Back to the Future Part II

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1 Back to the Future Part II On Behalf of FEMSA/FAMA By: Anirban Basu Sage Policy Group, Inc. October 2 nd, 2014

2 Raging Bull (1980)

3 Es2mated Growth in Output by Select Global Areas 2014 Projected* Advanced economies Euro area France Germany Italy Spain Japan United Kingdom Canada United States Emerging/developing countries Sub-Saharan Africa Central/eastern Europe Russia Developing Asia China India** Middle East, North Africa, Afghanistan, & Pakistan Latin America and Caribbean Brazil Mexico Source: International Monetary Fund, July 2014 WEO Update 1.1% 1.8% 0.7% 1.9% 0.3% 1.2% 1.6% 0.2% 2.2% 1.7% 2.8% 3.2% 3.1% 2.0% 1.3% 2.4% *The IMF s global and regional growth figures for 2014 are based on new purchasing power parity (PPP) weights derived from the recently released 2011 International Comparison Program survey (see box) and are not comparable to the 2013 figures reported in the April 2014 WEO **For India, data and forecasts are presented on a fiscal year basis and output growth is based on GDP at market prices. Corresponding growth forecasts for GDP at factor cost are 5.4 percent for % 5.4% 5.4% 6.4% 7.4% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% Annual % Change

Debt by Selected Country 2013 Es2mates* Japan Italy United States Spain France United Kingdom Canada Germany India Brazil Argentina Mexico South Africa Indonesia China

4 Debt by Selected Country 2013 Es2mates* Japan Italy United States Spain France United Kingdom Canada Germany India Brazil Argentina Mexico South Africa Indonesia China Russia Saudi Arabia Source: International Monetary Fund, April 2014 WEO General Government Gross Debt in Percent of GDP *IMF Staff Estimates

5 Top 12 Stock Exchanges 2013 Growth* Rank Exchange Index % Change 4 Tokyo SE Nikkei % 2 Nasdaq NASDAQ Composite 38.3% 1 NYSE Group DJI A 26.5% 6 Frankfurt SE DAX 25.5% 8 Bolsa De Madrid Madrid General 21.4% 12 Swiss Exchange Swiss Market 20.2% 5 Euronext CAC % 10 BorsaItaliana FTSE MIB 16.6% 3 London SE FTSE % 9 TSX Group S&P TSX Composite 9.6% 11 Hong Kong Exchanges Hang Seng Index 2.9% 7 Shanghai SE Shanghai Composite -6.8% Source: Yahoo! Finance *Change from the 2012 close to the 2013 close.

S&P Select Sector Performance 12- Month Percent Change as of September 26, 2014 Health Care Information Technology 25.5% 27.0% Materials 18.0% Financials 15.

6 S&P Select Sector Performance 12- Month Percent Change as of September 26, 2014 Health Care Information Technology 25.5% 27.0% Materials 18.0% Financials 15.7% Industrials Consumer Staples Utilities Consumer Discretionary Energy 13.3% 11.5% 11.0% 10.9% 9.8% Telecommunication Services 6.0% 0% 5% 10% 15% 20% 25% 30% 12- month percent change Source: Standard & Poor s

7 Federal Reserve Balance Sheet v. S&P 500 Index May 2008 September 2014* FRB Credit Reserve $Trillions 4.8 S&P S&P 500 index depicted in orange 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 Jul- 10 Sep- 10 Nov- 10 Jan- 11 Mar- 11 May- 11 Jul- 11 Sep- 11 Nov- 11 Jan- 12 Mar- 12 May- 12 Jul- 12 Sep- 12 Nov- 12 Jan- 13 Mar- 13 May- 13 Jul- 13 Sep- 13 Nov- 13 Jan- 14 Mar- 14 May- 14 Jul- 14 Sep Source: Federal Reserve Bank; Yahoo Finance *Through 9/24/2014

8 Second Quarter Earnings for Select Corpora2ons Earnings per Share Symbol Q Q Estimated Q Reported Surprise Symbol Q Q Estimated Q Reported Surprise CMG $2.82 $3.09 $3.50 $0.41 BTU $ $ $0.28 $0.01 COF $1.87 $1.82 $2.04 $0.22 DD $1.28 $1.17 $1.17 $0.00 UTX $1.70 $1.71 $1.84 $0.13 GE $0.36 $0.39 $0.39 $0.00 FCX $0.22 $0.51 $0.58 $0.07 MMM $1.71 $1.91 $1.91 $0.00 COH $0.89 $0.53 $0.59 $0.06 AMD - $0.09 $0.03 $ $0.01 TXN $0.58 $0.59 $0.62 $0.03 YHOO $0.35 $0.38 $ $0.01 DOW $0.64 $0.72 $0.74 $0.02 STI $0.68 $0.76 $ $0.04 HON $1.28 $1.36 $1.38 $0.02 UPS $1.13 $1.25 $ $0.04 VFC $0.32 $0.35 $0.36 $0.01 MCD $1.38 $1.44 $ $0.04 XRX $0.27 $0.26 $0.27 $0.01 MSFT $0.66 $0.60 $ $0.05 VZ $0.73 $0.90 $0.91 $0.01 CAT $1.45 $1.53 $ $0.16 Source: Yahoo! Finance

9 Top Gun (1986) Profits out of the Danger Zone 60% Profits 49.2% Percent change since end of % 20% 0% - 20% Stocks 25.9% Incomes 2.7% Jobs - 0.7% Housing % - 40% - 60% Source: BEA, BLS, S&P Case-Shiller, Yahoo! Finance

10 The Golden Child (1986) Highest Earning Hedge Fund Managers, 2013 Manager Hedge Fund Firm 2013 Earnings Net Return George Soros Soros Fund Management $4 billion 22% David Tepper Appaloosa Management $3.5 billion 42% Steve Cohen SAC Capital Advisors $2.3 billion 19% John Paulson Paulson Enhanced $1.9 billion 26% Carl Icahn Icahn Enterprises $1.7 billion 31% James Simons Renaissance Technologies $1.1 billion 18% Ray Dalio Bridgewater Associates $900 million 5.25% Ken Griffin Citadel $900 million 19.25% Larry Robbins Glenview Capital $750 million 43% Leon Cooperman Omega $730 million 25% Source: Forbes 2013 S&P 500: +29.6%

Airplane! (1980) David Tepper s Move against the Market Our big play versus the market is airlines. That s a big play. We re the biggest holder of all these different airlines.

11 Airplane! (1980) David Tepper s Move against the Market Our big play versus the market is airlines. That s a big play. We re the biggest holder of all these different airlines. No hedge fund owned as many airlines as we did and not too many people did. Delta, UAL, LCC, US Air, AMR. We owned big percentages in all those stocks. And you know what, they did pretty good pretty freaking good. - David Tepper Source: Forbes, Bloomberg 2013 Appaloosa Management: +$3.5 billion (42%)

12 Median Weekly Earnings, Full- Time U.S. Workers* 2000Q2 through 2014Q2 $350 $345 $340 $335 $330 $325 $ Q2 2000Q4 2001Q2 2001Q4 2002Q2 2002Q4 2003Q2 2003Q4 2004Q2 2004Q4 2005Q2 2005Q4 2006Q2 2006Q4 2007Q2 2007Q4 2008Q2 2008Q4 2009Q2 2009Q4 2010Q2 2010Q4 2011Q2 2011Q4 2012Q2 2012Q4 2013Q2 2013Q4 2014Q2 Source: U.S. Bureau of Labor Statistics *SA, Constant dollars (adjusted to CPI- U) Wage and salary workers ages 16+

13 Recession Watch as of July 2014 Source: Moody s Economy

Industrial Produc2on January 2001 through August 2014 105 100 (Base year: 2007) Index (2007 = 100) 95 90 85 80 Jan- 01 Jul- 01 Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06

14 Industrial Produc2on January 2001 through August (Base year: 2007) Index (2007 = 100) Jan- 01 Jul- 01 Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12 Jan- 13 Jul- 13 Jan- 14 Jul- 14 Source: Federal Reserve The industrial production index measures the real output of the manufacturing, mining, and electric and gas utilities industries.

15 Gross Domes2c Product 1990Q1 through 2014Q2 Percent Change from Preceding Period (SAAR) 8% 6% 4% 2% 0% - 2% - 4% - 6% - 8% - 10% 2014Q2: +4.6% Source: Bureau of Economic Analysis

Contribu2ons to GDP Growth by Component 2013Q2 2014Q2 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 3.0 2.5 2.5 2.9 SAAR (%) 2.0 1.0 0.0-1.0-2.0 1.2 1.4 0.8 1.8 0.0 0.0-0.

16 Contribu2ons to GDP Growth by Component 2013Q2 2014Q2 Q2-13 Q3-13 Q4-13 Q1-14 Q SAAR (%) Personal Consumption Government Spending Net Exports Gross Investment Source: Bureau of Economic Analysis

17 Ordinary People (1980)

18 Net Change in U.S. Jobs, BLS January 2002 through August Thousands August 2014: +142K Jan- 02 Jun- 02 Nov- 02 Apr- 03 Sep- 03 Feb- 04 Jul- 04 Dec- 04 May- 05 Oct- 05 Mar- 06 Aug- 06 Jan- 07 Jun- 07 Nov- 07 Apr- 08 Sep- 08 Feb- 09 Jul- 09 Dec- 09 May- 10 Oct- 10 Mar- 11 Aug- 11 Jan- 12 Jun- 12 Nov- 12 Apr- 13 Sep- 13 Feb- 14 Jul- 14 Source: U.S. Bureau of Labor Statistics

19 Na2onal Nonfarm Employment by Industry Sector August 2013 v. August 2014 Professional and Business Services 639 Trade, Transportation, and Utilities 529 Education and Health Services Leisure and Hospitality Construction 232 Manufacturing 168 Financial Activities Mining and Logging Other Services Government All told 2,482K Jobs gained Information Thousands, SA Source: U.S. Bureau of Labor Statistics

20 Employment Growth, U.S. States (SA) August 2013 v. August 2014 Percent Change RANK STATE % RANK STATE % RANK STATE % 1 NORTH DAKOTA MISSOURI KANSAS NEVADA SOUTH CAROLINA PENNSYLVANIA TEXAS MASSACHUSETTS ILLINOIS UTAH MINNESOTA MICHIGAN FLORIDA WISCONSIN MISSISSIPPI DELAWARE ARKANSAS NEW MEXICO OREGON LOUISIANA SOUTH DAKOTA NORTH CAROLINA KENTUCKY NEBRASKA COLORADO MAINE IDAHO GEORGIA IOWA VIRGINIA CALIFORNIA NEW YORK MARYLAND TENNESSEE RHODE ISLAND NEW HAMPSHIRE WASHINGTON WYOMING VERMONT ARIZONA ALABAMA CONNECTICUT INDIANA HAWAII OHIO OKLAHOMA WEST VIRGINIA NEW JERSEY MONTANA DISTRICT OF COLUMBIA ALASKA -0.8 Source: U.S. Bureau of Labor Statistics U.S. Year- over- year Percent Change: 1.8%

21 Unemployment Rates, U.S. States (SA) August 2014 RANK STATE % RANK STATE % RANK STATE % 1 NORTH DAKOTA VIRGINIA WEST VIRGINIA NEBRASKA WASHINGTON ILLINOIS SOUTH DAKOTA WISCONSIN NEW MEXICO UTAH OHIO ALASKA VERMONT INDIANA NORTH CAROLINA HAWAII LOUISIANA ALABAMA MINNESOTA MASSACHUSETTS ARIZONA NEW HAMPSHIRE PENNSYLVANIA KENTUCKY IOWA ARKANSAS OREGON WYOMING FLORIDA CALIFORNIA IDAHO MISSOURI MICHIGAN MONTANA MARYLAND TENNESSEE OKLAHOMA NEW YORK DISTRICT OF COLUMBIA KANSAS SOUTH CAROLINA NEVADA COLORADO DELAWARE RHODE ISLAND TEXAS CONNECTICUT MISSISSIPPI MAINE NEW JERSEY GEORGIA 8.1 Source: U.S. Bureau of Labor Statistics U.S. Unemployment Rate: 6.1%

22 Unemployment Rates, 20 Largest Metros (NSA) August 2014 Rank MSA UR Rank MSA UR 1 Minneapolis-St. Paul-Bloomington, MN-WI Metropolitan Statistical Area Phoenix-Mesa-Glendale, AZ Metropolitan Statistical Area Seattle-Tacoma-Bellevue, WA Metropolitan Statistical Area Miami-Fort Lauderdale-Pompano Beach, FL Metropolitan Statistical Area Houston-Sugar Land-Baytown, TX Metropolitan Statistical Area St. Louis, MO-IL Metropolitan Statistical Area San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area Boston-Cambridge-Quincy, MA-NH Metropolitan NECTA Dallas-Fort Worth-Arlington, TX Metropolitan Statistical Area Washington-Arlington-Alexandria, DC-VA-MD-WV Metropolitan Statistical Area San Diego-Carlsbad-San Marcos, CA Metropolitan Statistical Area Chicago-Joliet-Naperville, IL-IN-WI Metropolitan Statistical Area New York-Northern New Jersey-Long Island, NY-NJ- PA Metropolitan Statistical Area Philadelphia-Camden-Wilmington, PA-NJ-DE- MD Metropolitan Statistical Area 6.7 Tampa-St. Petersburg-Clearwater, FL Metropolitan Statistical Area 6.8 Baltimore-Towson, MD Metropolitan Statistical Area 7.0 Los Angeles-Long Beach-Santa Ana, CA Metropolitan Statistical Area 7.7 Detroit-Warren-Livonia, MI Metropolitan Statistical Area 7.9 Atlanta-Sandy Springs-Marietta, GA Metropolitan Statistical Area 8.0 Riverside-San Bernardino-Ontario, CA Metropolitan Statistical Area 8.7 Source: U.S. Bureau of Labor Statistics

23 Firefighters: Occupa2onal Outlook Employment for firefighters is projected to grow 7% from , slower than the average for all occupations (11%) (WRONG, WRONG, WRONG); As population ages, demand for firefighters will increase 2/3 of situations that firefighters respond to are medical Volunteer positions will be converted to paid positions in areas where population growth creates a need for a full- time workforce Source: U.S. Bureau of Labor Statistics

24 Volunteers Tough to Find Volunteers have dropped from 300,000 to 50,000 over past 30 years Training costs have increased Businesses increasingly reluctant to allow employees to volunteer Single- Income families no longer commonplace Source: U.S. Bureau of Labor Statistics

25 Field of Dreams (1989)

26 15- Year & 30- Year Fixed Mortgage Rates February 1995 through September 2014* 10% 9% 8% 7% 15- yr 30- yr Rate 6% 5% 4% 3% 2% 4.20% 3.36% 1% Feb- 95 Aug- 95 Feb- 96 Aug- 96 Feb- 97 Aug- 97 Feb- 98 Aug- 98 Feb- 99 Aug- 99 Feb- 00 Aug- 00 Feb- 01 Aug- 01 Feb- 02 Aug- 02 Feb- 03 Aug- 03 Feb- 04 Aug- 04 Feb- 05 Aug- 05 Feb- 06 Aug- 06 Feb- 07 Aug- 07 Feb- 08 Aug- 08 Feb- 09 Aug- 09 Feb- 10 Aug- 10 Feb- 11 Aug- 11 Feb- 12 Aug- 12 Feb- 13 Aug- 13 Feb- 14 Aug- 14 Source: Freddie Mac *Week ending 9/25/2014

27 U.S. New Home Sales January 1999 through August ,600 1,400 1,200 Thousands, SAAR 1, August K Source: U.S. Census Bureau

28 U.S. Housing Starts January 1999 through August ,500 Thousands, SAAR 2,000 1,500 1,000 1 Unit 5 units or more August 2014: 1 Unit: 643K 5 Units or more: 304K Jan- 99 Jul- 99 Jan- 00 Jul- 00 Jan- 01 Jul- 01 Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12 Jan- 13 Jul- 13 Jan- 14 Jul- 14 Source: U.S. Census Bureau

U.S. Housing Building Permits January 1999 through August 2014 2,500 Thousands, SAAR 2,000 1,500 1,000 1 Unit 5

Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08

29 U.S. Housing Building Permits January 1999 through August ,500 Thousands, SAAR 2,000 1,500 1,000 1 Unit 5 units or more August 2014: 1 Unit: 626K 5 Units or more: 343K Jan- 99 Jul- 99 Jan- 00 Jul- 00 Jan- 01 Jul- 01 Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12 Jan- 13 Jul- 13 Jan- 14 Jul- 14 Source: U.S. Census Bureau

30 S&P/Case-Shiller Home Price Indices for Select Metros July 2014, 12-Month Percentage Change 14% 12.8% 12- Month % Change 12% 10% 8% 6% 4% 3.8% 3.8% 4.0% 5.7% 6.7% 6.7% 6.8% 7.4% 8.4% 9.0% 10.3% 11.0% 2% 0% Source: Standard & Poor s

31 The Shining (1980)

32 Conference Board Consumer Confidence Index 2005 September September Feb- 08 Apr- 08 Jun- 08 Aug- 08 Oct- 08 Dec- 08 Feb- 09 Apr- 09 Jun- 09 Aug- 09 Oct- 09 Dec- 09 Feb- 10 Apr- 10 Jun- 10 Aug- 10 Oct- 10 Dec- 10 Feb- 11 Apr- 11 Jun- 11 Aug- 11 Oct- 11 Dec- 11 Feb- 12 Apr- 12 Jun- 12 Aug- 12 Oct- 12 Dec- 12 Feb- 13 Apr- 13 Jun- 13 Aug- 13 Oct- 13 Dec- 13 Feb- 14 Apr- 14 Jun- 14 Aug- 14 Source: Conference Board

U.S. Retail and Food Service Sales January 2001 through August 2014 15.0% 10.0% August 2014: 5.0% Year to Year % change 5.0% 0.0% - 5.0% - 10.0% - 15.

33 U.S. Retail and Food Service Sales January 2001 through August % 10.0% August 2014: 5.0% Year to Year % change 5.0% 0.0% - 5.0% % % Jan- 01 Jul- 01 Jan- 02 Jul- 02 Jan- 03 Jul- 03 Jan- 04 Jul- 04 Jan- 05 Jul- 05 Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12 Jan- 13 Jul- 13 Jan- 14 Jul- 14 Source: U.S. Census Bureau

34 Sales Growth by Type of Business August 2013 v. August 2014* Motor Vehicle & Parts Dealers Health & Personal Care Stores Food Services & Drinking Places Internet, etc. Retailers Building Material & Garden Supplies Dealers Sporting Goods, Hobby, Book & Music Stores Food & Beverage Stores Miscellaneous Store Retailers Clothing & Clothing Accessories Stores Furniture & Home Furn. Stores General Merchandise Stores Electronics & Appliance Stores Gasoline Stations - 0.8% 4.8% 3.6% 3.4% 3.2% 3.0% 1.9% 1.7% 8.9% 8.1% 7.1% 7.1% 6.7% - 5.0% - 3.0% - 1.0% 1.0% 3.0% 5.0% 7.0% 9.0% 11.0% 12- month % change Source: U.S. Census Bureau *August 2014 advanced estimate

Conference Board Leading Economic Indicators Index August 2007 through August 2014 1.5% One- month Percent Change 1.0% 0.5% 0.0% - 0.5% - 1.0% - 1.5% August 2014 = 103.

35 Conference Board Leading Economic Indicators Index August 2007 through August % One- month Percent Change 1.0% 0.5% 0.0% - 0.5% - 1.0% - 1.5% August 2014 = where 2004=100 Aug- 07 Nov- 07 Feb- 08 May- 08 Aug- 08 Nov- 08 Feb- 09 May- 09 Aug- 09 Nov- 09 Feb- 10 May- 10 Aug- 10 Nov- 10 Feb- 11 May- 11 Aug- 11 Nov- 11 Feb- 12 May- 12 Aug- 12 Nov- 12 Feb- 13 May- 13 Aug- 13 Nov- 13 Feb- 14 May- 14 Aug- 14 Source: Conference Board

36 Coming to America (1988) Economy gained momentum over the course of last year; Tailwinds included booming stock market, lower gasoline prices, stabilizing global economy, and consumer expenditures on interest rate sensitive durable goods like housing and autos; The current year is associated with greater certainty regarding federal budgeting and monetary policy that helps; The world is not perfect - black swan threats remain: (1) Iran (2) Israel/Iran (3) Europe (4) contagion (5) cyber (6) EMP; Healthcare reform could slow full- time hiring over the course of the year; and Regions with rapid population growth and/or significant import/export activity, industrial output and energy production will lead the way.

37 Thank You Follow us on You can always reach me at Please look for updates of information at Also, if you need us in a hurry, we are at ( SAGE) Please contact us when you require economic research & policy analysis.

Back to the Future Part II

Back to the Future Part II On Behalf of The Loudoun County Chamber of Commerce By: Anirban Basu Sage Policy Group, Inc. October 21 st, 2014 Raging Bull (1980) Estimated Growth in Output by Select Global