partners) −3.0% −1.5% 1.5% 3.0% Euro 1.1% UK −0.4% Japan −1.1% South Korea −3.2% China −1.9% India −0.7% Brazil 2.3% Mexico 3.3% Canada 0.5% USA 2.9% Country vs. Average Appreciating Depreciating % Change over 3 months vs. Canada <−10.0% −8.0% −6.0% −4.0% −2.0% 0.0% 2.0% 4.0% 6.0% 8.0% >10.0% CAD depreciatingCAD appreciating ARG 4.9% AUS −1.8% BRA −4.5% CHN 6.6% IND 4.2% RUS −30.3% USA 6.5% EUR −1.2% JPY −3.6% KRW 4.4% MXN −3.0% ZAR 1.8% www.lairdresearch.com January 11, 2015 Page 11
  12. 12. US Banking Indicators The banking and finance industry is a key indicator of the health of the US economy. It provides crucial liquidity to the economy in the form of credit, and the breakdown of that system is one of the exac- erbating factors of the 2008 recession. Key figures to track are the Net Interest Margins which determine profitability (ie. the difference between what a bank pays to depositors versus what the bank is paid by creditors), along with levels of non-performing loans (i.e. loan loss reserves and actual deliquency rates). US Banks Net Interest Margin Percent 3.54.04.5 median: 3.95 2014 Q3: 3.09 Repos Outstanding with Fed. Reserve BillionsofDollars 0100300500 median: 54.19 Jan 2015: 241.44 Bank ROE − Assets between $300M−$1B Percent 051015 median: 12.83 2014 Q3: 9.57 Consumer Credit Outstanding %YearlyChange −505101520 median: 7.68 Nov 2014: 7.00 Total Business Loans %YearlyChange −2001020 median: 8.54 Dec 2014: 13.24 US Nonperforming Loans Percent 12345 median: 2.29 2014 Q3: 2.13 St. Louis Financial Stress Index Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0246 median: 0.027 Jan 2015: −0.95 Commercial Paper Outstanding TrillionsofDollars 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.01.41.82.2 median: 1.35 Jan 2015: 1.09 Residential Morgage Delinquency Rate Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 246810 median: 2.31 2014 Q3: 6.98 www.lairdresearch.com January 11, 2015 Page 12
  13. 13. US Employment Indicators Unemployment rates are considered the “single best indicator of current labour conditions” by the Fed. The pace of payroll growth is highly correlated with a number of economic indicators.Payroll changes are another way to track the change in unemployment rate. Unemployment only captures the percentage of people who are in the labour market who don’t currently have a job - another measure is what percentage of the whole population wants a job (employed or not) - this is the Participation Rate. The Beveridge Curve measures labour market efficiency by looking at the relationship between job openings and the unemployment rate. The curve slopes downward reflecting that higher rates of unemploy- ment occur coincidentally with lower levels of job vacancies. Unemployment Rate Percent 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 median: 6.20 Dec 2014: 5.60 4 5 6 7 8 9 10 11 4 5 6 7 8 9 10 11 Percent 4 5 6 7 8 9 10 2.02.53.03.54.0 Beveridge Curve (Unemployment vs. Job Openings) Unemployment Rate (%) JobOpenings(%totalEmployment) Dec 2000 − Dec 2008 Jan 2009 − Sep 2014 Oct 2014 Participation Rate Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 6364656667 median: 66.05 Dec 2014: 62.70 Total Nonfarm Payroll Change MonthlyChange(000s) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −5000500 median: 163.00 Dec 2014: 252.00 www.lairdresearch.com January 11, 2015 Page 13
  14. 14. There are a number of other ways to measure the health of employ- ment. The U6 Rate includes people who are part time that want a full-time job - they are employed but under-utilitized. Temporary help demand is another indicator of labour market tightness or slack. The large chart shows changes in private industry employment lev- els over the past year, versus how well those job segments typically pay. Lots of hiring in low paying jobs at the expense of higher paying jobs is generally bad, though perhaps not unsurprising in a recovery. Median Duration of Unemployment Weeks 510152025 median: 8.60 Dec 2014: 12.60 (U6) Unemployed + PT + Marginally Attached Percent 810121416 median: 9.70 Dec 2014: 11.20 4−week moving average of Initial Claims Jan1995=100 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 50100150200 median: 107.99 Jan 2015: 89.32 Unemployed over 27 weeks MillionsofPersons 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 01234567 median: 0.78 Dec 2014: 2.69 Services: Temp Help MillionsofPersons 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.52.02.53.0 median: 2.24 Dec 2014: 2.99 0 200 400 600 15 20 25 30 35 Annual Change in Employment Levels (000s of Workers) Averagewages($/hour) Private Industry Employment Change (1 year) Construction Durable Goods Education Financial Activities Health Services Information Leisure and Hospitality Manufacturing Mining and Logging Nondurable Goods Other Services Professional & Business Services Retail Trade Transportation Utilities Wholesale Trade Circle size relative to total employees in industry www.lairdresearch.com January 11, 2015 Page 14
  15. 15. US Business Activity Indicators Business activity is split between manufacturing activity and non- manufacturing activity. We are focusing on forward looking business indicators like new order and inventory levels to give a sense of the current business environment. Manufacturing Sector: Real Output YoYPercentChange −1001020 median: 6.14 2014 Q3: 10.50 ISM Manufacturing − PMI Index 3040506070 Dec 2014: 55.50 manufac. expanding manufac. contracting ISM Manufacturing: New Orders Index Index 304050607080 Dec 2014: 57.30 Increase in new orders Decrease in new orders Non−Manufac. New Orders: Capital Goods BillionsofDollars 40506070 median: 57.53 Nov 2014: 70.63 Average Weekly Hours: Manufacturing Hours 3940414243 median: 41.10 Dec 2014: 42.20 Industrial Production: Manufacturing YoYPercentChange −15−50510 median: 3.32 Nov 2014: 5.09 Total Business: Inventories to Sales Ratio Ratio 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.11.21.31.41.51.6 median: 1.37 Oct 2014: 1.30 Chicago Fed: Sales, Orders & Inventory Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −0.50.00.5 Nov 2014: 0.02 Above ave growth Below ave growth ISM Non−Manufacturing Bus. Activity Index Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 35455565 Dec 2014: 57.20 Growth Contraction www.lairdresearch.com January 11, 2015 Page 15
  16. 16. US Consumption Indicators Variations in consumer activity are a leading indicator of the strength of the economy. We track consumer sentiment (their expec- tations about the future), consumer loan activity (indicator of new purchase activity), and new orders and sales of consumer goods. U. Michigan: Consumer Sentiment Index1966Q1=100 5060708090110 median: 88.30 Dec 2014: 93.60 Consumer Loans (All banks) YoY%Change −10010203040 median: 7.76 Dec 2014: 5.02 Accounting Change Deliquency Rate on Consumer Loans Percent 2.53.03.54.04.5 median: 3.47 2014 Q3: 2.21 New Orders: Durable Consumer Goods YoY%Change −20020 median: 4.59 Nov 2014: −4.54 New Orders: Non−durable Consumer Goods YoY%Change −2001020 median: 4.25 Nov 2014: −3.41 Personal Consumption & Housing Index Index −0.40.00.20.4 median: 0.02 Nov 2014: −0.10above ave growth below ave growth Light Cars and Trucks Sales MillionsofUnits 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 10121416182022 median: 14.78 Nov 2014: 17.09 Personal Saving Rate Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 246810 median: 5.60 Nov 2014: 4.40 Real Retail and Food Services Sales YoY%Change 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −10−505 median: 2.54 Nov 2014: 3.80 www.lairdresearch.com January 11, 2015 Page 16
  17. 17. US Housing Housing construction is only about 5-8% of the US economy, how- ever a house is typically the largest asset owned by a household. Since personal consumption is about 70% of the US economy and house val- ues directly impact household wealth, housing is an important indicator in the health of the overall economy. In particular, housing investment was an important driver of the economy getting out of the last few recessions (though not this one so far). Here we track housing prices and especially indicators which show the current state of the housing market. 15 20 25 30 35 150200250300 Personal Income vs. Housing Prices (Inflation adjusted values) NewHomePrice(000's) Disposable Income Per Capita (000's) Nov 2014 r2 : 89.2% Range: Jan 1959 − Nov 2014 Blue dots > +5% change in next year Red dots < −5% change in next year New Housing Units Permits Authorized MillionsofUnits 0.51.01.52.02.5 median: 1.36 Nov 2014: 1.05 New Home Median Sale Price SalePrice$000's 100150200250 Nov 2014: 280.90 Homeowner's Equity Level Percent 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 4050607080 median: 66.50 2014 Q3: 53.94 New Homes: Median Months on the Market Months 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 468101214 median: 5.00 Nov 2014: 3.00 US Monthly Supply of Homes MonthsSupply 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 4681012 median: 5.90 Nov 2014: 5.80 www.lairdresearch.com January 11, 2015 Page 17
  18. 18. US Housing - FHFA Quarterly Index The Federal Housing Finance Agency provides a quarterly survey on house prices, based on sales prices and appraisal data. This gener- ates a housing index for 355 municipal areas in the US from 1979 to present. We have provided an alternative view of this data looking at the change in prices from the peak in the 2007 time frame. The goal is to provide a sense of where the housing markets are weak versus strong.The colours represent gain or losses since the start of the housing crisis (defined as the maximum price between 2007-2009 for each city). The circled dots are the cities in the survey, while the background colours are interpolated from these points using a loess smoother. Change from 2007 Peak − Q3 2014 −50% −40% −30% −20% −10% 0% 10% 20% 30% 40% 50% Today's Home Prices Percentage Change from 2007−2009 Peak Frequency −75% −50% −25% 0% 25% 50% 75% Year over Year Change − Q3 2014 −10% −8% −6% −4% −2% 0% 2% 4% 6% 8% 10% YoY Change in this quarter YoY Percent Change Frequency −15% −10% −5% 0% 5% 10% 15% www.lairdresearch.com January 11, 2015 Page 18
  19. 19. Global Business Indicators Global Manufacturing PMI Reports The Purchasing Managers’ Index (PMI) is an indicator reflecting purchasing managers’ acquisition of goods and services. An index read- ing of 50.0 means that business conditions are unchanged, a number over 50.0 indicates an improvement while anything below 50.0 suggests a decline. The further away from 50.0 the index is, the stronger the change over the month. The chart at the bottom shows a moving av- erage of a number of PMI’s, along with standard deviation bands to show a global average. Global M−PMI − December 2014 <40.0 42.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0 >60.0 Steady ExpandingContracting Eurozone 50.6 Global PMI 51.6 TWN 50.0MEX 55.3 KOR 49.9 JPN 52.0 VNM 52.7 IDN 47.6 ZAF 50.2 AUS 46.9 BRA 50.2 CAN 53.9 CHN 49.6 IND 54.5 RUS 48.9 SAU 57.9 USA 53.9 Global M−PMI Monthly Change <−5.0 −4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0 PMI Change ImprovingDeteriorating Eurozone 0.5 Global PMI −0.2 TWN −1.4MEX 1.0 KOR 0.9 JPN 0.0 VNM 0.6 IDN −0.4 ZAF −0.3 AUS −3.2 BRA 1.5 CAN −1.4 CHN −0.4 IND 1.2 RUS −2.8 SAU 0.3 USA −0.9 Purchase Managers Index (Manufacturing) − China, Japan, USA, Canada, France, Germany, Italy, UK, Australia 04 05 06 07 08 09 10 11 12 13 14 3040506070 3040506070 Business Conditions Contracting Business Conditions Expanding www.lairdresearch.com January 11, 2015 Page 19
  20. 20. Global Manufacturing PMI Chart This is an alternate view of the global PMI reports. Here, we look at all the various PMI data series in a single chart and watch their evolution over time. Red numbers indicate contraction (as estimated by PMI) while green numbers indicate expansion. Dec12 Jan13 Feb13 Mar13 Apr13 May13 Jun13 Jul13 Aug13 Sep13 Oct13 Nov13 Dec13 Jan14 Feb14 Mar14 Apr14 May14 Jun14 Jul14 Aug14 Sep14 Oct14 Nov14 Dec14 Australia India Indonesia Viet Nam Taiwan China Korea Japan South Africa Saudi Arabia Turkey Russia United Kingdom Greece Germany France Italy Czech Republic Spain Poland Ireland Netherlands Eurozone Brazil Mexico Canada United States Global PMI 50.0 51.5 50.9 51.2 50.4 50.6 50.6 50.8 51.6 51.8 52.1 53.1 53.3 53.0 53.2 52.4 51.9 52.2 52.6 52.4 52.6 52.2 52.2 51.8 51.6 56.1 55.8 54.3 54.6 52.1 52.3 52.0 53.7 53.1 52.8 51.8 54.7 55.0 53.7 57.1 55.5 55.4 56.4 57.3 55.8 57.9 57.5 55.9 54.8 53.9 50.4 50.5 51.7 49.3 50.1 53.2 52.4 52.0 52.1 54.2 55.6 55.3 53.5 51.7 52.9 53.3 52.9 52.2 53.5 54.3 54.8 53.5 55.3 55.3 53.9 57.1 55.0 53.4 52.2 51.7 51.7 51.3 49.7 50.8 50.0 50.2 51.9 52.6 54.0 52.0 51.7 51.8 51.9 51.8 51.5 52.1 52.6 53.3 54.3 55.3 51.1 53.2 52.5 51.8 50.8 50.4 50.4 48.5 49.4 49.9 50.2 49.7 50.5 50.8 50.4 50.6 49.3 48.8 48.7 49.1 50.2 49.3 49.1 48.7 50.2 46.1 47.9 47.9 46.8 46.7 48.3 48.8 50.3 51.4 51.1 51.3 51.6 52.7 54.0 53.2 53.0 53.4 52.2 51.8 51.8 50.7 50.3 50.6 50.1 50.6 49.6 50.2 49.0 48.0 48.2 48.7 48.8 50.8 53.5 55.8 54.4 56.8 57.0 54.8 55.2 53.7 53.4 53.6 52.3 53.5 51.7 52.2 53.0 54.6 53.6 51.4 50.3 51.5 48.6 48.0 49.7 50.3 51.0 52.0 52.7 54.9 52.4 53.5 52.8 52.9 55.5 56.1 55.0 55.3 55.4 57.3 55.7 56.6 56.2 56.9 48.5 48.6 48.9 48.0 46.9 48.0 49.3 51.1 52.6 53.1 53.4 54.4 53.2 55.4 55.9 54.0 52.0 50.8 50.3 49.4 49.0 49.5 51.2 53.2 52.8 44.6 46.1 46.8 44.2 44.7 48.1 50.0 49.8 51.1 50.7 50.9 48.6 50.8 52.2 52.5 52.8 52.7 52.9 54.6 53.9 52.8 52.6 52.6 54.7 53.8 46.0 48.3 49.9 49.1 49.5 50.1 51.0 52.0 53.9 53.4 54.5 55.4 54.7 55.9 56.5 55.5 56.5 57.3 54.7 56.5 54.3 55.6 54.4 55.6 53.3 46.7 47.8 45.8 44.5 45.5 47.3 49.1 50.4 51.3 50.8 50.7 51.4 53.3 53.1 52.3 52.4 54.0 53.2 52.6 51.9 49.8 50.7 49.0 49.0 48.4 44.6 42.9 43.9 44.0 44.4 46.4 48.4 49.7 49.7 49.8 49.1 48.4 47.0 49.3 49.7 52.1 51.2 49.6 48.2 47.8 46.9 48.8 48.5 48.4 47.5 46.0 49.8 50.3 49.0 48.1 49.4 48.6 50.7 51.8 51.1 51.7 52.7 54.3 56.5 54.8 53.7 54.1 52.3 52.0 52.4 51.4 49.9 51.4 49.5 51.2 41.4 41.7 43.0 42.1 45.0 45.3 45.4 47.0 48.7 47.5 47.3 49.2 49.6 51.2 51.3 49.7 51.1 51.0 49.4 48.7 50.1 48.4 48.8 49.1 49.4 51.2 50.5 47.9 48.6 50.2 51.3 52.9 54.8 57.2 56.3 56.5 58.4 57.3 56.7 56.2 55.3 57.3 57.0 57.5 55.4 52.5 51.6 53.2 53.5 52.5 50.0 52.0 52.0 50.8 50.6 50.4 51.7 49.2 49.4 49.4 51.8 49.4 48.8 48.0 48.5 48.3 48.5 48.9 49.1 51.0 51.0 50.4 50.3 51.7 48.9 53.1 54.0 53.5 52.3 51.3 51.1 51.2 49.8 50.9 54.0 53.3 55.0 53.5 52.7 53.4 51.7 51.1 50.1 48.8 48.5 50.3 50.4 51.5 52.2 51.4 58.9 58.1 58.5 58.9 58.0 57.3 56.6 56.6 57.5 58.7 56.7 57.1 58.7 59.7 58.6 57.0 58.5 57.0 59.2 60.1 60.7 61.8 59.1 57.6 57.9 47.4 49.1 53.6 49.3 50.5 50.4 51.6 52.2 56.5 49.1 51.5 51.6 50.5 50.3 51.5 50.3 47.4 44.3 46.6 45.9 49.0 50.7 52.7 50.5 50.2 45.0 47.7 48.5 50.4 51.1 51.5 52.3 50.7 52.2 52.5 54.2 55.1 55.2 56.6 55.5 53.9 49.4 49.9 51.5 50.5 52.5 51.7 52.4 52.0 52.0 50.1 49.9 50.9 52.0 52.6 51.1 49.4 47.2 47.5 49.7 50.2 50.4 50.8 50.9 49.8 50.4 50.2 49.5 48.4 49.3 50.3 48.8 48.7 49.0 49.9 51.5 50.4 50.4 51.6 50.4 49.2 48.2 47.7 50.1 50.2 50.9 50.8 50.5 49.5 48.5 48.0 48.1 49.4 50.7 51.7 50.2 50.2 50.4 50.0 49.6 50.6 51.5 50.2 51.2 50.7 47.1 49.5 48.6 50.0 52.0 53.0 53.4 55.2 55.5 54.7 52.7 52.3 52.4 54.0 55.8 56.1 53.3 52.0 51.4 50.0 49.3 50.1 48.3 50.8 51.0 48.8 46.4 48.5 49.4 51.5 51.5 50.3 51.8 52.1 51.0 51.3 53.1 52.5 52.3 51.7 50.3 51.7 51.0 52.1 52.7 50.7 49.7 50.5 51.3 51.7 51.6 51.0 50.7 48.5 50.2 50.9 50.3 50.9 51.0 50.5 50.1 51.1 52.4 52.7 52.7 49.5 50.7 49.2 48.0 47.6 54.7 53.2 54.2 52.0 51.0 50.1 50.3 50.1 48.5 49.6 49.6 51.3 50.7 51.4 52.5 51.3 51.3 51.4 51.5 53.0 52.4 51.0 51.6 53.3 54.5 44.3 40.2 45.6 44.4 36.7 43.8 49.6 42.0 46.4 51.7 53.2 47.7 47.6 46.7 48.6 47.9 44.8 49.2 48.9 50.7 47.3 46.5 49.4 50.1 46.9 www.lairdresearch.com January 11, 2015 Page 20
  21. 21. OECD International Trade Data The OECD calculates import and export values for member coun- tries. Figures are seasonally adjusted and measured in billions of US dollars. Red lines indicate exports, while blue lines indicate imports. Green lines indicate the zero level. The top part of the graph shows the changes in exports and imports on a year-over-year basis, while the bottom part shows the difference between exports and imports for that given month (i.e. the trade bal- ance) China YoYChange −40 −20 0 20 40 Balance 08 09 10 11 12 13 14 −10 0 10 20 30 40 US YoYChange −60 −40 −20 0 20 40 Balance 08 09 10 11 12 13 14 −80 −60 −40 −20 0 Canada YoYChange −15 −10 −5 0 5 10 Balance 08 09 10 11 12 13 14 −2 0 2 4 6 Germany YoYChange −40 −20 0 20 Balance 08 09 10 11 12 13 14 0 5 10 15 20 25 30 JapanYoYChange −30 −20 −10 0 10 20 Balance 08 09 10 11 12 13 14 −15 −10 −5 0 5 10 South Korea YoYChange −15 −10 −5 0 5 10 15 Balance 08 09 10 11 12 13 14 −4 −2 0 2 4 6 India YoYChange −10 −5 0 5 10 15 Balance 08 09 10 11 12 13 14 −15 −10 −5 0 Australia YoYChange −6 −4 −2 0 2 4 6 Balance 08 09 10 11 12 13 14 −2 −1 0 1 2 3 4 Eurozone YoYChange −80 −60 −40 −20 0 20 40 Balance 08 09 10 11 12 13 14 −10 0 10 20 www.lairdresearch.com January 11, 2015 Page 21
  22. 22. Canadian Indicators Retail Trade (SA) YoYPercentChange −50510 median: 4.76 Oct 2014: 4.85 Total Manufacturing Sales Growth YoYPercentGrowth −2001020 median: 4.23 Oct 2014: 5.71 Manufacturing New Orders Growth YoYPercentGrowth −30−100102030 median: 4.65 Oct 2014: 6.67 10yr Government Bond Yields 0246810 median: 5.77 Dec 2014: 1.79 Manufacturing PMI 505152535455 Dec 2014: 53.90 Sales and New Orders (SA) YoYPercentChange −2001020 Sales New Orders (smoothed) Tbill Yield Spread (10 yr − 3mo) Spread(Percent) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −101234 median: 1.34 Dec 2014: 0.88 Inflation (total and core) YoYPercentChange 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −101234 median: 1.97 Nov 2014: 1.95 Total Core Inventory to Sales Ratio (SA) Ratio 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1.31.41.51.6 median: 1.35 Oct 2014: 1.35 www.lairdresearch.com January 11, 2015 Page 22
  23. 23. 6.8 7.0 7.2 7.4 7.6 1.31.41.51.61.71.81.9 Beveridge Curve (Mar 2011 − Sep 2014) Unemployment Rate Vacancyrate(Industrial) Mar 2011 − Dec 2012 Jan 2013 − Aug 2014 Sep 2014 Ownership/Rental Price Ratio RatioofAccomodationOwnership/RentRatio 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 90100110120130140150 Calgary Montreal Vancouver Toronto Note: Using prices relative to 2002 as base year Ownership relatively more expensive vs 2002 Rent relatively more expensive vs 2002 Unemployment Rate (SA) Percent 345678910 Canada 6.6% Alberta 4.5% Ontario 7.0% Debt Service Ratios (SA) Percent 46810 Total Debt: 6.9% Mortgage: 3.5% Consumer Debt: 6.5% Housing Starts and Building Permits (smoothed) YoYPercentChange 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −40−2002040 Permits Starts www.lairdresearch.com January 11, 2015 Page 23
  24. 24. European Indicators Unemployment Rates Percentage 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 051015202530 Business Employment Expectations Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −40−20010 Industrial Orderbook Levels Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −60−40−20020 Country Employment Expect. Unempl. (%) Bond Yields (%) Retail Turnover Manufacturing Turnover Inflation (YoY %) Industry Orderbook PMI Series Dates Dec 2014 Nov 2014 Nov 2014 Nov 2014 Oct 2014 Nov 2014 Dec 2014 Dec 2014 France -10.2 I 10.3 I 1.14 J 104.3 I 108.0 J 0.4 J -18.4 I 47.5 J Germany -2.7 I 5.0 K 0.72 J NA 113.5 I 0.5 J -9.4 J 51.2 I United Kingdom 10.7 I 5.9 K 1.72 J 113.1 I NA 1.3 I 5.0 J 52.5 J Italy -7.2 I 13.4 I 2.29 J NA NA 0.3 I -22.0 I 48.4 J Greece 2.9 J 25.8 J 8.10 I NA NA -1.2 I -15.5 J 49.4 I Spain -4.5 J 23.9 J 2.07 J NA NA -0.5 J -13.7 J 53.8 J Eurozone (EU28) -1.8 I 10.0 J 1.69 J 104.8 I 109.0 I 0.5 I -13.0 J NA www.lairdresearch.com January 11, 2015 Page 24
  25. 25. Government Bond YieldsLongTermYields% 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0246810 Economic Sentiment Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 60708090110130 Consumer Confidence Index 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −100−60−20020 Inflation (Harmonized Prices) 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 median: 2.00 Oct 2014: 0.40−1 0 1 2 3 4 5 6 7 Euro Area US Harmonized Inflation: Oct 2014 AUT 1.4% BGR −1.9% DEU 0.5% ESP −0.5% FIN 1.1% FRA 0.4% GBR 1.3% GRC −1.2% HUN 0.1% IRL 0.2% ISL −0.6% ITA 0.3% NOR 2.0% POL −0.3% ROU 1.5% SWE 0.3% <−1.0%0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% >7.0% YoY % Change in Prices PMI: December 2014 <40.042.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0>60.0 Steady ExpandingContracting BRA 50.2 CAN 53.9 DEU 51.2 ESP 53.8 FRA 47.5 GBR 52.5 GRC 49.4 IRL 56.9 ITA 48.4 MEX 55.3 POL 52.8 SAU 57.9 TUR 51.4 USA 53.9 RUS 48.9 PMI Change: Nov − Dec <−5.0−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 4.0 >5.0 PMI Change ImprovingDeteriorating CAN −1.4 DEU 1.7 ESP −0.9 FRA −0.9 GBR −1.0 GRC 0.3 IRL 0.7 ITA −0.6 POL −0.4 TUR −0.8 USA −0.9 RUS −2.8 www.lairdresearch.com January 11, 2015 Page 25
  26. 26. Chinese Indicators Tracking the Chinese economy is a tricky. As reported in the Fi- nancial Times, Premier Li Keqiang confided to US officials in 2007 that gross domestic product was “man made” and “for reference only”. In- stead, he suggested that it was much more useful to focus on three alter- native indicators: electricity consumption, rail cargo volumes and bank lending (still tracking down that last one). We also include the PMI - which is an official version put out by the Chinese government and differs slightly from an HSBC version. Finally we include the Shanghai Composite Index as a measure of stock performance. Manufacturing PMI 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 4045505560 Dec 2014: 49.60 Shanghai Composite Index IndexValue(MonthlyHigh/Low) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 0100030005000 Jan 2015: 3351.45 Electricity Generated 100MillionKWH(logscale) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 1000200030005000 Nov 2014: 4487.00 Electricity Generated Long Term Trend Short Term Average Consumer Confidence Index Index 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 98100102104106108 median: 103.40 Nov 2014: 105.50 Exports YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 −20020406080 median: 18.70 Nov 2014: 4.70 Retail Sales Growth YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 101520 median: 13.10 Nov 2014: 11.70 www.lairdresearch.com January 11, 2015 Page 26
  27. 27. Global Climate Change Temperature and precipitation data are taken from the US National Climatic Data Center and presented as the average monthly anomaly from the previous 6 months. Anomalies are defined as the difference from the average value over the period from 1961-1990 for precipitation and 1971-2000 for temperature. Average Temperature Anomalies from Jun 2014 - Nov 2014 <−4.0 −3.0 −2.0 −1.0 0.0 1.0 2.0 3.0 >4.0 Anomalies in Celcius WarmerCooler Anomalies in Celcius −4 −2 0 2 4 Average 6 month Precipitation Anomalies from Jun 2014 - Nov 2014 <−40.0 −30.0 −20.0 −10.0 0.0 10.0 20.0 30.0 >40.0 Anomalies in millimeters WetterDrier Anomalies in millimeters −40 −20 0 20 40 www.lairdresearch.com January 11, 2015 Page 27

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