Markets, He Wrote. By: Anirban Basu Sage Policy Group, Inc. On Behalf of The Mid-Atlantic CIO Forum. December 21 st, 2017

Transcription

1 Markets, He Wrote On Behalf of The Mid-Atlantic CIO Forum By: Anirban Basu Sage Policy Group, Inc. December 21 st, 2017

2 Macro P.I. (Just How Hairy is the Global Situation?) Photo: Flixter.com

3 Estimated Growth in Output by Select Global Areas 2017 Projected Advanced Economies Euro Area France Germany Italy Spain Japan United Kingdom Canada Australia United States Emerging Market & Developing Economies Sub-Saharan Africa Emerging & Developing Europe Russia Emerging & Developing Asia China India (3) Middle East, North Africa, Afghanistan, & Pakistan Latin America & the Caribbean Mexico Brazil 2017 Proj. Global Output Growth: 3.6% Source: International Monetary Fund: World Economic Outlook Database, October Growth (Estimate) World: 3.2% Euro Area: 1.8% United States: 1.5% Japan: 1.0% 2.2% 2.1% 1.6% 2.1% 1.5% 3.1% 1.5% 1.7% 3.0% 2.2% 2.2% 4.6% 2.6% 4.5% 1.8% 2.6% 1.2% 2.1% 0.7% 6.5% 6.8% 6.7% -6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% Annual % Change

4 International Population Dynamics, 16 Largest Nations Nation Population (Millions) Net Change % Change Nigeria % Ethiopia % Egypt % Pakistan % Philippines % Mexico % India 1, , % Bangladesh % Indonesia % United States % Vietnam % Brazil % China 1, , % Germany % Russian Federation % Japan % World 7.6 billion 9.8 billion 2.2 billion 29.4% Source: United Nations, Department of Economic and Social Affairs (DESA)/Population Division. World Population Prospects: The 2017 Revision. *For statistical purposes, the data for China do not include Hong Kong and Macao, Special Administrative Regions (SAR) of China, and Taiwan Province of China.

5 Niamey Vice (Fertility Rates by Country, 2015) Rank* Top 15 Bottom 15 Country Fertility Rate Rank* Country Fertility Rate 1 Niger Malta Somalia Italy Dem. Rep. of the Congo Slovak Republic Mali Mauritius Chad Cyprus Burundi Bosnia and Herzegovina Angola Poland Uganda Spain Timor-Leste Greece Nigeria Macao SAR, China Gambia, The Moldova Burkina Faso Singapore Mozambique Korea, Rep Tanzania Portugal Benin Hong Kong SAR, China 1.20 Source: World Bank, World Development Indicators *Rank among 201 countries for which data are available for the most recent year (2015) **Total fertility rate represents the number of children that would be born to a woman if she were to live to the end of her childbearing years and bear children in accordance with age-specific fertility rates of the specified year.

6 Global Debt to Exacerbate Slow Growth? According to the IMF, global debt reached an all-time high in 2015; At $152 trillion, global gross debt of the nonfinancial sector now represents 225% of global GDP; About 2/3 of this debt is in the private sector; Current low nominal-growth environment is making adjustment difficult, setting the stage for a vicious feedback loop in which lower growth hampers deleveraging and the debt overhang exacerbates the slowdown. 2 Sources: 1. International Monetary Fund. October World Economic Outlook: Subdued Demand: Symptoms and Remedies. 2. International Monetary Fund (IMF). October Fiscal Monitor: Debt Use It Wisely. Note: The nonfinancial sector comprises the general government, nonfinancial firms, and households. Gross debt represents the unconsolidated liabilities of the three.

7 Global Debt Reaches All Time Highs (IIF) According to the International Institute of Finance (IIF), global debt has reached an all-time high in 2016; At $215 trillion, global debt including household, government, and corporate now represents 325% of global GDP; Last year the IMF warned of risks to the global economy: sheer size of debt could set the stage for an unprecedented private deleveraging process that could thwart the fragile economic recovery Sources: 1. Institute of International Finance (IFF), Global Debt Monitor. 2. Business Insider. 3. The Telegraph. 4. Reuters.

8 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 $/Barrel NYMEX Crude Oil Future Prices in U.S. Dollars November 2001 through November 2017 $140 $120 $100 November 2017: $56.66 /Barrel $80 $60 $40 $20 $0 Source: U.S. Energy Information Administration *Month of November = average of daily prices from 11/1-11/30

9 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov =100 Metal Price Indices November 2007 through November Precious Metals 65 Base Metals 45 Iron Ore 25 Source: The World Bank US$ Nominal Base metals include aluminum, copper, lead, nickel, tin and zinc. Precious metals include gold, platinum, and silver.

10 Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12 Dec-12 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Apr-17 Aug-17 Dec-17 Baltic Dry Index December 2009 through December ,000 4,000 3,000 2,000 1,000 December 15 th 1,619 0 Jan. 4, 1985: 1,000 Source: Quandl.com The Baltic Dry Index (BDI) is a measure of the price of shipping major raw materials such as metals, grains, and fossil fuels by sea. The BDI is a composite of 3 sub-indices, each covering a different carrier size: Capesize, Panamax, and Supramax.

11 USA CSI (Commercial Situation Investigation) Photo: AMCNetworks.com

12 1990Q3 1991Q2 1992Q1 1992Q4 1993Q3 1994Q2 1995Q1 1995Q4 1996Q3 1997Q2 1998Q1 1998Q4 1999Q3 2000Q2 2001Q1 2001Q4 2002Q3 2003Q2 2004Q1 2004Q4 2005Q3 2006Q2 2007Q1 2007Q4 2008Q3 2009Q2 2010Q1 2010Q4 2011Q3 2012Q2 2013Q1 2013Q4 2014Q3 2015Q2 2016Q1 2016Q4 2017Q3 % Change from Preceding Period (SAAR) Gross Domestic Product 1990Q3 through 2017Q3* 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 2017Q3: +3.3% Source: Bureau of Economic Analysis *2 nd Estimate

13 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Nov-09 Mar-10 Jul-10 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Thousands Net Change in U.S. Jobs, BLS November 2002 through November November 2017: +228K Source: U.S. Bureau of Labor Statistics

14 National Nonfarm Employment by Industry Sector November 2016 v. November 2017 Professional and Business Services Education and Health Services Leisure and Hospitality Manufacturing Construction Financial Activities Trade, Transportation, and Utilities Other Services Mining and Logging Government Information All told 2,071K jobs gained Thousands, SA Source: U.S. Bureau of Labor Statistics

15 Nov-00 May-01 Nov-01 May-02 Nov-02 May-03 Nov-03 May-04 Nov-04 May-05 Nov-05 May-06 Nov-06 May-07 Nov-07 May-08 Nov-08 May-09 Nov-09 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17 Nov-17 U.S. Employment to Population Ratio November 2000 November November 2017: 60.1% Source: U.S. Bureau of Labor Statistics Note: Civilian employment-population ratio, population 16 years and over, seasonally adjusted (SA).

16 New York-Newark-Jersey City, NY-NJ-PA MSA Nonfarm Employment by Industry Sector Groups (NSA) October 2016 v. October 2017 Absolute Change Education and Health Services 46,600 Leisure and Hospitality Financial Activities 17,800 16,700 Professional and Business Services Mining, Logging, and Construction Other Services Manufacturing Government Information Trade, Transportation, and Utilities -6,700-10,400 8,900 8,000 7,700 1, NY MSA Total: +91.3K; +0.9% NY Total (SA): K; +1.1% US Total (SA): +2,007K; +1.4% -20,000-10, ,000 20,000 30,000 40,000 50,000 Source: U.S. Bureau of Labor Statistics

17 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA Nonfarm Emp. by Industry Sector Groups (NSA) October 2016 v. October 2017 Absolute Change Education & Health Services Professional & Business Services 15,500 14,400 Leisure & Hospitality 7,700 Financial Activities 4,100 Mining, Logging, & Construction Manufacturing Information Government , ,400 Philly MSA Total: +38.8K; +1.3% PA Total (SA): +65.8K; +1.1% Other Services Trade, Transportation & Utilities -2,200-2,500 US Total (SA): +2,007K; +1.4% -5, ,000 10,000 15,000 20,000 Source: U.S. Bureau of Labor Statistics

18 Baltimore-Columbia-Towson MSA Nonfarm Employment by Industry Sector Groups (NSA) October 2016 v. October 2017 Absolute Change Education and Health Services 8,800 Professional and Business Services 5,100 Government Mining, Logging, and Construction 2,100 3,100 Manufacturing 900 Other Services Information Leisure and Hospitality Baltimore MSA Total: +10.6K; +0.8% MD Total (SA): +54.4K; +2.0% Financial Activities Trade, Transportation, and Utilities -6,400-2,100 US Total (SA): +2,007K; +1.4% -10,000-5, ,000 10,000 Source: U.S. Bureau of Labor Statistics

19 Washington, DC-Arlington-Alexandria MSA Nonfarm Employment by Industry Sector Groups (NSA) October 2016 v. October 2017 Absolute Change Professional and Business Services 13,300 Education and Health Services 11,200 Leisure and Hospitality 8,800 Mining, Logging, and Construction Trade, Transportation, and Utilities Other Services 3,600 5,300 4,900 Financial Activities Government 300 1,400 DC MSA Total: +46.4K; +1.4% Manufacturing Information -2, US Total (SA): +2,007K; +1.4% -5, ,000 10,000 15,000 Source: U.S. Bureau of Labor Statistics

20 Employment Growth, U.S. States (SA) October 2016 v. October 2017 Percent Change RANK STATE % RANK STATE % RANK STATE % 1 NEVADA MINNESOTA IOWA UTAH COLORADO NEW HAMPSHIRE TEXAS WISCONSIN RHODE ISLAND OREGON ARIZONA VIRGINIA IDAHO MONTANA MAINE FLORIDA OKLAHOMA DELAWARE SOUTH CAROLINA TENNESSEE NEW JERSEY WASHINGTON HAWAII MISSISSIPPI MARYLAND MISSOURI NORTH DAKOTA GEORGIA NEW YORK LOUISIANA ARKANSAS OHIO WEST VIRGINIA MASSACHUSETTS PENNSYLVANIA ILLINOIS NORTH CAROLINA MICHIGAN ALASKA NEW MEXICO NEBRASKA CONNECTICUT ALABAMA VERMONT SOUTH DAKOTA CALIFORNIA DISTRICT OF COLUMBIA KANSAS KENTUCKY INDIANA WYOMING -0.5 Source: U.S. Bureau of Labor Statistics U.S. Year-over-year Percent Change: +1.4%

21 Employment Growth, 24 Largest Metros (NSA) October 2016 v. October 2017 Percent Change Rank MSA % Rank MSA % 1 Orlando-Kissimmee-Sanford, FL MSA Houston-The Woodlands-Sugar Land, TX MSA 1 Riverside-San Bernardino-Ontario, CA MSA Detroit-Warren-Dearborn, MI MSA Dallas-Fort Worth-Arlington, TX MSA Atlanta-Sandy Springs-Roswell, GA MSA Miami-Fort Lauderdale-West Palm Beach, FL MSA Minneapolis-St. Paul-Bloomington, MN-WI MSA Washington-Arlington-Alexandria, DC- VA-MD-WV MSA Philadelphia-Camden-Wilmington, PA- NJ-DE-MD MSA San Diego-Carlsbad, CA MSA San Francisco-Oakland-Hayward, CA MSA Seattle-Tacoma-Bellevue, WA MSA Denver-Aurora-Lakewood, CO MSA Boston-Cambridge-Nashua, MA-NH Metro NECTA New York-Newark-Jersey City, NY-NJ- PA MSA 9 Tampa-St. Petersburg-Clearwater, FL MSA St. Louis, MO-IL MSA Charlotte-Concord-Gastonia, NC-SC MSA Baltimore-Columbia-Towson, MD MSA Portland-Vancouver-Hillsboro, OR-WA MSA Los Angeles-Long Beach-Anaheim, CA MSA Phoenix-Mesa-Scottsdale, AZ MSA Chicago-Naperville-Elgin, IL-IN-WI MSA 0.5 Source: U.S. Bureau of Labor Statistics, Current Employment Statistics (CES) Survey 0.9

22 Unemployment Rates, 24 Largest Metros (NSA) October 2017 Rank MSA UR Rank MSA UR 1 Minneapolis-St. Paul-Bloomington, MN-WI MSA Charlotte-Concord-Gastonia, NC-SC MSA Denver-Aurora-Lakewood, CO MSA Miami-Fort Lauderdale-West Palm Beach, FL MSA St. Louis, MO-IL MSA (1) Portland-Vancouver-Hillsboro, OR-WA MSA Dallas-Fort Worth-Arlington, TX MSA Seattle-Tacoma-Bellevue, WA MSA San Francisco-Oakland-Hayward, CA MSA Atlanta-Sandy Springs-Roswell, GA MSA Boston-Cambridge-Nashua, MA-NH Metro NECTA Houston-The Woodlands-Sugar Land, TX MSA 7 Orlando-Kissimmee-Sanford, FL MSA Los Angeles-Long Beach-Anaheim, CA MSA Tampa-St. Petersburg-Clearwater, FL MSA Detroit-Warren-Dearborn, MI MSA Washington-Arlington-Alexandria, DC-VA-MD-WV MSA Phoenix-Mesa-Scottsdale, AZ MSA Philadelphia-Camden-Wilmington, PA- NJ-DE-MD MSA New York-Newark-Jersey City, NY-NJ- PA MSA 10 San Diego-Carlsbad, CA MSA Chicago-Naperville-Elgin, IL-IN-WI MSA Baltimore-Columbia-Towson, MD MSA Riverside-San Bernardino-Ontario, CA MSA Source: U.S. Bureau of Labor Statistics 1. Area boundaries do not reflect official OMB definitions. U.S. Unemployment Rate: 4.1%

23 21 Jump Street (And Other Addresses of Interest) Photo: TheMoveDatabase.org

24 National Nonresidential Construction Spending by Subsector October 2014 v. October 2017 Lodging Office Communication Amusement and recreation Educational Commercial Transportation Health care Power Highway and street Conservation and development Manufacturing Religious Public safety Water supply Sewage and waste disposal -2.1% -3.9% -10.3% -10.5% -13.5% -14.6% -20.0% 7.0% 6.0% 1.8% 41.4% 37.1% 31.9% 24.4% 22.8% Total Nonresidential Construction: +$68.3B; +10.5% 61.7% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 3-year % Change Source: U.S. Census Bureau

25 Billions of $US Commercial/Multifamily Offshore Investment Sales Volumes Reach New Heights in 2015/16 $60 Foreign investment increases 85.1% in 2015 $50 $40 $30 $20 $10 $ Source: Jones Lang LaSalle; Real Capital Analytics Cross-border investment remained elevated in 2016: Although down relative to a record 2015, offshore investment levels still exceeded the pre-2015 high in Note: Among transactions larger than $5.0 million

26 YTD Foreign Office Investment Activity, as of 2016Q3 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Foreign Participation as a % of Total Office Volume 14.9% Foreign Office Investment by Destination Market (as a % of Total, 2016YTD) New York San Francisco Boston Washington, DC Dallas-Fort Worth Los Angeles Seattle-Bellevue Miami Northern New Jersey Chicago Atlanta Austin Philadelphia San Diego 8.4% 7.1% 6.8% 5.6% 4.8% 4.8% 2.8% 2.1% 1.9% 1.6% 1.4% 1.1% 1.1% 45.5% 0% 10% 20% 30% 40% 50% Source: Jones Lang LaSalle; Real Capital Analytics Note: Among transactions larger than $5.0 million; includes all office markets which received > 1.0% of offshore capital. Primary markets continue to capture the lion s share of inbound capital, receiving 78.2% of this capital YTD.

27 Down to The Wire Photo: RecapGuide.com

28 Sales Growth by Type of Business November 2016 v. November 2017* Gasoline Stations Building Material & Garden Supplies Dealers Internet, etc. Retailers Furniture & Home Furn. Stores Electronics & Appliance Stores Motor Vehicle & Parts Dealers General Merchandise Stores Food & Beverage Stores Health & Personal Care Stores Sporting Goods, Hobby, Book & Music Stores Clothing & Clothing Accessories Stores Food Services & Drinking Places Miscellaneous Store Retailers 2.2% 2.1% 3.2% 3.1% 2.9% 2.8% 3.6% 6.4% 6.3% 8.4% 10.7% 10.4% 12.2% Source: U.S. Census Bureau 0% 5% 10% 15% 12-month % change *November 2017 advanced estimate Total Retail Sales: +5.8% YOY

29 Oct-05 Feb-06 Jun-06 Oct-06 Feb-07 Jun-07 Oct-07 Feb-08 Jun-08 Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10 Feb-11 Jun-11 Oct-11 Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Savings Rate (%) U.S. Saving Rate, October 2005 October 2017 (Savings as Percentage of Personal Disposable Income) October 2017: 3.2% Source: Bureau of Economic Analysis

30 2000Q3 2001Q1 2001Q3 2002Q1 2002Q3 2003Q1 2003Q3 2004Q1 2004Q3 2005Q1 2005Q3 2006Q1 2006Q3 2007Q1 2007Q3 2008Q1 2008Q3 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3 2014Q1 2014Q3 2015Q1 2015Q3 2016Q1 2016Q3 2017Q1 2017Q3 U.S. Gross Private Domestic Investment (SAAR) % Change from Previous Quarter, 2000Q3 2017Q3* Q3: +7.3% Source: Bureau of Economic Analysis *2 nd Estimate

31 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13 Nov-13 Apr-14 Sep-14 Feb-15 Jul-15 Dec-15 May-16 Oct-16 Mar-17 Aug-17 One-month Percent Change Conference Board Leading Economic Indicators Index August 2007 through October % 1.0% 0.5% 0.0% -0.5% -1.0% October 2017: where 2010: % Source: Conference Board

32 The Closer Global economy remains fragile, and correspondingly... ; Global money has continued to pour into America in search of yield and safety, including into commercial real estate that was particularly true in 2015, only a bit less true in 2016; Inflationary pressures are on the rise so, too, are interest rates eventually -- that could begin to squeeze asset prices in 2018, triggering negative wealth effects and sentiment in the process; There are indications of mini-bubbles forming in commercial real estate, particularly in office, lodging and multifamily segments; There are also longer-term structural considerations, including the national debt and pending insolvencies of Medicare and Social Security the longer-term outlook may be deteriorating even as the short-run improves; Momentum should see us through 2018 (tax cuts should supercharge economy next year), but tighter monetary policy combined with a heavy dose of political intrigue could render 2018 different from an asset price perspective; By this time in 2020, the economy could be in a different place and likely will be. Photo: Google *Kyra Sedgwick as Brenda Leigh Johnson

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