Commercial Consumerism. Jeffrey Gundlach Chief Executive Officer Chief Investment Officer

Transcription

1 Commercial Consumerism Jeffrey Gundlach Chief Executive Officer Chief Investment Officer June 23, 2010

2 Domestic Credit Market Debt as % of Gross Domestic Product % 350% Year 1 FDR Year 1 BHO Presidency % 300% 250% 200% 150% % Year 7 HST Presidency % Year 1 RWR Presidency % Year 1 GHWB Presidency % Year 1 GWB Presidency % 100% Source: Morgan Stanley, Federal Reserve, Bureau of Economic Analysis

3 Government Promises-To-Pay Publicly Held Treasury Debt & Accrued Interest $80.0 Current Liabilities and Unfunded Promises to Pay $70.0 $60.0 $50.0 $40.0 $62.3 $30.0 $56.4 $50.1 $52.8 $43.3 $46.4 $20.0 $26.5 $30.1 $10.0 $3.6 $3.9 $4.3 $4.6 $4.9 $5.1 $5.8 $7.9 $0.0 FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009 Source: U.S. Treasury, Peter G. Peterson Foundation 2

4 U.S. Publicly Held Debt as Percentage of GDP 800% 700% OMB Projection through 2083, absent policy changes 600% 500% % of GDP 400% 300% 200% 100% 0% Source: 2009 Financial Report of the U.S. Government, as prepared by Office of Management and Budget, DoubleLine Capital LP 3

5 Percentage of Composition of Receipts By Source Source: 4

6 Federal Tax Receipts as a % of GDP 25% Federal Tax Receipts as % of GDP 1929 through % 15% 10% 5% 0% Source: Office of Management and Budget, DoubleLine Capital 5

7 Federal Receipts as % of Debt: 1940 through 2015 Receipts as % of Federal Debt 1940 through % 60% 50% 40% 30% 20% 10% Gross Receipts as % of Debt Net Receipts as % of Debt OMB Estimate 0% (e) 2015 (e) Gross Receipts equal Individual Tax, Corporate Tax, Excise Tax and Social Insurance and Retirement Receipts Net Receipts equal Gross Receipts less Social Insurance and Retirement Receipts Source: Office of Management and Budget (OMB) 6

8 Historical Net Surplus/Deficit : 1934 through Deficit Less Social Insurance Receipts as % of GDP ( ) OMB Estimate (e) 2015 (e) Source: Office of Management and Budget (OMB) ** Net Surplus/Deficit equals Federal Receipts Less Social Insurance Receipts minus Federal Outlays 7

9 U.S. Employment % Change from Start of Recession * Recovery on 2007 recession has yet to be determined, but is estimated to have begun in July 2009 Source: Bureau of Labor Statistics, Federal Reserve Bank of Minneapolis, DoubleLine Capital LP 8 8

10 U.S. Government Outlays versus Receipts % of GDP Defense Other Noninterest Social Security Medicaid Medicare Interest on Past Debt New Net Interest Receipts OMB Projection through 2083, absent policy changes Source: Office of Management and Budget, DoubleLine Capital LP 9

11 Gross Debt as % of GDP of Advanced Economies: Gross Debt as % of GDP Canada France Germany Italy Japan UK US Source: International Monetary Fund 10

12 Net Debt as % of GDP of Advanced Economies: Net Debt as % of GDP Canada France Germany Italy Japan UK US Source: International Monetary Fund 11

13 Net Debt as % of GDP of PIIGS: Net Debt as % of GDP Portugal Ireland Italy Greece Spain Source: European Commission 12

14 Gross Debt to GDP Projections: PIIGS vs Developed Countries Source: Bank of International Settlements (BIS), Organization for Economic Co-operation and Development (OECD) 13

15 Argentine Sovereign Debt Spread over U.S. Treasuries: Source: National Bureau of Economic Research (NBER), Global Financial Data

16 Argentine Sovereign Debt Spread over British Consols: Source: National Bureau of Economic Research (NBER), Global Financial Data

17 Historical Sovereign Default and Rescheduling Years in a Banking Crisis Since Independence, or 1800 Years in Default of Rescheduling Total # of Defaults and Reschedulings Austria Belgium 7 Denmark 7 Finland 9 France 12 8 Germany Greece Hungary Italy Netherlands Norway 16 Poland Portugal Spain Sweden 5 UK 9 Source: Reinhart and Rogoff 16

18 Greece Generic Government 10-Year Yields: November 2, 2009 through June 14, Greece Generic Govt 10-Year Yields (%) 11/2/09 through 6/14/ Source: Bloomberg Financial Services, DoubleLine Capital 17

19 ABX HE Single A Prices: November 2, 2006 through June 27, ABX A Price 11/2/2006 through 6/27/ Source: Bloomberg Financial Services, DoubleLine Capital 18

20 ABX HE Single A Prices: July 19, 2006 through March 31, ABX A Price 7/19/2006 through 3/31/ June 27, /19/2006 8/19/2006 9/19/ /19/ /19/ /19/2006 1/19/2007 2/19/2007 3/19/2007 4/19/2007 5/19/2007 6/19/2007 7/19/2007 8/19/2007 9/19/ /19/ /19/ /19/2007 1/19/2008 2/19/2008 3/19/2008 4/19/2008 5/19/2008 6/19/2008 7/19/2008 8/19/2008 9/19/ /19/ /19/ /19/2008 1/19/2009 2/19/2009 3/19/2009 Source: DeutscheBank, DoubleLine Capital 19

21 Projected Interest Payments as % of GDP Source: Bank of International Settlements (BIS), Organization for Economic Co-operation and Development (OECD) 20

22 Possible Outcomes 1. Increase GDP Growth Rate 2. Lower Interest Rates on Government Debt 3. Government Transfer Payment or Foreign Capital Transfer 4. Increase Taxes or Cut Spending Tax increase is on the way Difficult to cut public spending 5. Print Money We are 6. Default Any non-compliance of original loan terms equates to a default 21

23 Possible Solutions Cut Only Britain has successfully reduced debt burden through surplus, lower rates and economic growth ( ) Print Only governments with monetary sovereignty, i.e. U.S., U.K. Only governments with own-currency denominated debt Default: Governments with limited monetary sovereignty Governments with foreign-currency denominated debt 22

24 10-Year UST Yield Minus 2-Year US Treasury Yield Source: Bloomberg Financial Services 23

25 U.S. RMBS Vintage Credit Rating Migration Current S&P Rating AAA AA A BBB BB B CCC CC D % Downgraded AAA 19.78% 3.52% 3.00% 4.59% 5.90% 9.78% 37.14% 12.41% 3.90% 80.22% AA % 2.76% 2.36% 2.81% 9.28% 27.27% 18.37% 17.80% 82.43% AA 0.01% 20.55% 1.71% 1.14% 2.16% 5.06% 20.50% 20.81% 28.07% 79.84% AA- 9.70% 2.26% 2.16% 2.05% 4.53% 20.17% 20.36% 38.79% 90.30% A+ 7.69% 2.06% 2.32% 4.26% 17.47% 19.59% 46.61% 93.58% A 0.01% 5.93% 2.16% 1.81% 4.33% 14.62% 20.06% 51.07% 94.51% A- 1.22% 0.60% 1.06% 3.74% 10.23% 40.19% 42.96% 98.78% Original S&P Rating BBB+ 1.10% 0.62% 1.96% 10.93% 19.35% 66.02% 99.00% BBB 1.98% 0.42% 0.96% 10.96% 22.36% 63.32% 98.07% BBB- 0.48% 0.06% 0.94% 3.96% 36.04% 58.53% 99.51% BB+ 0.53% 0.07% 2.60% 13.58% 83.23% 99.50% BB 0.96% 0.55% 5.41% 17.04% 76.05% 99.04% BB- 0.46% 0.96% 64.83% 6.54% 27.21% 99.53% B+ 0.45% 54.22% 13.50% 31.82% 99.54% * Ratings migration based on outstanding vintages only. Data through April 30, 2010 B 0.44% 1.99% 8.28% 89.31% 99.57% B- 0.52% 10.86% 17.54% 71.08% 99.48% Source: Standard and Poors, DoubleLine Capital 24

26 Subprime Serious Delinquency and Conditional Default Rate May 2010 Remittances 60% 50% 40% 30% 60++ CDR Total Unmitigated Disaster 46.57% 20% 10% 10.75% 0% Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May refers to serious delinquency defined as loans 60 or 90 days late in mortgage payments, or already in foreclosure or REO status. Alt-A defined as FICO ; or FICO > 725 and LTV >= 75. First lien only. Source: Loan Performance, Vichara, DoubleLine Capital LP 25

27 Alt-A Serious Delinquency and Conditional Default Rate May 2010 Remittances 30% 25% 60++ CDR 27.53% 20% 15% 10% Total Unmitigated Disaster 9.18% 5% 0% 60++ refers to serious delinquency defined as loans 60 or 90 days late in mortgage payments, or already in foreclosure or REO status. Alt-A defined as FICO ; or FICO > 725 and LTV >= 75. First lien only. Source: Loan Performance, Vichara, DoubleLine Capital LP 26

28 72 Prime Serious Delinquency and Conditional Default Rate May 2010 Remittances 10% 9% 8% 7% 6% 60++ CDR 8.70% 5% 4% 3% 2% 1% 0% Total Unmitigated Disaster 2.45% 60++ refers to serious delinquency defined as loans 60 or 90 days late in mortgage payments, or already in foreclosure or REO status. Alt-A defined as FICO ; or FICO > 725 and LTV >= 75. First lien only. Source: Loan Performance, Vichara, DoubleLine Capital LP 27

29 Historical Conditional Repayment Rates (CRR) May 2010 Remittances 45% 40% 35% Prime Alt-A Subprime 30% 25% 20% 15% 10% 5% 0% 15.03% 6.37% 2.37% Jan-05 Mar-05 May-05 Jul-05 Sep-05 Nov-05 Jan-06 Mar-06 May-06 Jul-06 Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07 Nov-07 Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Prime defined as FICO > 725 and LTV < 75 Alt-A defined as FICO ; or FICO > 725 and LTV >= 75 Subprime defined as FICO < 675 First lien only 28 Source: Loan Performance, Vichara, DoubleLine Capital LP

30 92 Historical Loss Severity May 2010 Remittances 80% 70% 60% 50% Prime Alt-A Subprime 67.26% 57.38% 45.65% 40% 30% 20% 10% 0% Prime defined as FICO > 725 and LTV < 75 Alt-A defined as FICO ; or FICO > 725 and LTV >= 75 Subprime defined as FICO < 675 First lien only Source: Loan Performance, Vichara, DoubleLine Capital LP 29

31 Wells Fargo Alternative Loan Trust (WFALT 07-PA3 1A3) WFALT 07-PA3 1A1 Market Price $68.00 Original Loan-To-Value 69.64% Coupon 5.75% Current LTV 94.11% FICO delinquencies Avg Loan Size $405,000 11/30/ % 5/20/ % Voluntary Prepayment Rate (VPR) 7.51 Constant Default Rate (CDR) 4.78 Severity Data Source: Bloomberg, DoubleLine Capital Research This security is for hypothetical purposes only. DoubleLine Capital makes no representation that this analysis will come to fruition. This security has not been recommended by DoubleLine Capital. 30

32 Wells Fargo Alternative Loan Trust (WFALT 07-PA3 1A3) Scenario Analysis Base Case Scenario Analysis New World Rates Up 200 bp Scenario Analysis Prepay 6% Prepay 8% CDR 6% CDR 4% Severity 60% Severity 40% Total Collateral Liquidation 41.88% Total Collateral Liquidation 27.59% Loss Adjusted Yield 9.67% Loss Adjusted Yield 13.17% Price-To-Yield (10.21%) $73.50 Effective Duration -4.0 Data Source: Bloomberg, DoubleLine Capital Research This security is for hypothetical purposes only. DoubleLine Capital makes no representation that this analysis will come to fruition. This security has not been recommended by DoubleLine Capital. 31

33 Duration Example Negative Duration of Distressed RMBS Jan-08 through Apr Positive Duration of Agency RMBS Jan-08 through Apr Year Treasury Yield (%) R² = Year Treasury Yield (%) R² = Non-Agency 30-Year Prime Fixed Rate RMBS Price ($) Fannie Mae 5.5 RMBS Price ($) Source: Amherst Securities Group, Bloomberg Financial Services, DoubleLine Capital 32

34 3 DoubleLin e TM Making Money is Art and Working is Art. And Good Business is the Best Art Andy Warhol 33

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