Playing Ball in the Later Innings Dr. Mark G. Dotzour College Station, Texas.

Transcription

1 Playing Ball in the Later Innings Dr. Mark G. Dotzour College Station, Texas

2 Since 1945, there have been 11 economic cycles The average recession has been 11.1 months The average expansion has been 58.4 months Source: National Bureau of Economic Research

3 Since 1945 there have been 11 economic cycles The average recession has been 11.1 months The average expansion has been 58.4 months. In September, the current expansion is 87 months. Source: National Bureau of Economic Research

4 Average Annual GDP Growth Rate During Previous Expansions Source: Commerce Department WSJ 7/31/2016

5 Nationally Still Bullish, but the Signals are Mixed

6 Percent U.S. Leading Index of Economic Indicators 4 Lending Index for the U.S Source: Federal Reserve Bank of St. Louis - FRED

7 Change, Thousands of Persons Monthly Increase in Nonfarm Workers 600 All Employees: Total Nonfarm Payrolls Source: Federal Reserve Bank of St. Louis - FRED

8 Percent Change from Year Ago Average Hourly Earnings of All Employees 4.0 Average Hourly Earnings of All Employees: Total Private Source: Federal Reserve Bank of St. Louis/US Bureau of Labor Statistics

9 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 Feb-15 Aug-15 Feb-16 Consumer Confidence Index Source: The Conference Board

10 Oct-98 Jul-99 Apr-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Net % of Respondents Small Business Outlook Planning To Hire People In The Next Three Months 25 Planning to Hire People in the Next Three Months Source: National Federation of Independent Business

11 Corporate Profits (With Inventory Valuation Adjustment & Capital Consumption Adjustment) Billions of Dollars Jan-90 Oct-99 Jul-09 1,800 1,600 1,400 Corporate Profits After Tax with Inventory Valuation Adjustment (IVA) and Capital Consumption Adjustment 1,200 1, Source: U.S.Dept. of Commerce: Bureau of Economic Analysis

12 Job Openings in America Total Job Openings 5,500,000 Construction 188,000 Manufacturing 353,000 Trade, Transportation, Utilities 944,000 Professional & Business Services 1,021,000 Education & Health Care 1,080,000 Leisure & Hospitality 760,000 Government 542,000 Decline from last month Source: Bureau of Labor Statistics BLS release on July 12, 2016

13 Jan-76 Sep-81 May-87 Jan-93 Sep-98 May-04 Jan-10 Sep-15 Millions of Units Light Weight Vehicle Sales: Autos & Light Trucks 25 Light Weight Vehicle Sales: Autos & Light Trucks Source: U.S. Dept. of Commerce: Bureau of Economic Analysis/FRED

14 Corporate Hiring Plans: Next 6 Months Q2-16 Q1-16 Q4-15 Q3-15 More Jobs 29% 29% 35% 33% Less Jobs 35% 38% 34% 32% Source: Business Roundtable

15 U.S. Freight Movement Slowing All Freight Modes, All Types of Products Source: Cass Information Systems

16 Job Growth in the 21rst Century Change TX 9,929,387 12,494,350 2,564,963 CA 16,033,179 17,798,614 1,765,435 FL 7,565,981 9,153,264 1,587,283 AZ 2,410,581 2,959, ,937 VA 3,522,865 4,051, ,043 NC 3,986,151 4,495, ,322 GA 4,071,557 4,549, ,394 WA 2,901,492 3,343, ,500 CO 2,294,408 2,718, ,290

17 Texas Economy More Diversified Percentage Change in Employment

18 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16 Thousands of Workers Total Texas Non-Farm Employment 12,500 11,500 10,500 9,500 8,500 7,500 6,500 Source: Federal Reserve Bank of Dallas

19 Texas Index of Leading Indicators

20 Austin Business-Cycle Index

21 Dallas Business-Cycle Index

22 El Paso Business-Cycle Index

23 Fort Worth Business-Cycle Index

24 Houston Business-Cycle Index

25 San Antonio Business-Cycle Index

26 Mythical Chimera Something that exists only in the imagination and is not possible in reality.

27 Mark Dotzour s Chimera: Winning the Masters with an 15 Handicap

28 Japan s Chimera: Quantitative Easing in a New Dimension On Apr 4, 2013 BOJ will buy 50 trillion in JGB and 10 trillion in Nikkei ETFs Plan to double the monetary base from 135 trillion yen to 270 in two years. Government Pension Investment Fund will cut holdings of government bonds from 60% to 35% to increase demand for stocks. This is taking monetary easing into an entirely new dimension. H. Kuroda, Governor BOJ

29 Japan is Imploding (Now) The BOJ is now a top-ten stock holder in about 90% of the stocks on the Nikkei 225. The Nikkei is down 9% so far in Buying 3 trillion yen of stock every month. Goldman estimates by 2017, the BOJ will be the largest stockholder in 40 of the Nikkei companies. BOJ currently owns about 55% of the ETF market. Won t sell ETF holdings until 2026.

30 Chinese Chimera: The Shanghai Stock Exchange Plunged 30% in three weeks in June You can buy, but you can t sell. Please borrow money to buy stocks. Half of all shares are suspended from trading. Declared war on foreign puppet masters and vicious short sellers.

31 The Governing Council is willing and able to act by using all the instruments available within its mandate if warranted in order to maintain an appropriate degree of monetary accommodation. Draghi, November 3, 2015 European Chimera: I can help countries that are heavily in debt by loaning them even more money.

32 Low Interest Rates Around the World German 2-year -.67 German 5-year -.58 German 10-year -.09% Swedish 10-year.18% Dutch 10-year.08% Swiss 10-year -.66% Japanese 10-year -.29% US 10-year 1.51%

33 Percent Chg. From Year Ago Inflation Rate Remains Low Consumer Price Index for All Urban Consumers: All Items Jan-20 Jul-34 Jan-49 Jul-63 Jan-78 Jul-92 Jan-07 Source: U.S. Dept. of Labor: Bureau of Labor Statistics

34 Percent University of Michigan Inflation Expectation 12 University of Michigan Inflation Expectation Jan-78 May-83 Sep-88 Jan-94 May-99 Sep-04 Jan-10 May-15 Source: Thomson Reuters/University of Michigan

35 Apr-71 Aug-77 Dec-83 Apr-90 Aug-96 Dec-02 Apr-09 Percent The End of the Credit Super Cycle? Maybe Not year mortgage rate 10 year treasury rate Source: Board of Governors of the Federal Reserve System/FRED

36 The Energy War Escalates

37 Energy Wars $65 is a Fair Price OPEC president Mohammed bin Saleh al-sada said a minimum price of $65 a barrel is badly needed at the moment. He cautioned that the security of future supplies is as risk because of the price slump that has squeezed oil producers since Source: Associated Press 5/24/16

38 Energy Wars Saudi Arabia Insolvency Saudi Arabia has announced it will raise domestic petrol prices by more than 50 per cent for some products. Prices will increase for electricity, water, diesel and kerosene, after the country posted a deficit of $135 billion in The 2015 deficit is the highest in the history of Saudi Arabia, which relies on oil for 90 per cent of public revenues. Contemplating selling a portion of ARAMCO to raise money. The IMF has warned Riyadh that failure to cut spending and implement reforms will eat up the country's fiscal reserves in just five years

39 Middle East Budget Strains The Saudi Binladin Group is the largest construction company in the Persian Gulf region. They have an estimated $30 billion in debt They haven t paid subcontractors and suppliers for months. The Saudi government is delaying payment for completed projects. WSJ 3/26/16

40 Energy Wars Thousands of Indian workers in Saudi Araia haven t been paid for months, prompting India s government to hand out food to hungry workers. Assisting 10,000 Indian workers who New Delhi says are without a job, pay and food. Some workers for Saudi Oger report they haven t been paid in seven months. Source: WSJ August 1, 2016

41 Middle East Budget Strains Qatar s ruler on Tuesday warned citizens that the small Gulf state s government can no longer provide for everything and called on individuals to take personal initiatives to build a strong nation, amid a year of tumbling oil prices likely to dent national budgets in the region. Source: Al Arabiya 11/3/15

42 February 3, 2016

43 Energy Wars US Oil Fields Profitable Below $40 Continental Resources says that its 2016 capital expenditures budget will be cash flow neutral at an average WTI price of $ Their 2016 budget will be $920 million, compared to $2.5 billion last year.

44 Energy Wars U.S. Private Equity Waiting in the Wings Possibly $100 billion in private equity capital waiting to buy distressed energy assets.