Damn the End of QE! Buy the Dollar and Treasurys!

Transcription

1 Damn the End of QE! Buy the Dollar and Treasurys! Dr. A. Gary Shilling President A. Gary Shilling & Company, Inc. A. Gary Shilling & Co., Inc. Economic Consultants

2 Chart 1 Historic Inflation and Deflation Period Military Engagement No. of Years Annualized Wholesale Price Change Peacetime % French-Indian War % Peacetime % American Revolution % Peacetime % War of % Peacetime % Mexican-American War % Peacetime % Civil War % Peacetime % World War I % Peacetime % World War II % Cold War % Peacetime % War on Terror % No. of Years Avg. Price Change Wartime: % Peacetime: % Years Total: %

3 Chart 2 20-Year Treasury Yield and Consumer Prices 16% 14% 12% 10% 8% 6% 4% Last Points - CPI 12/14: 0.8%, Treasury Yield 01/15: % 14% 12% 10% 8% 6% 4% 2% 0% -2% 2% -4% Year Treasury Yield - left axis Consumer Price Index (Yr/Yr % Change) - right axis Source: Federal Reserve Board, Bureau of Labor Statistics.

4 Chart 3 Federal Budget Balance $ Bil. Last Point 2014: Source: Congressional Budget Office

5 Chart 4 Monthly Federal Reserve QE Purchase Announcements billions of dollars /18/12 12/18/ /29/ /19/ /30/ /13/12 06/18/14 07/30/ /17/ /29/ Sep-12 Dec-12 Mar-13 Jun-13 Oct-13 Jan-14 Apr-14 Aug-14 Nov-14 0 Source: Federal Reserve

6 Chart 5 Real GDP Growth During Expansions annualized rates of expansion from NBER trough-to-peak 8% 7% 7.6% 8% 7% 6% 5.6% 6% 5% 4.9% 5.1% 4.3% 4.4% 4.3% 5% 4% 4.0% 3.6% 4% 3% 2.8% 2.3% * 3% 2% 2% 1% 1% 0% Expansion Start Date *Through 4Q 2014 Source: BEA, NBER 0%

7 68% 67% 66% 65% 64% 63% 62% 61% 60% 59% Chart 6 Corporate Profits and Employee Compensation as a percentage of National Income Last Points 3Q Corp. Profits: 14.3%, Employee Comp: 60.7% 15% 14% 13% 12% 11% 10% 9% 8% 58% 1947-I 1959-III 1972-I 1984-III 1997-I 2009-III 7% Compensation of Employees - left axis Corp. Profits with IVA and CCAdj - right axis Source: Bureau of Economic Analysis

8 Chart 7 Real Average Family Income by Income Bracket thous. $2012 bottom 90% top 10% to 5% % change -10.7% +2.6% top 5% to 1% % top 1%to 0.5% % top 0.5%to 0.1% % top 0.1% to 0.01% % top 0.01% % Source: Thomas Piketty and Emmanuel Saez

9 Chart 8 Real Weekly Wages and Household Incomes year/year percent changes 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% Last Points Income: 0.3%, Wages: 0.4% 4% 3% 2% 1% 0% -1% -2% -3% -4% -5% -6% Avg. Real Weekly Wages of Production and Supervisory Employees Real Median Household Income -6% Source: Bureau of Labor Statistics, Census Bureau

10 Chart 9 Chinese Gross Domestic Product year/year percent change 12% Last Point 4Q 2014: 7.3% 12% 11% 11% 10% 10% 9% 9% 8% 8% 7% 7% 6% 6% 5% % Source: Chinese National Bureau of Statistics

11 Chart 10 Chinese GDP and Electricity Consumption year/year percent change 50 Last Points - GDP 4Q 14: 7.3%, Electricity 12/14: 4.2% Jan-95 Mar-99 May-03 Jul-07 Sep-11 6 Chinese Electricity Consumption - left axis Chinese GDP - right axis Source: China National Bureau of Statistics, China Electricity Council

12 Chart 11 Chinese Population Aged millions Projections *Projections start after 2010 Source: United Nations

13 Chart 12 Problems in China 1. Slowing economic growth 2. Transition from export-led to domestic-driven economy 3. Rising militarism 4. Anti-corruption campaign 5. Manipulation of the yuan 6. Shadow banking risks 7. Interest rate deregulation 8. Real estate bubble

14 15% Chart 13 Japanese Real GDP Last Point 3Q Q/Q: -1.9%, Y/Y: -1.2% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% Quarter / quarter percent change SAAR Year / year percent change Source: Japanese Cabinet Office -15%

15 Chart 14 Eurozone Real GDP Growth 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% Last Point Q3 2014: Q/Q 0.6; Y/Y % 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -10.0% -12.0% quarter/quarter % change, seas. adj. annual rates year/year % change Source: eurostat -12.0%

16 Chart 15 Reuters/Jefferies CRB Index 450 Last Point January 2015: Jan-97 Mar-01 May-05 Jul-09 Sep Source: Haver Analytics

17 Chart 16 Copper Prices nearest futures contract; dollars per pound Last Point 01/30/15: Dec-13 Mar-14 May-14 Aug-14 Oct-14 Dec Source: Thomson Reuters

18 1400 Chart 17 Real U.S. Commodity Prices CRB Index Deflated by CPI Last Point December 2014: Source: Bianco Research, BLS, Historical Statistics of the United States

19 Chart 18 Crude Oil Output for Non-OPEC and OPEC Countries million barrels per day 60 Last Points - 3Q 2014 Non-OPEC: 56.54; OPEC: Source: Energy Information Administration Non-OPEC OPEC

20 Chart 19 Brent and WTI Crude Oil dollars per barrel, nearest futures contracts Last Point 01/30/15 - Brent: 52.99, WTI: Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec Brent Crude Oil WTI Crude Oil Source: Thomson Reuters

21 Chart 20 U.S. Personal Saving Rate seasonally-adjusted annual rate Last Point December 2014: 4.9% Jan-59 Jan-68 Jan-77 Jan-86 Jan-95 Jan-04 Jan-13 0 Source: Bureau of Economic Analysis

22 Chart 21 Airline Fares and Jet Fuel Prices 340 Last Points - December 2014: CPI 291.7; Jet Fuel $ Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14 CPI, Airline Fare ( =100) - left axis Jet Fuel Price ($/gal.) - right axis Source: Bureau of Labor Statistics and Energy Information Administration

23 Chart 22 Junk Bond Option Adjusted Spread Bank of America Merrill Lynch High Yield Master II Index 6.0 Last Points 01/30/ Jan-14 Mar-14 May-14 Jul-14 Oct-14 Dec Source: BofA Merrill Lynch and Federal Reserve

24 Chart 23 Russian Central Bank Rate and Rubles per USD 20% 18% 16% 14% 12% 10% 8% Last Points 01/30/15 Central Bank Rate: 15%; Ruble: % Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec Central Bank Rate Russian Rubles per U.S. dollar (right axis ) Source: Russian Central Bank, Bloomberg

25 Chart 24 Venezuelan Official and Black Market FX Rates Bolivar per USD Stronger USD Last Points 1/31/15 Black Market ; Official Stronger USD 0 Jan-14 Feb-14 Apr-14 Jun-14 Jul-14 Sep-14 Oct-14 Dec-14 0 Source: Dolar Today Venezuela Black Market Exchange Rate Official Exchange Rate

26 Chart 25 Global Consumer Price Indices year/year percent change Country Latest Data as of: Country Latest Data as of: Greece -2.6 Dec-14 Finland 0.5 Dec-14 Spain -1.0 Dec-14 United Kingdom 0.5 Dec-14 Hungary -0.9 Dec-14 Netherlands 0.7 Dec-14 Poland -0.9 Dec-14 Iceland 0.8 Dec-14 Luxembourg -0.6 Dec-14 Korea 0.8 Dec-14 Estonia -0.5 Dec-14 New Zealand 0.8 Q4-14 Belgium -0.4 Dec-14 United States 0.8 Dec-14 Portugal -0.4 Dec-14 Austria 1.0 Dec-14 Ireland -0.3 Dec-14 Canada 1.5 Dec-14 Sweden -0.3 Dec-14 Australia 1.7 Q3-14 Switzerland -0.3 Dec-14 Norway 2.1 Dec-14 Israel -0.2 Dec-14 Japan 2.4 Dec-14 Slovak Republic -0.1 Dec-14 Mexico 4.1 Dec-14 Italy 0.0 Dec-14 Chile 4.6 Dec-14 Czech Republic 0.1 Dec-14 Turkey 8.2 Dec-14 France 0.1 Dec-14 Germany 0.2 Dec-14 G7 0.8 Dec-14 Slovenia 0.2 Dec-14 eurozone -0.2 Dec-14 Denmark 0.3 Dec-14 OECD - Total 1.1 Dec-14 Source: OECD, National Statistical Agencies

27 Chart 26 2-Year Sovereign Bond Yields 0.40% 0.20% 0.00% -0.20% -0.40% -0.60% -0.80% -1.00% -1.20% Last Points 01/30/15: Fin %; Jap. 0.02%; Ger %; Swiz % 0.40% 0.20% 0.00% -0.20% -0.40% -0.60% -0.80% -1.00% -1.20% -1.40% Jan-14 Mar-14 May-14 Aug-14 Oct-14 Dec % Source: Fusion Media Limited Finland Japan Germany Switzerland

28 Chart 27 Gold Spot Price dollars per troy ounce 2000 Last Point 01/30/15: Jan-07 Dec-08 Nov-10 Oct-12 Sep Source: Thomson Reuters

29 Chart 28 PCE Deflator seasonally-adjusted 1.0% Last Point December M/M: -0.2, Y/Y: % 0.5% Fed Target: 2.0% 3.0% 0.0% 0.0% -0.5% -3.0% -1.0% -6.0% -1.5% % Month/Month % Change - left axis Year/Year % Change - right axis Source: Bureau of Economic Analysis

30 Chart 29 Consumer Price Index ex. Energy all items ex. Energy, seasonally-adjusted 0.4% Last Point December M/M: 0.0, Y/Y: % 0.3% 3.0% 0.2% 2.0% 0.1% 1.0% 0.0% 0.0% -0.1% % Month/Month % Change - left axis Year/Year % Change - right axis Source: Bureau of Labor Statistics

31 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% Chart 30 Consumer Price Index and Crude Oil Last Points December CPI: 0.05% WTI: % 30 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 CPI (month/month % change) - left axis WTI Crude Oil ($/barrel) - right axis Source: Haver Analytics

32 Chart 31 Consumer Price Index and Crude Oil 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% Last Points December CPI: 0.17% WTI: % 10 Jan-85 Jun-85 Nov-85 Apr-86 Sep-86 Feb-87 Jul-87 Dec-87 CPI (month/month % change) - left axis WTI Crude Oil ($/barrel) - right axis Source: Haver Analytics

33 Chart 32 Aussie, Kiwi, and Loonie Exchange Rates 0.70 Last Points: 01/30/15 USD/AUD: USD/NZD: 0.726; CAD/USD: Stronger USD Stronger USD Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec-14 Source: Thomson Reuters USD/AUD - left axis (inverted) USD/NZD - left axis (inverted) CAD/USD - right axis

34 Chart 33 Euro and Yen Exchange Rates Stronger USD Last Points - 01/30/15 USD/EUR: 1.129, JPY/USD: Stronger USD Jul-12 Nov-12 Apr-13 Aug-13 Jan-14 Jun-14 Oct-14 Source: Thomson Reuters USD/EUR - left axis (inverted) JPY/USD - right axis

35 Chart 34 Japanese Monetary Base trillion yen Last Point December 2014: Sep-04 May-06 Jan-08 Sep-09 May-11 Jan-13 Sep-14 Source: Bank of Japan

36 Chart 35 Japanese Real GDP year/year percent change 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% April to 5% sales tax increase Last Point 3Q 2014: -1.2% April to 8% sales tax increase 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% % Source: Haver Analytics/Japanese Cabinet Office

37 Chart 36 Japanese Population year/year percentage change 2.5% Last Point 2013: -0.2% 2.5% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0.0% -0.5% % Source: Japanese Statistics Bureau

38 Chart 37 G-7 Female Labor Force Participation Rates Canada 62.1% U.S. 59.9% U.K. 57.2% Germany 53.2% France 51.2% Japan 47.7% Italy 39.7% Source: Bureau of Labor Statistics

39 Chart 38 Asian Foreign Exchange Rates change vs. U.S. dollar since 12/31/13 Stronger U.S. Dollar 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Dec-13 Mar-14 May-14 Jul-14 Oct-14 Dec-14 Source: Thomson Reuters Japanese Yen Thai Bhat Singapore Dollar Last Points: 01/30/15 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Chinese Yuan Korean Won Stronger U.S. Dollar

40 Chart 39 Eurozone Consumer and Import Prices year/year percent change 10% Last Points - Consumer 01/15: -0.6, Import 11/14: % 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -2% -4% Jan-11 Jun-11 Nov-11 Apr-12 Sep-12 Feb-13 Jul-13 Dec-13 May-14 Oct-14 Source: eurostat Consumer Prices Import Prices -4%

41 Chart and 30 Year Treasury Yields 4.00 Last Points 01/30/15: 30-year 2.25%; 10-year 1.68% Jan-13 May-13 Oct-13 Feb-14 Jul-14 Dec Source: Federal Reserve 30-Year Yield 10-Year Yield

42 Chart 41 Survey of Professional Forecasters: Average 12-month Forecast for 10-Year Treasury Yield Last Point 4Q 2015: 2.98% Source: Federal Reserve Bank of Philadelphia 10-Year Treasury Rate 12-Month Forecast

43 Chart Year Treasury Note Forecasts for January 2015 forecasts made June 8, 2014 David Blanchflower 2.00 Marc Faber 2.40 Larry Lindsey 3.05 David Rosenberg 3.25 Gary Shilling 1.80 Ed Yardeni 3.05

44 Chart Year Sovereign Bond Yields as of 01/30/15 Yield Spread vs. Treasurys Switzerland Japan Germany Denmark Netherlands Australia Finland France Belgium Ireland Norway Canada U.K Spain Italy U.S Australia Portugal Greece Source: Financial Times

45 Chart 44 Comparative Stock and Bond Performances Last Points January Stocks: 4,257; Bonds: 30, Oct-81 Oct-86 Oct-91 Oct-96 Oct-01 Oct-06 Oct Year Zero Coupon Bond (Oct-81=100) 30,851 or 18.8% Annual Return S&P 500 Total Return (July-82=100) 4,257 or 12.2% Annual Return Source: Bianco Research & Haver Analytics

46 Chart 45 Dollar Index vs. Major Currencies Last Point January 2015: Jan-73 May-81 Sep-89 Jan-98 May-06 Sep-14 Source: Federal Reserve

47 Chart S&P 500 Sector Performance S&P 500 Close 2014 % Change 12/31/ % 12/31/ S&P 500 Sectors 2014 % Change Utilities 24.3% Health Care 23.3% Information Technology 18.2% Financials 13.1% Consumer Staples 12.9% Consumer Discretionary 8.1% Industrials 7.5% Materials 4.7% Telecommunication Services -1.9% Energy -10.0% Source: S&P Indices

48 Chart 47 S&P 500 Index Last Point 01/30/15: Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12 Nov-12 Sep-13 Jul-14 Source: Thomson Reuters

49 Cyclically Adjusted Stock Price to Earnings Ratio S&P 500 price /avg. earnings from previous 10 years Average: 16.6 Chart 48 Last Point January 2015: Source: Robert Shiller