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Laird Research - Economics
December 14, 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 . . . . . . . . . . . . . . . . . . . . . . . 21
European Indicators . . . . . . . . . . . . . . . . . . . . . . . 23
Chinese Indicators . . . . . . . . . . . . . . . . . . . . . . . . 25
Global Climate Change . . . . . . . . . . . . . . . . . . . . . 26
Where we are now
Welcome to the Laird Report. We present a selection of economic
data from around the world to help figure where we are today.
Nothing particularly different this month versus last In the US, all
indicators are pointing to it being a good environment for workers:
wages are increasing, inflation is low, and unemployment and new un-
employment insurance claims declining. All of this points to the Fed
finally increasing interest rates, as they have signaled since September.
Even an increase of 50 basis points would leave them at historic lows.
One interesting fact in looking at the S&P 500: 2015 operating
earnings are estimated to decline 5.7%, but ex-energy it is expected to
be up 6.0%. The headlines over the oil price make it seem the world
is falling apart, but that is a single sector of the economy - as one of
the biggest manufacturing inputs and factor in consumer costs, this
is actually a good thing going forward. Low oil prices are good for
consumers.
However, there are a few concerns: (1) Asia is still stumbling as can
be seen by PMI’s. Their economies are export driven, meaning global
consumers are still shaky (2) Chinese officials admitted that they lied
about financial data and the declines we are seeing aren’t actually so
bad because the comparables were made up anyhow - that’s an actual
excuse. (3) US inventories are continuing to climb relative to sales. All
the more incredible because Blackrock a study showing that“among the
top 1500 U.S. stocks... over the past 35 years, the percentage of com-
panies reporting effectively zero inventory levels has increased to more
than 20 percent from fewer than 5 percent, an extraordinary four-fold
rise.”
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, December 14, 2015
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). Red dots
are points where a new trend has started.
Leading Index for the US
Index:Est.6monthgrowth
−3−10123
median: 1.52
Oct 2015: 1.52
Growth
Contraction
Initial Unemployment Claims
1000'sofClaimsperWeek
200400600
median: 349.38
Dec 2015: 270.75
Manufacturing Ave. Weekly Hours Worked
Hours
394041424344
median: 40.60
Nov 2015: 41.80
ISM Manfacturing − PMI
Index:SteadyState=50
3040506070
median: 53.40
Nov 2015: 48.60
expanding economy
contracting economy
Manufacturers' New Orders: Durable Goods
BillionsofDollars
150200250300
median: 184.84
Oct 2015: 238.78
Index of Truck Tonnage
TruckTonnageIndex
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
100120
median: 113.00
Sep 2015: 135.60
Capex (ex. Defence & Planes)
BillionsofDollars
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
40506070
median: 57.81
Oct 2015: 70.05
Chicago Fed National Activity Index
IndexValue
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−4−202
median: 0.075
Oct 2015: −0.04
U. Michigan: Consumer Sentiment
Index1966Q1=100
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
507090110
median: 88.50
Nov 2015: 91.30
www.lairdresearch.com December 14, 2015 Page 2
Global Financial Markets
Global Stock Market Returns
Country Index Name Close Date Current
Value
Weekly
Change
Monthly
Change
3 month
Change
12
month
Change
Corr to
S&P500
Corr to
TSX
North America
USA S&P 500 Dec 11 2,012.4 -3.8% J -3.0% J 2.6% I -1.1% J 1.00 0.80
USA NASDAQ Composite Dec 11 4,933.5 -4.1% J -2.6% J 2.3% I 4.8% I 0.97 0.76
USA Wilshire 5000 Total Market Dec 11 20,823.4 -3.9% J -3.5% J 0.6% I -2.4% J 1.00 0.82
Canada S&P TSX Dec 11 12,790.0 -4.3% J -4.1% J -5.0% J -8.0% J 0.80 1.00
Europe and Russia
France CAC 40 Dec 11 4,549.6 -3.5% J -8.1% J 0.0% I 7.7% I 0.56 0.63
Germany DAX Dec 11 10,340.1 -3.8% J -5.2% J 2.1% I 4.8% I 0.54 0.59
United Kingdom FTSE Dec 11 5,952.8 -4.6% J -5.5% J -2.7% J -7.9% J 0.59 0.69
Russia Market Vectors Russia ETF Dec 11 14.9 -6.7% J -9.0% J -5.4% J -3.8% J 0.65 0.74
Asia
Taiwan TSEC weighted index Dec 11 8,115.9 -3.4% J -3.6% J -2.3% J -10.0% J 0.32 0.40
China Shanghai Composite Index Dec 11 3,434.6 -2.6% J -5.9% J 7.3% I 17.4% I 0.33 0.31
Japan NIKKEI 225 Dec 11 19,230.5 -1.4% J -2.3% J 5.3% I 11.4% I 0.31 0.26
Hong Kong Hang Seng Dec 11 21,464.1 -3.5% J -4.0% J -0.2% J -7.9% J 0.33 0.39
Korea Kospi Dec 11 1,948.6 -1.3% J -2.4% J 0.4% I 1.7% I 0.37 0.40
South Asia and Austrailia
India Bombay Stock Exchange Dec 11 25,044.4 -2.3% J -3.2% J -2.2% J -9.3% J 0.42 0.53
Indonesia Jakarta Dec 11 4,393.5 -2.5% J -1.3% J 0.8% I -14.7% J 0.40 0.46
Malaysia FTSE Bursa Malaysia KLCI Dec 11 1,640.1 -1.7% J -1.5% J 2.3% I -6.0% J 0.22 0.31
Australia All Ordinaries Dec 11 5,078.6 -2.4% J -2.0% J -0.3% J -2.5% J 0.27 0.31
New Zealand NZX 50 Index Gross Dec 11 6,069.9 -0.4% J 0.9% I 7.5% I 10.3% I 0.13 0.20
South America
Brasil IBOVESPA Dec 11 45,263.0 -0.2% J -3.8% J -2.5% J -9.2% J 0.48 0.51
Argentina MERVAL Buenos Aires Dec 11 12,779.2 -2.2% J -2.9% J 17.4% I 47.7% I 0.60 0.59
Mexico Bolsa index Dec 11 42,000.6 -2.3% J -5.3% J -1.8% J 0.7% I 0.66 0.68
MENA and Africa
Egypt Market Vectors Egypt ETF Dec 11 37.2 -2.3% J 2.6% I -5.3% J -38.2% J 0.33 0.36
(Gulf States) Market Vectors Gulf States ETF Dec 11 21.5 -5.7% J -9.3% J -15.4% J -16.9% J 0.40 0.46
South Africa iShares MSCI South Africa Index Dec 11 42.7 -16.1% J -22.4% J -21.5% J -29.0% J 0.66 0.60
(Africa) Market Vectors Africa ETF Dec 11 17.7 -6.4% J -9.6% J -11.2% J -29.0% J 0.66 0.67
Commodities
USD Spot Oil West Texas Int. Dec 07 $37.6 -6.9% J -14.2% J -18.0% J -40.4% J 0.38 0.58
USD Gold LME Spot Dec 11 $1,067.2 0.4% I -2.0% J -3.5% J -12.5% J -0.09 -0.04
Note: Correlations are based on daily arithmetic returns for the most recent 100 trading days.
www.lairdresearch.com December 14, 2015 Page 3
S&P 500 Composite Index
The S&P 500 Composite Index is widely regarded as the best single
gauge of the large cap U.S. equities market. A key figure is the valua-
tion level of the S&P500 as measured by the Price/Earnings ratio. We
present two versions: (1) a 12-month trailing earnings version which
reflects current earnings but is skewed by short term variances and (2)
a cyclically adjusted version which looks at the inflation adjusted earn-
ings over a 10 year period (i.e. at least one business cycle). Forecasted
earnings numbers are estimates provided by S&P.
S&P 500 Profit Margins and Overall Corporate Profit Margins (Trailing 12 months)
Percent
63
64
65
66
67
68
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71
72
73
74
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76
77
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99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
0
2
4
6
8
10
12
14
0
2
4
6
8
10
12
14
Percent
Total Corporate Profits (% of GDP) − median: 6.2%, Q3/15: 9.9%
Net Profit Margin (S&P 500 Earnings / Revenue) − median: 6.6%, Q3/15: 8.0%
S&P Quarterly Earnings (USD$ Inflation Adjusted to current prices)
63
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65
66
67
68
69
70
71
72
73
74
75
76
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99
00
01
02
03
04
05
06
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09
10
11
12
13
14
15
16
17
−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
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01
02
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09
10
11
12
13
14
15
16
17
0
10
20
30
40
50
0
10
20
30
40
50
Multiple
Multiple
12−month P/E ( median = 17.4, Dec = 21.7)
10−year CAPE ( median = 19.5, Dec = 25.4)
www.lairdresearch.com December 14, 2015 Page 4
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
−6.2%
GOOG
+2.5%
MSFT
+1.5%
FB
−1.2%
V
INTC
+1.2%
ORCL
−6.4%
CSCO
−9.1%
IBM
−3.2%
MA
−4.6%
ACN
TXN
CRM
EMC
ADBE
PYPL
AVGO
ADP
CTSH
HPE
TEL
FISV
EA ADI
MU
WDC
WU
WFC
−2.1%
JPM
−2.2%
BAC
−1.9%
C
−5.1%
GS
−6.9%
USB
AIG
−6.7%
AXP
−6.9%
MS
SPG
BLK
MET
PNC
BK
PSA
COF
AMT
ACE
PRU
CME
CB
CCI
ICE
STT
AFL
MHFI ALL
BEN PLD
STI
HIG
WY
ESS
IVZ
PFG
L
RF
MAC
O
HST
CBG
XL
KEY
KIM
PCL
JNJ
−0.48%
PFE
−7.8%
MRK
−5.4%
GILD
−8.7%
AGN
−4.1%
AMGN
−3.9%
BMY
+2.8%
UNH
−2.3%
MDT
+1.2%
LLY
+2.2%
ABBV CELG
ABT
BIIB ESRX
REGN
TMO
ALXN
AET
CI
ANTM
SYK BDX
VRTX
CAH
HCA
ILMN
BXLT
BSX
ZTS
BCR
A
AMZN
+1.9%
DIS
−6.1%
HD
+4.8%
CMCSA
−7.6%
NKE
−3.7%
MCD
SBUX
−3.6%
LOW
PCLN
FOX F GM
TWX TWC TJX
TGT
CCL
LB
VFC
JCI
DLPH ROST
DG
UA
MHK
GPC
DHI
HBI M
TIF
RL
SIG
IPG
PG
+1.5%
WMT
+3%
KO
+0.071%
PEP
−3.6%
PM
−2.8%
MO CVS
WBA
KHC
−10%
COST
MDLZ
RAI
−7%
CL
−3.4%
KMB
KR GIS
EL
STZ K
SYY
HSY CAG
CPB
CLX
GE
+2.9%
BA
−1.9%
MMM
−3.2%
UPS UTX
HON
LMT UNP
DHR GD
FDX
DAL
CAT
RTN
NOC ITW PCP
EMR
LUV
NSC
AAL
CSX
DE
ETN
WM
ROP APH
IR
PH
XOM
−12%
CVX
−9%
SLB
−12%
COP
−12%
OXY PSX
EOG KMI
VLO
HAL
PXD
BHI APA
SE
HES
DVN
NBL
CAM
FTI
DOW DD
MON
LYB
ECL
PX
APD
PPG
IP
NUE
AA
BLL
CF
DUK NEE
SO D
AEP
PCG
EXC
SRE
PPL
EIX
PEG
ED
ES
FE
ETR
NI
T
−1.3%
VZ
−4.2%
LVLT CTL
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 Nov 2, 2015 to Dec 11, 2015
Average Median Median Median
Sector Change P/Sales P/Book P/E
Consumer Staples -1.1% J 2.3 6.4 27.0
Information Technology -2.0% J 3.6 4.7 25.4
Materials -2.6% J 1.3 3.8 21.5
Telecommunications Services -3.0% J 1.4 1.7 27.0
Health Care -3.1% J 3.4 4.0 26.4
Average Median Median Median
Sector Change P/Sales P/Book P/E
Industrials -3.6% J 1.5 3.7 18.0
Financials -3.9% J 2.9 1.6 16.6
Consumer Discretionary -4.0% J 1.6 3.8 19.4
Utilities -4.8% J 1.6 1.6 17.0
Energy -13.0% J 1.4 1.8 19.1
www.lairdresearch.com December 14, 2015 Page 5
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
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17
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 = 0.76, Mar = 1.05)
S&P 500 Price/Sales (median = 1.35, Sep = 1.71)
Equity and Debt Risk Premiums: Spread vs. Risk Free Rate (10−year US Treasury)
63
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01
02
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06
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13
14
15
16
17
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Implied Equity Premium (median = 4.2%, Nov = 4.5%)
Debt (BAA) Premium (median = 2.0%, Nov = 3.2%)
www.lairdresearch.com December 14, 2015 Page 6
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$billions(monthly)
2007 2008 2009 2010 2011 2012 2013 2014 2015
−40−2002040
Domestic Equity
World Equity
Taxable Bonds
Municipal Bonds
US Net New Investment Cash Flow to Mutual Funds
US$billions(Monthly)
2007 2008 2009 2010 2011 2012 2013 2014 2015
−60−40−200204060
Flows to Equity
Flows to Bonds
Net Market Flows
www.lairdresearch.com December 14, 2015 Page 7
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(%)
15
16
17
18
19
20
21
22
23
24
25
0.0
0.5
1.0
1.5
2.0
2.5
0.0
0.5
1.0
1.5
2.0
2.5Dec 10, 2015 (Today)
Nov 10, 2015 (1 mo ago)
Sep 10, 2015 (3 mo ago)
10 Dec 2014 (1 yr ago)
3 Month & 10 Yr Treasury Yields
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
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
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
median: 91.00
Dec 2015: 144.00
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
97
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00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
median: 36.13
Dec 2015: 22.20
0
100
200
300
0
100
200
300
Spread(bps)
www.lairdresearch.com December 14, 2015 Page 8
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
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12
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15
16
−1%
0%
1%
2%
3%
4%
5%
6%
−1%
0%
1%
2%
3%
4%
5%
6%
US Inflation Rate YoY% (Oct = 0.12%)
US Inflation ex Food & Energy YoY% (Oct = 1.9%)
Personal Consumption Expenditures
Percent(YearoverYear)
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−10123456
PCE Inflation Rate YoY% (Oct = 0.22%)
PCE Core Inflation YoY% (Oct = 1.3%)
5−Year, 5−Year Forward Inflation Expectation Rate
Percent
07
08
09
10
11
12
13
14
15
16
17
18
19
20
−10123456
5 year forward Inflation Expectation
Actual 5yr Inflation (CPI measure)
Actual 5yr Inflation (PCE Measure)
www.lairdresearch.com December 14, 2015 Page 9
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 Dec 09: $−0.03
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 2015
Short Term Rates:
Once at zero, Fed moved to QE
Long Term Rates:
Moving up in anticipation of Taper?
www.lairdresearch.com December 14, 2015 Page 10
Exchange Rates
10 Week Moving Average CAD Exchange Rates
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
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
0.591.101.602.112.613.12
Brazil/CAD
CAD Appreciating
CAD Depreciating
Change in F/X: Nov 2 2015 to Dec 4 2015
(Trade Weighted Currency Index of USD Trading Partners)
−3.0%
−1.5%
1.5%
3.0%
Euro
0.1%
UK
0.9%
Japan
0.8%
South Korea
−0.4%
China
−0.1%
India
0.4%
Brazil
−4.0%
Mexico
−0.1%
Canada
0.8%
USA
1.2%
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
−0.3%
AUS
5.1%
BRA
3.5%
CHN
2.7%
IND
2.5%
RUS
−0.5%
USA
3.7%
EUR
0.5%
JPY
3.6%
KRW
9.1%
MXN
0.4%
ZAR
−11.6%
www.lairdresearch.com December 14, 2015 Page 11
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
3.03.54.04.5
median: 3.94
2015 Q3: 2.99
Repos Outstanding with Fed. Reserve
BillionsofDollars
0200400600
median: 57.49
Dec 2015: 283.83
Bank ROE − Assets between $300M−$1B
Percent
051015
median: 12.81
2015 Q3: 9.26
Consumer Credit Outstanding
%YearlyChange
−505101520
median: 7.59
Oct 2015: 6.95
Total Business Loans
%YearlyChange
−2001020 median: 8.62
Nov 2015: 11.14
US Nonperforming Loans
Percent
12345
median: 2.12
2015 Q3: 1.60
St. Louis Financial Stress Index
Index
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
0246
median: 0.093
Dec 2015: −0.83
Commercial Paper Outstanding
TrillionsofDollars
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
1.01.41.82.2
median: 1.33
Dec 2015: 1.04
Residential Morgage Delinquency Rate
Percent
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
246810
median: 2.33
2015 Q3: 5.45
www.lairdresearch.com December 14, 2015 Page 12
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
16
median: 6.10
Nov 2015: 5.00
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 2015
Oct 2015
Participation Rate
Percent
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
6364656667
median: 66.00
Nov 2015: 62.50
Total Nonfarm Payroll Change
MonthlyChange(000s)
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−5000500
median: 166.00
Nov 2015: 211.00
www.lairdresearch.com December 14, 2015 Page 13
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: 8.70
Nov 2015: 10.80
(U6) Unemployed + PT + Marginally Attached
Percent
810121416
median: 9.80
Nov 2015: 9.90
4−week moving average of Initial Claims
Jan1995=100
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
50100150200
median: 107.42
Dec 2015: 83.24
Unemployed over 27 weeks
MillionsofPersons
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
01234567
median: 0.80
Nov 2015: 2.01
Services: Temp Help
MillionsofPersons
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
1.52.02.53.0
median: 2.26
Nov 2015: 2.92
−200 0 200 400 600
15
20
25
30
35
40
Annual Change in Employment Levels (000s of Workers)
Averagewages($/hour)
Private Industry Employment Change (Nov 2014 − Nov 2015)
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 December 14, 2015 Page 14
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: 9.23
2015 Q3: 7.40
ISM Manufacturing − PMI
Index
3040506070
Nov 2015: 48.60
manufac. expanding
manufac. contracting
ISM Manufacturing: New Orders Index
Index
304050607080
Nov 2015: 48.90
Increase in new orders
Decrease in new orders
Non−Manufac. New Orders: Capital Goods
BillionsofDollars
40506070
median: 57.81
Oct 2015: 70.05
Average Weekly Hours: Manufacturing
Hours
3940414243
median: 41.10
Nov 2015: 41.80
Industrial Production: Manufacturing
YoYPercentChange
−15−50510
median: 3.11
Oct 2015: 1.94
Total Business: Inventories to Sales Ratio
Ratio
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
1.11.21.31.41.51.6
median: 1.36
Oct 2015: 1.38
Chicago Fed: Sales, Orders & Inventory
Index
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−0.50.00.5
Oct 2015: −0.01
Above ave growth
Below ave growth
ISM Non−Manufacturing Bus. Activity Index
Index
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
35455565
Nov 2015: 58.20
Growth
Contraction
www.lairdresearch.com December 14, 2015 Page 15
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: 88.50
Nov 2015: 91.30
Consumer Loans (All banks)
YoY%Change
−10010203040
median: 7.53
Nov 2015: 5.36
Accounting
Change
Deliquency Rate on Consumer Loans
Percent
2.03.04.0
median: 3.45
2015 Q3: 1.99
New Orders: Durable Consumer Goods
YoY%Change
−20020
median: 4.19
Oct 2015: 5.22
New Orders: Non−durable Consumer Goods
YoY%Change
−2001020
median: 4.21
Oct 2015: −10.98
Personal Consumption & Housing Index
Index
−0.40.00.20.4
median: 0.02
Oct 2015: −0.09above ave growth
below ave growth
Light Cars and Trucks Sales
MillionsofUnits
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
10121416182022
median: 14.84
Nov 2015: 18.05
Personal Saving Rate
Percent
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
246810
median: 5.55
Oct 2015: 5.60
Real Retail and Food Services Sales
YoY%Change
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−10−505
median: 2.46
Oct 2015: 1.55
www.lairdresearch.com December 14, 2015 Page 16
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)
Oct 2015
r2
: 89.5%
Range: Jan 1959 − Oct 2015
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: 1.34
Oct 2015: 1.16
New Home Median Sale Price
SalePrice$000's
100150200250300
Oct 2015: 281.50
Homeowner's Equity Level
Percent
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
4050607080
median: 66.50
2015 Q3: 56.70
New Homes: Median Months on the Market
Months
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
468101214
median: 4.90
Oct 2015: 2.80
US Monthly Supply of Homes
MonthsSupply
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
4681012
median: 5.90
Oct 2015: 5.50
www.lairdresearch.com December 14, 2015 Page 17
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 2015
−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 2015
−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 December 14, 2015 Page 18
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 − November 2015
<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
52.8
Global PMI
51.2
TWN
49.5MEX
53.0
KOR
49.1
JPN
52.6
VNM
49.4
IDN
46.9
ZAF
49.6
AUS
52.5
BRA
43.8
CAN
48.6
CHN
48.6
IND
50.3
RUS
50.1
SAU
56.3
USA
52.8
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
−0.1
TWN
1.7MEX
0.0
KOR
0.0
JPN
0.2
VNM
−0.7
IDN
−0.9
ZAF
2.1
AUS
2.3
BRA
−0.3
CAN
0.6
CHN
0.3
IND
−0.4
RUS
−0.1
SAU
0.6
USA
−1.3
Purchase Managers Index (Manufacturing) − China, Japan, USA, Canada, France, Germany, Italy, UK, Australia
04
05
06
07
08
09
10
11
12
13
14
15
3040506070
3040506070
Business Conditions Contracting
Business Conditions Expanding
www.lairdresearch.com December 14, 2015 Page 19
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.
Nov13
Dec13
Jan14
Feb14
Mar14
Apr14
May14
Jun14
Jul14
Aug14
Sep14
Oct14
Nov14
Dec14
Jan15
Feb15
Mar15
Apr15
May15
Jun15
Jul15
Aug15
Sep15
Oct15
Nov15
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 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 51.7 52.0 51.7 51.0 51.2 51.0 51.0 50.7 50.7 51.3 51.2
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 53.9 55.1 55.7 54.1 54.0 53.6 53.8 53.0 53.1 54.1 52.8
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 51.0 48.7 48.9 49.0 49.8 51.3 50.8 49.4 48.6 48.0 48.6
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 56.6 54.4 53.8 53.8 53.3 52.0 52.9 52.4 52.1 53.0 53.0
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 50.7 49.6 46.2 46.0 45.9 46.5 47.2 45.8 47.0 44.1 43.8
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 51.0 51.0 52.2 52.0 52.2 52.5 52.4 52.3 52.0 52.3 52.8
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 54.1 52.2 52.5 54.0 55.5 56.2 56.0 53.9 53.0 53.7 53.5
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 55.1 57.5 56.8 55.8 57.1 54.6 56.7 53.6 53.8 53.6 53.3
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 55.2 55.1 54.8 54.0 52.4 54.3 54.5 51.1 50.9 52.2 52.1
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 54.7 54.2 54.3 54.2 55.8 54.5 53.6 53.2 51.7 51.3 53.1
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 56.1 55.6 56.1 54.7 55.5 56.9 57.5 56.6 55.5 54.0 54.2
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 49.9 51.9 53.3 53.8 54.8 54.1 55.3 53.8 52.7 54.1 54.9
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 49.2 47.6 48.8 48.0 49.4 50.7 49.6 48.3 50.6 50.6 50.6
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 50.9 51.1 52.8 52.1 51.1 51.9 51.8 53.3 52.3 52.1 52.9
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 48.3 48.4 48.9 46.5 48.0 46.9 30.2 39.1 43.3 47.3 48.1
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 53.1 54.1 54.4 51.9 52.0 51.4 51.9 51.6 51.8 55.5 52.7
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 47.6 49.7 48.1 48.9 47.6 48.7 48.3 47.9 49.1 50.2 50.1
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 49.8 49.6 48.0 48.5 50.2 49.0 50.1 49.3 48.0 49.5 50.9
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 57.8 58.5 60.1 58.3 57.0 56.1 57.5 58.7 56.5 55.7 56.3
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 49.8 50.0 51.6 51.5 50.1 49.2 48.9 49.3 47.9 47.5 49.6
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 52.2 51.6 50.3 49.9 50.9 50.1 51.2 51.7 51.0 52.4 52.6
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 51.1 51.1 49.2 48.8 47.8 46.1 47.6 47.9 49.2 49.1 49.1
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 49.7 50.7 49.6 48.9 49.2 49.4 47.8 47.3 47.2 48.3 48.6
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 51.7 52.1 51.0 49.2 49.3 46.3 47.1 46.1 46.9 47.8 49.5
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 51.5 51.7 50.7 53.5 54.8 52.2 52.6 51.3 49.5 50.1 49.4
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 48.5 47.5 46.4 46.7 47.1 47.8 47.3 48.4 47.4 47.8 46.9
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 52.9 51.2 52.1 51.3 52.6 51.3 52.7 52.3 51.2 50.7 50.3
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 49.0 45.4 46.3 48.0 52.3 44.2 50.4 51.7 52.1 50.2 52.5
www.lairdresearch.com December 14, 2015 Page 20
Canadian Indicators
Retail Trade (SA)
YoYPercentChange
−50510
median: 4.68
Sep 2015: 1.19
Total Manufacturing Sales Growth
YoYPercentGrowth
−20−1001020
median: 3.92
Sep 2015: −2.95
Manufacturing New Orders Growth
YoYPercentGrowth
−30−100102030
median: 4.26
Sep 2015: −6.46
10yr Government Bond Yields
0246810
median: 5.71
Nov 2015: 1.59
Manufacturing PMI
48505254
Nov 2015: 48.60
Sales and New Orders (SA)
YoYPercentChange
−20−1001020
Sales
New Orders (smoothed)
Tbill Yield Spread (10 yr − 3mo)
Spread(Percent)
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−101234
median: 1.32
Nov 2015: 1.11
Inflation (total and core)
YoYPercentChange
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−101234
median: 1.92
Oct 2015: 1.03
Total
Core
Inventory to Sales Ratio (SA)
Ratio
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
1.31.41.51.6
median: 1.35
Sep 2015: 1.43
www.lairdresearch.com December 14, 2015 Page 21
6.6 6.8 7.0 7.2 7.4 7.6
1.31.41.51.61.71.81.9
Beveridge Curve (Mar 2011 − Aug 2015)
as.numeric(can.bev$ui.rate)
as.numeric(can.bev$vacancies)
Mar 2011 − Dec 2012
Jan 2013 − Jul 2015
Aug 2015
Unemployment Rate
JobVacancyrate(Industrial)
Ownership/Rental Price Ratio
RatioofAccomodationOwnership/RentRatio
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
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 7.1%
Alberta 7.0%
Ontario 6.9%
Debt Service Ratios (SA)
Percent
0246810
Total Debt: 6.3%
Mortgage: 3.3%
Consumer Debt: 6.2%
Housing Starts and Building Permits (smoothed)
YoYPercentChange
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−40−2002040
Permits
Starts
www.lairdresearch.com December 14, 2015 Page 22
European Indicators
Unemployment Rates
Percentage
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
051015202530
Business Employment Expectations
Index
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−40−20010
Industrial Orderbook Levels
Index
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−60−40−20020
Country Employment
Expect.
Unempl.
(%)
Bond Yields
(%)
Retail
Turnover
Manufacturing
Turnover
Inflation
(YoY %)
Industry
Orderbook
PMI
Series Dates Nov 2015 Oct 2015 Nov 2015 Oct 2015 Oct 2015 Oct 2015 Nov 2015 Nov 2015
France -4.1 I 10.8 K 0.88 I 105.2 J 110.1 I 0.2 I -16.6 J 50.6 K
Germany -1.0 I 4.5 K 0.52 K NA 115.4 I 0.2 I -11.3 J 52.9 I
United Kingdom -2.7 I 5.2 J 1.94 I 112.9 J NA -0.1 J -13.1 J 52.7 J
Italy -0.1 I 11.5 J 1.57 J 100.7 J NA 0.3 I -11.4 J 54.9 I
Greece -11.2 I 24.6 J 7.41 J NA NA -0.1 I -36.4 I 48.1 I
Spain 2.0 I 21.6 K 1.72 J NA NA -0.9 I -3.8 I 53.1 I
Eurozone (EU28) -1.1 I 9.3 K 1.44 I 106.5 I 111.0 I -0.1 J -13.1 J NA
www.lairdresearch.com December 14, 2015 Page 23
Government Bond YieldsLongTermYields%
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
0246810
Economic Sentiment
Index
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
60708090110130
Consumer Confidence
Index
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−100−60−20020
Inflation (Harmonized Prices)
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
median: 1.90
Oct 2015: 0.10−1
0
1
2
3
4
5
6
7
Euro Area
US
Harmonized Inflation: Sep 2015
AUT
0.7%
BGR
−1.2%
DEU
0.2%
ESP
−0.9%
FIN
−0.3%
FRA
0.2%
GBR
−0.1%
GRC
−0.1%
HRV
−0.5%
HUN
0.2%
IRL
0.0%
ISL
0.4%
ITA
0.3%
NOR
2.4%
POL
−0.6%
ROU
−1.4%
SWE
0.9%
<−1.0%0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% >7.0%
YoY % Change in Prices
PMI: November 2015
<40.042.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0>60.0
Steady ExpandingContracting
BRA
43.8
CAN
48.6
DEU
52.9
ESP
53.1
FRA
50.6
GBR
52.7
GRC
48.1
IRL
53.3
ITA
54.9
MEX
53.0
POL
52.1
SAU
56.3
TUR
50.9
USA
52.8
RUS
50.1
PMI Change: Oct − Nov
<−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
0.6
DEU
0.8
ESP
1.8
FRA
0.0
GBR
−2.8
GRC
0.8
IRL
−0.3
ITA
0.8
POL
−0.1
TUR
1.4
USA
−1.3
RUS
−0.1
www.lairdresearch.com December 14, 2015 Page 24
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
16
4045505560
Nov 2015: 48.60
Shanghai Composite Index
IndexValue(MonthlyHigh/Low)
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
0100030005000
Dec 2015: 3434.58
Electricity Generated
100MillionKWH(logscale)
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
1000200030005000
Oct 2015: 4454.00
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
16
98100102104106108110
median: 103.90
Sep 2015: 105.60
Exports
YoYPercentChange
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
−20020406080
median: 18.40
Nov 2015: −6.80
Retail Sales Growth
YoYPercentChange
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
101520
median: 12.90
Nov 2015: 11.20
www.lairdresearch.com December 14, 2015 Page 25
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 1971-2000 for the tem-
perature map and over the 20th century for the global temparature
chart.
Average Temperature Anomalies from Mar 2015 - Aug 2015
<−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
Historic Global Temperature Deviations
DegreesCelciusDeviations
−0.50.00.51.0
Oct 2015: 0.98
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
www.lairdresearch.com December 14, 2015 Page 26

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Global Economics Update - December 2015

  • 1. .... Laird Research - Economics December 14, 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 . . . . . . . . . . . . . . . . . . . . . . . 21 European Indicators . . . . . . . . . . . . . . . . . . . . . . . 23 Chinese Indicators . . . . . . . . . . . . . . . . . . . . . . . . 25 Global Climate Change . . . . . . . . . . . . . . . . . . . . . 26 Where we are now Welcome to the Laird Report. We present a selection of economic data from around the world to help figure where we are today. Nothing particularly different this month versus last In the US, all indicators are pointing to it being a good environment for workers: wages are increasing, inflation is low, and unemployment and new un- employment insurance claims declining. All of this points to the Fed finally increasing interest rates, as they have signaled since September. Even an increase of 50 basis points would leave them at historic lows. One interesting fact in looking at the S&P 500: 2015 operating earnings are estimated to decline 5.7%, but ex-energy it is expected to be up 6.0%. The headlines over the oil price make it seem the world is falling apart, but that is a single sector of the economy - as one of the biggest manufacturing inputs and factor in consumer costs, this is actually a good thing going forward. Low oil prices are good for consumers. However, there are a few concerns: (1) Asia is still stumbling as can be seen by PMI’s. Their economies are export driven, meaning global consumers are still shaky (2) Chinese officials admitted that they lied about financial data and the declines we are seeing aren’t actually so bad because the comparables were made up anyhow - that’s an actual excuse. (3) US inventories are continuing to climb relative to sales. All the more incredible because Blackrock a study showing that“among the top 1500 U.S. stocks... over the past 35 years, the percentage of com- panies reporting effectively zero inventory levels has increased to more than 20 percent from fewer than 5 percent, an extraordinary four-fold rise.” 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, December 14, 2015
  • 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). Red dots are points where a new trend has started. Leading Index for the US Index:Est.6monthgrowth −3−10123 median: 1.52 Oct 2015: 1.52 Growth Contraction Initial Unemployment Claims 1000'sofClaimsperWeek 200400600 median: 349.38 Dec 2015: 270.75 Manufacturing Ave. Weekly Hours Worked Hours 394041424344 median: 40.60 Nov 2015: 41.80 ISM Manfacturing − PMI Index:SteadyState=50 3040506070 median: 53.40 Nov 2015: 48.60 expanding economy contracting economy Manufacturers' New Orders: Durable Goods BillionsofDollars 150200250300 median: 184.84 Oct 2015: 238.78 Index of Truck Tonnage TruckTonnageIndex 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 100120 median: 113.00 Sep 2015: 135.60 Capex (ex. Defence & Planes) BillionsofDollars 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 40506070 median: 57.81 Oct 2015: 70.05 Chicago Fed National Activity Index IndexValue 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −4−202 median: 0.075 Oct 2015: −0.04 U. Michigan: Consumer Sentiment Index1966Q1=100 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 507090110 median: 88.50 Nov 2015: 91.30 www.lairdresearch.com December 14, 2015 Page 2
  • 3. Global Financial Markets Global Stock Market Returns Country Index Name Close Date Current Value Weekly Change Monthly Change 3 month Change 12 month Change Corr to S&P500 Corr to TSX North America USA S&P 500 Dec 11 2,012.4 -3.8% J -3.0% J 2.6% I -1.1% J 1.00 0.80 USA NASDAQ Composite Dec 11 4,933.5 -4.1% J -2.6% J 2.3% I 4.8% I 0.97 0.76 USA Wilshire 5000 Total Market Dec 11 20,823.4 -3.9% J -3.5% J 0.6% I -2.4% J 1.00 0.82 Canada S&P TSX Dec 11 12,790.0 -4.3% J -4.1% J -5.0% J -8.0% J 0.80 1.00 Europe and Russia France CAC 40 Dec 11 4,549.6 -3.5% J -8.1% J 0.0% I 7.7% I 0.56 0.63 Germany DAX Dec 11 10,340.1 -3.8% J -5.2% J 2.1% I 4.8% I 0.54 0.59 United Kingdom FTSE Dec 11 5,952.8 -4.6% J -5.5% J -2.7% J -7.9% J 0.59 0.69 Russia Market Vectors Russia ETF Dec 11 14.9 -6.7% J -9.0% J -5.4% J -3.8% J 0.65 0.74 Asia Taiwan TSEC weighted index Dec 11 8,115.9 -3.4% J -3.6% J -2.3% J -10.0% J 0.32 0.40 China Shanghai Composite Index Dec 11 3,434.6 -2.6% J -5.9% J 7.3% I 17.4% I 0.33 0.31 Japan NIKKEI 225 Dec 11 19,230.5 -1.4% J -2.3% J 5.3% I 11.4% I 0.31 0.26 Hong Kong Hang Seng Dec 11 21,464.1 -3.5% J -4.0% J -0.2% J -7.9% J 0.33 0.39 Korea Kospi Dec 11 1,948.6 -1.3% J -2.4% J 0.4% I 1.7% I 0.37 0.40 South Asia and Austrailia India Bombay Stock Exchange Dec 11 25,044.4 -2.3% J -3.2% J -2.2% J -9.3% J 0.42 0.53 Indonesia Jakarta Dec 11 4,393.5 -2.5% J -1.3% J 0.8% I -14.7% J 0.40 0.46 Malaysia FTSE Bursa Malaysia KLCI Dec 11 1,640.1 -1.7% J -1.5% J 2.3% I -6.0% J 0.22 0.31 Australia All Ordinaries Dec 11 5,078.6 -2.4% J -2.0% J -0.3% J -2.5% J 0.27 0.31 New Zealand NZX 50 Index Gross Dec 11 6,069.9 -0.4% J 0.9% I 7.5% I 10.3% I 0.13 0.20 South America Brasil IBOVESPA Dec 11 45,263.0 -0.2% J -3.8% J -2.5% J -9.2% J 0.48 0.51 Argentina MERVAL Buenos Aires Dec 11 12,779.2 -2.2% J -2.9% J 17.4% I 47.7% I 0.60 0.59 Mexico Bolsa index Dec 11 42,000.6 -2.3% J -5.3% J -1.8% J 0.7% I 0.66 0.68 MENA and Africa Egypt Market Vectors Egypt ETF Dec 11 37.2 -2.3% J 2.6% I -5.3% J -38.2% J 0.33 0.36 (Gulf States) Market Vectors Gulf States ETF Dec 11 21.5 -5.7% J -9.3% J -15.4% J -16.9% J 0.40 0.46 South Africa iShares MSCI South Africa Index Dec 11 42.7 -16.1% J -22.4% J -21.5% J -29.0% J 0.66 0.60 (Africa) Market Vectors Africa ETF Dec 11 17.7 -6.4% J -9.6% J -11.2% J -29.0% J 0.66 0.67 Commodities USD Spot Oil West Texas Int. Dec 07 $37.6 -6.9% J -14.2% J -18.0% J -40.4% J 0.38 0.58 USD Gold LME Spot Dec 11 $1,067.2 0.4% I -2.0% J -3.5% J -12.5% J -0.09 -0.04 Note: Correlations are based on daily arithmetic returns for the most recent 100 trading days. www.lairdresearch.com December 14, 2015 Page 3
  • 4. S&P 500 Composite Index The S&P 500 Composite Index is widely regarded as the best single gauge of the large cap U.S. equities market. A key figure is the valua- tion level of the S&P500 as measured by the Price/Earnings ratio. We present two versions: (1) a 12-month trailing earnings version which reflects current earnings but is skewed by short term variances and (2) a cyclically adjusted version which looks at the inflation adjusted earn- ings over a 10 year period (i.e. at least one business cycle). Forecasted earnings numbers are estimates provided by S&P. S&P 500 Profit Margins and Overall Corporate Profit Margins (Trailing 12 months) Percent 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 0 2 4 6 8 10 12 14 0 2 4 6 8 10 12 14 Percent Total Corporate Profits (% of GDP) − median: 6.2%, Q3/15: 9.9% Net Profit Margin (S&P 500 Earnings / Revenue) − median: 6.6%, Q3/15: 8.0% S&P Quarterly Earnings (USD$ 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 17 −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 17 0 10 20 30 40 50 0 10 20 30 40 50 Multiple Multiple 12−month P/E ( median = 17.4, Dec = 21.7) 10−year CAPE ( median = 19.5, Dec = 25.4) www.lairdresearch.com December 14, 2015 Page 4
  • 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 −6.2% GOOG +2.5% MSFT +1.5% FB −1.2% V INTC +1.2% ORCL −6.4% CSCO −9.1% IBM −3.2% MA −4.6% ACN TXN CRM EMC ADBE PYPL AVGO ADP CTSH HPE TEL FISV EA ADI MU WDC WU WFC −2.1% JPM −2.2% BAC −1.9% C −5.1% GS −6.9% USB AIG −6.7% AXP −6.9% MS SPG BLK MET PNC BK PSA COF AMT ACE PRU CME CB CCI ICE STT AFL MHFI ALL BEN PLD STI HIG WY ESS IVZ PFG L RF MAC O HST CBG XL KEY KIM PCL JNJ −0.48% PFE −7.8% MRK −5.4% GILD −8.7% AGN −4.1% AMGN −3.9% BMY +2.8% UNH −2.3% MDT +1.2% LLY +2.2% ABBV CELG ABT BIIB ESRX REGN TMO ALXN AET CI ANTM SYK BDX VRTX CAH HCA ILMN BXLT BSX ZTS BCR A AMZN +1.9% DIS −6.1% HD +4.8% CMCSA −7.6% NKE −3.7% MCD SBUX −3.6% LOW PCLN FOX F GM TWX TWC TJX TGT CCL LB VFC JCI DLPH ROST DG UA MHK GPC DHI HBI M TIF RL SIG IPG PG +1.5% WMT +3% KO +0.071% PEP −3.6% PM −2.8% MO CVS WBA KHC −10% COST MDLZ RAI −7% CL −3.4% KMB KR GIS EL STZ K SYY HSY CAG CPB CLX GE +2.9% BA −1.9% MMM −3.2% UPS UTX HON LMT UNP DHR GD FDX DAL CAT RTN NOC ITW PCP EMR LUV NSC AAL CSX DE ETN WM ROP APH IR PH XOM −12% CVX −9% SLB −12% COP −12% OXY PSX EOG KMI VLO HAL PXD BHI APA SE HES DVN NBL CAM FTI DOW DD MON LYB ECL PX APD PPG IP NUE AA BLL CF DUK NEE SO D AEP PCG EXC SRE PPL EIX PEG ED ES FE ETR NI T −1.3% VZ −4.2% LVLT CTL 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 Nov 2, 2015 to Dec 11, 2015 Average Median Median Median Sector Change P/Sales P/Book P/E Consumer Staples -1.1% J 2.3 6.4 27.0 Information Technology -2.0% J 3.6 4.7 25.4 Materials -2.6% J 1.3 3.8 21.5 Telecommunications Services -3.0% J 1.4 1.7 27.0 Health Care -3.1% J 3.4 4.0 26.4 Average Median Median Median Sector Change P/Sales P/Book P/E Industrials -3.6% J 1.5 3.7 18.0 Financials -3.9% J 2.9 1.6 16.6 Consumer Discretionary -4.0% J 1.6 3.8 19.4 Utilities -4.8% J 1.6 1.6 17.0 Energy -13.0% J 1.4 1.8 19.1 www.lairdresearch.com December 14, 2015 Page 5
  • 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 17 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 = 0.76, Mar = 1.05) S&P 500 Price/Sales (median = 1.35, Sep = 1.71) 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 17 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% Implied Equity Premium (median = 4.2%, Nov = 4.5%) Debt (BAA) Premium (median = 2.0%, Nov = 3.2%) www.lairdresearch.com December 14, 2015 Page 6
  • 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$billions(monthly) 2007 2008 2009 2010 2011 2012 2013 2014 2015 −40−2002040 Domestic Equity World Equity Taxable Bonds Municipal Bonds US Net New Investment Cash Flow to Mutual Funds US$billions(Monthly) 2007 2008 2009 2010 2011 2012 2013 2014 2015 −60−40−200204060 Flows to Equity Flows to Bonds Net Market Flows www.lairdresearch.com December 14, 2015 Page 7
  • 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(%) 15 16 17 18 19 20 21 22 23 24 25 0.0 0.5 1.0 1.5 2.0 2.5 0.0 0.5 1.0 1.5 2.0 2.5Dec 10, 2015 (Today) Nov 10, 2015 (1 mo ago) Sep 10, 2015 (3 mo ago) 10 Dec 2014 (1 yr ago) 3 Month & 10 Yr Treasury Yields 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 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 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 median: 91.00 Dec 2015: 144.00 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 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 median: 36.13 Dec 2015: 22.20 0 100 200 300 0 100 200 300 Spread(bps) www.lairdresearch.com December 14, 2015 Page 8
  • 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 16 −1% 0% 1% 2% 3% 4% 5% 6% −1% 0% 1% 2% 3% 4% 5% 6% US Inflation Rate YoY% (Oct = 0.12%) US Inflation ex Food & Energy YoY% (Oct = 1.9%) Personal Consumption Expenditures Percent(YearoverYear) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −10123456 PCE Inflation Rate YoY% (Oct = 0.22%) PCE Core Inflation YoY% (Oct = 1.3%) 5−Year, 5−Year Forward Inflation Expectation Rate Percent 07 08 09 10 11 12 13 14 15 16 17 18 19 20 −10123456 5 year forward Inflation Expectation Actual 5yr Inflation (CPI measure) Actual 5yr Inflation (PCE Measure) www.lairdresearch.com December 14, 2015 Page 9
  • 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 Dec 09: $−0.03 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 2015 Short Term Rates: Once at zero, Fed moved to QE Long Term Rates: Moving up in anticipation of Taper? www.lairdresearch.com December 14, 2015 Page 10
  • 11. Exchange Rates 10 Week Moving Average CAD Exchange Rates 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 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 0.591.101.602.112.613.12 Brazil/CAD CAD Appreciating CAD Depreciating Change in F/X: Nov 2 2015 to Dec 4 2015 (Trade Weighted Currency Index of USD Trading Partners) −3.0% −1.5% 1.5% 3.0% Euro 0.1% UK 0.9% Japan 0.8% South Korea −0.4% China −0.1% India 0.4% Brazil −4.0% Mexico −0.1% Canada 0.8% USA 1.2% 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 −0.3% AUS 5.1% BRA 3.5% CHN 2.7% IND 2.5% RUS −0.5% USA 3.7% EUR 0.5% JPY 3.6% KRW 9.1% MXN 0.4% ZAR −11.6% www.lairdresearch.com December 14, 2015 Page 11
  • 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 3.03.54.04.5 median: 3.94 2015 Q3: 2.99 Repos Outstanding with Fed. Reserve BillionsofDollars 0200400600 median: 57.49 Dec 2015: 283.83 Bank ROE − Assets between $300M−$1B Percent 051015 median: 12.81 2015 Q3: 9.26 Consumer Credit Outstanding %YearlyChange −505101520 median: 7.59 Oct 2015: 6.95 Total Business Loans %YearlyChange −2001020 median: 8.62 Nov 2015: 11.14 US Nonperforming Loans Percent 12345 median: 2.12 2015 Q3: 1.60 St. Louis Financial Stress Index Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0246 median: 0.093 Dec 2015: −0.83 Commercial Paper Outstanding TrillionsofDollars 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 1.01.41.82.2 median: 1.33 Dec 2015: 1.04 Residential Morgage Delinquency Rate Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 246810 median: 2.33 2015 Q3: 5.45 www.lairdresearch.com December 14, 2015 Page 12
  • 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 16 median: 6.10 Nov 2015: 5.00 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 2015 Oct 2015 Participation Rate Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 6364656667 median: 66.00 Nov 2015: 62.50 Total Nonfarm Payroll Change MonthlyChange(000s) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −5000500 median: 166.00 Nov 2015: 211.00 www.lairdresearch.com December 14, 2015 Page 13
  • 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: 8.70 Nov 2015: 10.80 (U6) Unemployed + PT + Marginally Attached Percent 810121416 median: 9.80 Nov 2015: 9.90 4−week moving average of Initial Claims Jan1995=100 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 50100150200 median: 107.42 Dec 2015: 83.24 Unemployed over 27 weeks MillionsofPersons 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 01234567 median: 0.80 Nov 2015: 2.01 Services: Temp Help MillionsofPersons 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 1.52.02.53.0 median: 2.26 Nov 2015: 2.92 −200 0 200 400 600 15 20 25 30 35 40 Annual Change in Employment Levels (000s of Workers) Averagewages($/hour) Private Industry Employment Change (Nov 2014 − Nov 2015) 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 December 14, 2015 Page 14
  • 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: 9.23 2015 Q3: 7.40 ISM Manufacturing − PMI Index 3040506070 Nov 2015: 48.60 manufac. expanding manufac. contracting ISM Manufacturing: New Orders Index Index 304050607080 Nov 2015: 48.90 Increase in new orders Decrease in new orders Non−Manufac. New Orders: Capital Goods BillionsofDollars 40506070 median: 57.81 Oct 2015: 70.05 Average Weekly Hours: Manufacturing Hours 3940414243 median: 41.10 Nov 2015: 41.80 Industrial Production: Manufacturing YoYPercentChange −15−50510 median: 3.11 Oct 2015: 1.94 Total Business: Inventories to Sales Ratio Ratio 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 1.11.21.31.41.51.6 median: 1.36 Oct 2015: 1.38 Chicago Fed: Sales, Orders & Inventory Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −0.50.00.5 Oct 2015: −0.01 Above ave growth Below ave growth ISM Non−Manufacturing Bus. Activity Index Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 35455565 Nov 2015: 58.20 Growth Contraction www.lairdresearch.com December 14, 2015 Page 15
  • 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: 88.50 Nov 2015: 91.30 Consumer Loans (All banks) YoY%Change −10010203040 median: 7.53 Nov 2015: 5.36 Accounting Change Deliquency Rate on Consumer Loans Percent 2.03.04.0 median: 3.45 2015 Q3: 1.99 New Orders: Durable Consumer Goods YoY%Change −20020 median: 4.19 Oct 2015: 5.22 New Orders: Non−durable Consumer Goods YoY%Change −2001020 median: 4.21 Oct 2015: −10.98 Personal Consumption & Housing Index Index −0.40.00.20.4 median: 0.02 Oct 2015: −0.09above ave growth below ave growth Light Cars and Trucks Sales MillionsofUnits 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 10121416182022 median: 14.84 Nov 2015: 18.05 Personal Saving Rate Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 246810 median: 5.55 Oct 2015: 5.60 Real Retail and Food Services Sales YoY%Change 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −10−505 median: 2.46 Oct 2015: 1.55 www.lairdresearch.com December 14, 2015 Page 16
  • 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) Oct 2015 r2 : 89.5% Range: Jan 1959 − Oct 2015 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: 1.34 Oct 2015: 1.16 New Home Median Sale Price SalePrice$000's 100150200250300 Oct 2015: 281.50 Homeowner's Equity Level Percent 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 4050607080 median: 66.50 2015 Q3: 56.70 New Homes: Median Months on the Market Months 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 468101214 median: 4.90 Oct 2015: 2.80 US Monthly Supply of Homes MonthsSupply 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 4681012 median: 5.90 Oct 2015: 5.50 www.lairdresearch.com December 14, 2015 Page 17
  • 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 2015 −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 2015 −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 December 14, 2015 Page 18
  • 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 − November 2015 <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 52.8 Global PMI 51.2 TWN 49.5MEX 53.0 KOR 49.1 JPN 52.6 VNM 49.4 IDN 46.9 ZAF 49.6 AUS 52.5 BRA 43.8 CAN 48.6 CHN 48.6 IND 50.3 RUS 50.1 SAU 56.3 USA 52.8 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 −0.1 TWN 1.7MEX 0.0 KOR 0.0 JPN 0.2 VNM −0.7 IDN −0.9 ZAF 2.1 AUS 2.3 BRA −0.3 CAN 0.6 CHN 0.3 IND −0.4 RUS −0.1 SAU 0.6 USA −1.3 Purchase Managers Index (Manufacturing) − China, Japan, USA, Canada, France, Germany, Italy, UK, Australia 04 05 06 07 08 09 10 11 12 13 14 15 3040506070 3040506070 Business Conditions Contracting Business Conditions Expanding www.lairdresearch.com December 14, 2015 Page 19
  • 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. Nov13 Dec13 Jan14 Feb14 Mar14 Apr14 May14 Jun14 Jul14 Aug14 Sep14 Oct14 Nov14 Dec14 Jan15 Feb15 Mar15 Apr15 May15 Jun15 Jul15 Aug15 Sep15 Oct15 Nov15 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 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 51.7 52.0 51.7 51.0 51.2 51.0 51.0 50.7 50.7 51.3 51.2 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 53.9 55.1 55.7 54.1 54.0 53.6 53.8 53.0 53.1 54.1 52.8 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 51.0 48.7 48.9 49.0 49.8 51.3 50.8 49.4 48.6 48.0 48.6 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 56.6 54.4 53.8 53.8 53.3 52.0 52.9 52.4 52.1 53.0 53.0 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 50.7 49.6 46.2 46.0 45.9 46.5 47.2 45.8 47.0 44.1 43.8 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 51.0 51.0 52.2 52.0 52.2 52.5 52.4 52.3 52.0 52.3 52.8 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 54.1 52.2 52.5 54.0 55.5 56.2 56.0 53.9 53.0 53.7 53.5 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 55.1 57.5 56.8 55.8 57.1 54.6 56.7 53.6 53.8 53.6 53.3 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 55.2 55.1 54.8 54.0 52.4 54.3 54.5 51.1 50.9 52.2 52.1 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 54.7 54.2 54.3 54.2 55.8 54.5 53.6 53.2 51.7 51.3 53.1 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 56.1 55.6 56.1 54.7 55.5 56.9 57.5 56.6 55.5 54.0 54.2 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 49.9 51.9 53.3 53.8 54.8 54.1 55.3 53.8 52.7 54.1 54.9 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 49.2 47.6 48.8 48.0 49.4 50.7 49.6 48.3 50.6 50.6 50.6 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 50.9 51.1 52.8 52.1 51.1 51.9 51.8 53.3 52.3 52.1 52.9 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 48.3 48.4 48.9 46.5 48.0 46.9 30.2 39.1 43.3 47.3 48.1 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 53.1 54.1 54.4 51.9 52.0 51.4 51.9 51.6 51.8 55.5 52.7 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 47.6 49.7 48.1 48.9 47.6 48.7 48.3 47.9 49.1 50.2 50.1 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 49.8 49.6 48.0 48.5 50.2 49.0 50.1 49.3 48.0 49.5 50.9 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 57.8 58.5 60.1 58.3 57.0 56.1 57.5 58.7 56.5 55.7 56.3 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 49.8 50.0 51.6 51.5 50.1 49.2 48.9 49.3 47.9 47.5 49.6 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 52.2 51.6 50.3 49.9 50.9 50.1 51.2 51.7 51.0 52.4 52.6 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 51.1 51.1 49.2 48.8 47.8 46.1 47.6 47.9 49.2 49.1 49.1 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 49.7 50.7 49.6 48.9 49.2 49.4 47.8 47.3 47.2 48.3 48.6 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 51.7 52.1 51.0 49.2 49.3 46.3 47.1 46.1 46.9 47.8 49.5 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 51.5 51.7 50.7 53.5 54.8 52.2 52.6 51.3 49.5 50.1 49.4 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 48.5 47.5 46.4 46.7 47.1 47.8 47.3 48.4 47.4 47.8 46.9 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 52.9 51.2 52.1 51.3 52.6 51.3 52.7 52.3 51.2 50.7 50.3 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 49.0 45.4 46.3 48.0 52.3 44.2 50.4 51.7 52.1 50.2 52.5 www.lairdresearch.com December 14, 2015 Page 20
  • 21. Canadian Indicators Retail Trade (SA) YoYPercentChange −50510 median: 4.68 Sep 2015: 1.19 Total Manufacturing Sales Growth YoYPercentGrowth −20−1001020 median: 3.92 Sep 2015: −2.95 Manufacturing New Orders Growth YoYPercentGrowth −30−100102030 median: 4.26 Sep 2015: −6.46 10yr Government Bond Yields 0246810 median: 5.71 Nov 2015: 1.59 Manufacturing PMI 48505254 Nov 2015: 48.60 Sales and New Orders (SA) YoYPercentChange −20−1001020 Sales New Orders (smoothed) Tbill Yield Spread (10 yr − 3mo) Spread(Percent) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −101234 median: 1.32 Nov 2015: 1.11 Inflation (total and core) YoYPercentChange 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −101234 median: 1.92 Oct 2015: 1.03 Total Core Inventory to Sales Ratio (SA) Ratio 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 1.31.41.51.6 median: 1.35 Sep 2015: 1.43 www.lairdresearch.com December 14, 2015 Page 21
  • 22. 6.6 6.8 7.0 7.2 7.4 7.6 1.31.41.51.61.71.81.9 Beveridge Curve (Mar 2011 − Aug 2015) as.numeric(can.bev$ui.rate) as.numeric(can.bev$vacancies) Mar 2011 − Dec 2012 Jan 2013 − Jul 2015 Aug 2015 Unemployment Rate JobVacancyrate(Industrial) Ownership/Rental Price Ratio RatioofAccomodationOwnership/RentRatio 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 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 7.1% Alberta 7.0% Ontario 6.9% Debt Service Ratios (SA) Percent 0246810 Total Debt: 6.3% Mortgage: 3.3% Consumer Debt: 6.2% Housing Starts and Building Permits (smoothed) YoYPercentChange 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −40−2002040 Permits Starts www.lairdresearch.com December 14, 2015 Page 22
  • 23. European Indicators Unemployment Rates Percentage 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 051015202530 Business Employment Expectations Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −40−20010 Industrial Orderbook Levels Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −60−40−20020 Country Employment Expect. Unempl. (%) Bond Yields (%) Retail Turnover Manufacturing Turnover Inflation (YoY %) Industry Orderbook PMI Series Dates Nov 2015 Oct 2015 Nov 2015 Oct 2015 Oct 2015 Oct 2015 Nov 2015 Nov 2015 France -4.1 I 10.8 K 0.88 I 105.2 J 110.1 I 0.2 I -16.6 J 50.6 K Germany -1.0 I 4.5 K 0.52 K NA 115.4 I 0.2 I -11.3 J 52.9 I United Kingdom -2.7 I 5.2 J 1.94 I 112.9 J NA -0.1 J -13.1 J 52.7 J Italy -0.1 I 11.5 J 1.57 J 100.7 J NA 0.3 I -11.4 J 54.9 I Greece -11.2 I 24.6 J 7.41 J NA NA -0.1 I -36.4 I 48.1 I Spain 2.0 I 21.6 K 1.72 J NA NA -0.9 I -3.8 I 53.1 I Eurozone (EU28) -1.1 I 9.3 K 1.44 I 106.5 I 111.0 I -0.1 J -13.1 J NA www.lairdresearch.com December 14, 2015 Page 23
  • 24. Government Bond YieldsLongTermYields% 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0246810 Economic Sentiment Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 60708090110130 Consumer Confidence Index 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −100−60−20020 Inflation (Harmonized Prices) 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 median: 1.90 Oct 2015: 0.10−1 0 1 2 3 4 5 6 7 Euro Area US Harmonized Inflation: Sep 2015 AUT 0.7% BGR −1.2% DEU 0.2% ESP −0.9% FIN −0.3% FRA 0.2% GBR −0.1% GRC −0.1% HRV −0.5% HUN 0.2% IRL 0.0% ISL 0.4% ITA 0.3% NOR 2.4% POL −0.6% ROU −1.4% SWE 0.9% <−1.0%0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% >7.0% YoY % Change in Prices PMI: November 2015 <40.042.0 44.0 46.0 48.0 50.0 52.0 54.0 56.0 58.0>60.0 Steady ExpandingContracting BRA 43.8 CAN 48.6 DEU 52.9 ESP 53.1 FRA 50.6 GBR 52.7 GRC 48.1 IRL 53.3 ITA 54.9 MEX 53.0 POL 52.1 SAU 56.3 TUR 50.9 USA 52.8 RUS 50.1 PMI Change: Oct − Nov <−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 0.6 DEU 0.8 ESP 1.8 FRA 0.0 GBR −2.8 GRC 0.8 IRL −0.3 ITA 0.8 POL −0.1 TUR 1.4 USA −1.3 RUS −0.1 www.lairdresearch.com December 14, 2015 Page 24
  • 25. 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 16 4045505560 Nov 2015: 48.60 Shanghai Composite Index IndexValue(MonthlyHigh/Low) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 0100030005000 Dec 2015: 3434.58 Electricity Generated 100MillionKWH(logscale) 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 1000200030005000 Oct 2015: 4454.00 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 16 98100102104106108110 median: 103.90 Sep 2015: 105.60 Exports YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 −20020406080 median: 18.40 Nov 2015: −6.80 Retail Sales Growth YoYPercentChange 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 101520 median: 12.90 Nov 2015: 11.20 www.lairdresearch.com December 14, 2015 Page 25
  • 26. 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 1971-2000 for the tem- perature map and over the 20th century for the global temparature chart. Average Temperature Anomalies from Mar 2015 - Aug 2015 <−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 Historic Global Temperature Deviations DegreesCelciusDeviations −0.50.00.51.0 Oct 2015: 0.98 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 www.lairdresearch.com December 14, 2015 Page 26