Boom, Bust, Bounce Currency Outlook

Transcription

1 Boom, Bust, Bounce 2016 Currency Outlook

2 80% North America European Union 60% 40% Unprecedented Innovation Internet Users, % of Population Source: World Bank, 2016 Central Asia Latin America Southeast Asia Middle East 20% Sub-Saharan Africa Boom, Bust, Bounce 2016 Currency Outlook

3 Unprecedented Democratization GDP Per Capita Constant 2005 PPP Source: Gapminder, 2015 $1 / Day $10 / Day $100 / Day

4 Unprecedented Trade International Seaborne Trade, Container Ships Millions of Tons Source: United Nations Conference on Trade and Development, ,631

5 Unprecedented Participation Share of Gross Domestic Product Advanced + Developing Source; International Monetary Fund, % 25% 25% 64%

6 t 60t 50t Unprecedented Growth Estimated Gross Domestic Product 1990 International Dollars Source: Bradford Delong, Angus Maddison, World Bank, t 30t 20t t

7 t 81.5% 60t t Unprecedented Growth Estimated Gross Domestic Product 1990 International Dollars 8.8% t Source: Bradford Delong, Angus Maddison, World Bank, CE t 20t 9.3% t

8 t 81.5% 60t t Unprecedented Growth Estimated Gross Domestic Product 1990 International Dollars 78.2% % t Source: Bradford Delong, Angus Maddison, World Bank, CE t 20t 9.3% t

9 Unprecedented Savings 22% 32% National Savings Rate, % of GDP 2005 Source: International Monetary Fund, % 78%

10 Unprecedented Savings National Savings Rate, % of GDP % 32% Source: International Monetary Fund, % 68%

11 Unprecedented Wealth Debt, Equity, Deposits Current US Dollars Sources: World Bank, Bank for International Settlements, World Federation of Exchanges, t t t t 43t

12 16% 14% Unprecedented Yields Long-Term Interest Rates Percentage, Quarterly 1980 January - December 2015 Source: OECD, % 10% 8% 6% 4%

13 Unprecedented Flows Global Currency Turnover / Gross Domestic Product Trillions USD Source: Bank for International Settlements, International Monetary Fund, ,033 1,

14 A pack of lemmings looks like a group of Boom rugged individualists compared with Wall Street when it gets a concept in its teeth. Warren Buffett

15 6t Growth Explodes 4t China Gross Domestic Product Trillions USD Source: World Bank, t

16 China 1000% 800% Borrowing Wages 600% M2 Money Supply, Rebased to 100 Monthly, Not Seasonally Adjusted 2000 January - December 2015 Source: Federal Reserve, % 200% USA Euro Japan

17 40% 30% 20% Borrowing Savings Tax On Savings Average Real Interest Rate th Lowest 10% Source: World Bank, 2015 BRA GER RUS AUS IND ITA FRA USA CAN RSA KOR JPY MEX UK CHF CHI

18 Borrowing Consumption 0.2 Tax On Imports USDCNY Source: State Administration of Foreign Exchange,

19 Demand Explodes Share of Global Consumption, % 2000 Source: International Monetary Fund, % 15% 12% 6% 36% 64% 95% 85% 88% 94% Cement Nickel Steel Copper Oil

20 Demand Explodes Share of Global Consumption, % 2005 Source: International Monetary Fund, % 15% 12% 6% 10% 44% 64% 36% 56% 63% 37% 55% 45% 62% 38% 95% 85% 88% 90% 94% Cement Nickel Steel Copper Oil

21 Demand Explodes Share of Global Consumption, % 2011 Source: International Monetary Fund, % 15% 12% 6% 10% 12% 44% 42% 64% 36% 37% 45% 50% 50% 59% 56% 50% 51% 55% 53% 63% 62% 38% 47% 95% 85% 88% 88% 90% 94% Cement Nickel Steel Copper Oil

22 375 Speculation Explodes Assets Under Management Exchange Traded Products, Medium-Term Notes, Index Investments Billions USD Source: Reserve Bank of Australia

23 500 80% 400 Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = 100 Crude Metal 60% January - January % Source: International Monetary Fund, 2016 Food % 0% %

24 500 80% Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = January - January 2011 Crude Metal CAD 60% 40% Source: International Monetary Fund, 2016 Food % 0% 200 USD -20%

25 Bust For every complex problem there is an answer that is clear, simple, and wrong. H.L. Mencken

26 Made in China? Total Personal Consumption Expenditure Source: Federal Reserve, %

27 $ 749 Retail (iphone 5s) $ 8.00 Assembly In China Source: Federal Reserve, 2012, Financial Times, 2015

28 Africa 30% 25% World 20% 15% Asia 10% Deindustrialization? 5% Manufacturing % of GDP Source: World Bank 2015 South America Europe North America

29 200 Non-Durables Excess Manufacturing Capacity Consumer Price Index, All Urban Consumers Index = January - December 2015 Source: Bureau of Labor Statistics, 2016 Durables

30 Debt Dependency Productive Outlets Shrinking Gross Domestic Product Private Sector Debt Billions, Yuan Source: Bank for International Settlements China,

31 400 Oil Investment 320 Capital + Exploration Billions, Constant 2010 USD Source: International Monetary Fund,

32 Nuclear 100 Gas 75 Production History Energy Production Gigabarrels, Oil Equivalent Petroleum Source: Energy Information Administration, 2015 Coal 25 Hydro Biomass

33 Falling Energy Intensity China TOE per $2010 GDP Net 12-Month Change Source: BP Energy Outlook, United States 0.1 European Union India

34 Exploding Non-Opec Supply -0.5 US Energy Production Mb/d Growth YoY Lower 48 + Gulf of Mexico 2007 January - January Source: International Energy Agency, 2016

35 500 80% Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = January - April 2016 Source: International Monetary Fund, % 40% 200 Metal Food Crude %

36 500 80% Commodity Prices IMF Commodity Price Indices, BIS Exchange Rates Rebased to 2000 = January - April 2016 Source: International Monetary Fund, % 40% 200 Metal Food CAD Crude USD %

37 Bounce What gets us in trouble isn t what we know. It s what we know that just ain t so. Mark Twain

38 -2% 8% 6% Continued Stimulus? Central Bank Liquidity Injections % of Global Gross Domestic Product Net 12-Month Change % Source: Respective Central Banks, Cambridge Calculations, % x

39 4.0 Tightening Ahead? Wages, Percent Change, 12-Month 2008 January - April Source: Bureau of Economic Statistics, Average Hourly Average Weekly

40 3t 2t Credit Soaring China Total Social Financing Trillions, Yuan 2003 January - March 2016 Source: People s Bank of China, t

41 35% 30% 25% Conversion M2 Broad Money, Bank Loans % Change, YoY 2000 January - March 2016 Loans Source: People s Bank of China % M2 10%

42 800, ,000 Automation Operational Multipurpose Robots Source:International Federation of Robotics, , , Americas Europe Asia

43 Fools Rush In? 200 Money Manager Long, Short Positions NYMEX WTI, ICE WTI, ICE Brent 2013 April - April 2016 Source:: Reuters,

44 1, ,200 1, Down, But Really Out? Baker-Hughes Rig Count United States 2000 January - April Source: Baker-Hughes,

45 Mean-Reversion? 60 Constant 2014 US Dollars Per Barrel Source: BP Statistical Review, Year Average: 33.18/bbl 20

46 PetroCurrency West Texas Intermediate + CADUSD Monthly 1986 January - April 2016 Source: Federal Reserve,

47 Petro State? Billions, CAD Net Gross Energy Energy Merchandise Exports 1,881.2 Gross Domestic Product Source: Statistics Canada, 2014

48 Tide In 1.0 Total Household Credit Trillions, Canadian Dollars Source: Statistics Canada,

49 5, ,000 Tide Out Current Account Millions, Canadian Dollars 2003 Q1 - Q ,000 Source: Statistics Canada, ,000-20,000

50 70% 50% Misallocation Restructuring Inevitable Change in Gross Domestic Product 2007 Chained Dollars, Rebased to January - January 2016 Construction Finance Source: Statistics Canada, % Energy Agriculture 10% -10% Manufacturing

51 AUS HK NZ 250 Unstoppable? BIS Housing Price Indices Rebased 2000 = Q1 - Q Source: Bank for International Settlements, Statistics Canada 2016 UK FRA 200 KOR USA SPA 150 ITA IRE GER JAP

52 Unstoppable? BIS Housing Price Indices Rebased 2000 = Q1 - Q Source: Bank for International Settlements, Statistics Canada 2016 AUS HK NZ CAN UK FRA 200 KOR USA SPA 150 ITA IRE GER JAP

53 70% 60% 50% 40% 30% 20% Volatility Ahead Exchange Rates, Percentage Change Rebased to January - March 2016 Source: Federal Reserve, 2016 CNY NZD AUD CAD 10% USD JPY EUR -10% GBP -20%

54 70% 60% 50% 40% 30% 20% Volatility Ahead Exchange Rates, Percentage Change Rebased to January - March 2016 Source: Federal Reserve, 2016 CNY NZD AUD CAD 10% USD JPY EUR -10% GBP -20%

55 70% 60% 50% 40% 30% 20% Volatility Ahead Exchange Rates, Percentage Change Rebased to January - March 2016 Source: Federal Reserve, 2016 CNY NZD AUD CAD 10% USD JPY EUR -10% GBP -20%

56 70% 60% 50% 40% 30% 20% Volatility Ahead Exchange Rates, Percentage Change Rebased to January - March 2016 Source: Federal Reserve, 2016 CNY NZD AUD CAD 10% USD JPY EUR -10% GBP -20%

57 70% 60% 50% 40% 30% 20% Volatility Ahead Exchange Rates, Percentage Change Rebased to January - March 2016 Source: Federal Reserve, 2016 CNY NZD AUD CAD 10% USD JPY EUR -10% GBP -20%

58 John Kenneth Galbraith The only function of economic forecasting is to make astrology look respectable.

59 Derivatives use is associated with lower cashflow volatility, lower standard deviation of stock returns, lower systematic risk and slightly higher market values. Use of Financial Derivatives by Canadian Firms Bank of Canada, %

60 Debt Ratio 20.0% Hedging Pays TSX-Listed Companies % Source: Bank of Canada, %

61 22.0% Cash Hedging Pays TSX-Listed Companies Holdings 10.9% Source: Bank of Canada, %

62 Return On Assets Hedging Pays TSX-Listed Companies % Source: Bank of Canada, % -5.3%

63 Layer Actively 100% 100% 100% 100% 100% 100% 100% 100% Q0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

64 Layer Actively 25% 50% 75% 100% 25% 50% 75% 100% 25% 50% 75% 100% 25% 50% 75% 25% 50% 75% 100% 25% 50% 25% 50% 75% 100% 25% Q0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

65 Q1 Hedge Ratio: Q2 Hedge Ratio: Q4 Hedge Ratio: Q4 Hedge Ratio: 80% 60% 40% 20% Minimize Probability Parametric/Delta Normal Value at Risk, Return Distribution, 99% Confidence Level Source: Cambridge Calculations,

66 Q1 Hedge Ratio: Q2 Hedge Ratio: Q4 Hedge Ratio: Q4 Hedge Ratio: 75% 70% 60% 65% Minimize Probability Parametric/Delta Normal Value at Risk, Return Distribution, 99% Confidence Level Source: Cambridge Calculations,

67 40 30 Sell Volatility 3m Implied vs. 3m Realized CBOE VIX Options 2015 March - April Source: Reuters, 2016 VIX Index Realized 10

68 Trade Tactically 12m Swap Point Change USDCAD Spot Rate 2015 January - December 2015 Source: Reuters, Basis Points High-Low USDCAD Forward Differential 2,324 Basis Points High-Low USDCAD Spot Rate

69 Ben Tregoe When all is said and done, more is said than done. Thank You. Karl Schamotta Cambridge Global Payments

70 Thank You. Karl Schamotta Cambridge Global Payments