Presentation Title Would Go Here 2019 Actuaries’ Club of ... · Presentation Title Would Go Here...
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Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Presentation Title Would Go Here
The material contained in this presentation has been prepared solely for informational purposes by New England Asset Management, Inc. (“NEAM, Inc.”) and/or New England Asset Management Limited (“NEAM Limited”)(collectively, “NEAM”) for theexclusive use of your company. The material is based on sources believed to be reliable and/or from proprietary data developed by NEAM, but we do not represent as to its accuracy or its completeness. This is not an offer to buy or sell any security orfinancial instrument. Certain assumptions, including tax assumptions, may have been made which have resulted in any returns detailed herein. Changes to the assumptions, including valuations or cash flows of any instrument, may have a material impact onany results. Please consult with your tax experts before relying on this material. Past performance results are not necessarily indicative of future performance. The projected information contained herein is for illustrative purposes only and does not representactual results, but was achieved by the prospective application of certain assumptions. No representations or warranties are made as to the reasonableness of these assumptions. This document and its contents are proprietary to NEAM and are not to begiven or discussed with anyone other than employees, directors, trustees or auditors of your company without our prior written consent. NEAM Limited is a subsidiary of NEAM, Inc. NEAM Limited is regulated by the Central Bank of Ireland. NEAM Limited isauthorized by the Central Bank of Ireland and subject to limited regulation by the Financial Conduct Authority. Additional information, including details about the extent of our regulation by the Financial Conduct Authority are available from us on request.NEAM Limited is not registered with the SEC. Because this is intended to be an overview please note that some services described in this presentation may not be available to all clients in certain jurisdictions.
2019 Actuaries’ Club of Southwest Fall Meeting Economic and Capital Market Commentary
November 7, 2019
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Agenda
2
1. Secular Context
2. US Economic Update
3. Recession Risks
4. Capital Markets Implications
Secular Context
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
GDP Growth
4
Source: BEA, NBER, Haver, NEAM
122
120
106
92
80
73
0 20 40 60 80 100 120 140
June 2009 - August 2019
March 1991 - March 2001
February 1961 - December 1969
November 1982 - July 1990
June 1938 - February 1945
November 2001 - December 2007
Months
Duration of Previous Expansions
Current expansion is now the longest
123
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Q4-1949 --> Q2-1953
Q2-1954 --> Q3-1957Q2-1958 --> Q2-1960
Q1-1961 --> Q4-1969
Q4-1970 --> Q4-1973
Q1-1975 --> Q1-1980
Q3-1980 --> Q3-1981
Q4-1982 --> Q3-1990
Q1-1991 --> Q1-2001
Q4-2001 --> Q4-2007
Q2-2009 --> Q2-2019
-
10
20
30
40
50
60
0 5 10 15 20 25 30 35 40 45
Real
GDP
Cha
nge
Durin
g Ex
pans
ion
Length of Expansion (Qtrs)
Expansion Cycle vs. Real GDP Change
Current Expansion – Long but Slow
5
Source: BEA, NBER, Haver, NEAM
Q2-2009 -> Q3 2019
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U.S. Domestic Debt to GDP
6
Source: FRB, Haver, NEAM * Domestic Debt = Household + Nonfin Corp + General Government
110
130
150
170
190
210
230M
ar-8
0M
ar-8
1M
ar-8
2M
ar-8
3M
ar-8
4M
ar-8
5M
ar-8
6M
ar-8
7M
ar-8
8M
ar-8
9M
ar-9
0M
ar-9
1M
ar-9
2M
ar-9
3M
ar-9
4M
ar-9
5M
ar-9
6M
ar-9
7M
ar-9
8M
ar-9
9M
ar-0
0M
ar-0
1M
ar-0
2M
ar-0
3M
ar-0
4M
ar-0
5M
ar-0
6M
ar-0
7M
ar-0
8M
ar-0
9M
ar-1
0M
ar-1
1M
ar-1
2M
ar-1
3M
ar-1
4M
ar-1
5M
ar-1
6M
ar-1
7M
ar-1
8
US Domestic Debt* to GDPU.S. Domestic Debt* to GDP
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
15
20
25
30
35
40
45
50
55
6019
5019
5419
5819
6219
6619
7019
7419
7819
8219
8619
9019
9419
9820
0220
0620
1020
1420
1820
2220
2620
3020
3420
3820
4220
4620
5020
5420
5820
6220
6620
7020
7420
7820
8220
8620
9020
94
Year
s
Median Age (Years)
US CHINA JAPAN
World Age Population Changes
7
Source: UN, Haver, NEAM
Median Age (Years)
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
30
40
50
60
70
80
90
100
110
1950
1953
1956
1959
1962
1965
1968
1971
1974
1977
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019
2022
2025
2028
2031
2034
2037
2040
2043
2046
2049
2052
2055
2058
2061
2064
2067
2070
2073
2076
2079
2082
2085
2088
2091
2094
2097
Perc
ent
Japan US
Dependency Ratios (Dependents / Working Age Population 15-64)
8
Source: UN, Haver, NEAM
Dependency Ratios
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Population Forecasts
9
Source: United Nations World Population Ageing Report
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
2000 2015 2030 2050
Developed World Population Forecast
Persons Aged 60 and Older Percent of Total Persons Aged 80 and Older Percent of Total
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
30
50
70
90
110
130
150
Jan-
91Fe
b-92
Mar
-93
Apr-
94M
ay-9
5Ju
n-96
Jul-9
7Au
g-98
Sep-
99O
ct-0
0N
ov-0
1De
c-02
Jan-
04Fe
b-05
Mar
-06
Apr-
07M
ay-0
8Ju
n-09
Jul-1
0Au
g-11
Sep-
12O
ct-1
3N
ov-1
4De
c-15
Jan-
17Fe
b-18
Source: CPB, Haver, NEAM
Globalization Has Increased
10
World Trade Volume (SA, 2010=100)
U.S. Economy
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Job Openings vs. Unemployed
12
0
2
4
6
8
10
12
14
16
18
Jan-
00M
ay-0
0Se
p-00
Jan-
01M
ay-0
1Se
p-01
Jan-
02M
ay-0
2Se
p-02
Jan-
03M
ay-0
3Se
p-03
Jan-
04M
ay-0
4Se
p-04
Jan-
05M
ay-0
5Se
p-05
Jan-
06M
ay-0
6Se
p-06
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3Se
p-13
Jan-
14M
ay-1
4Se
p-14
Jan-
15M
ay-1
5Se
p-15
Jan-
16M
ay-1
6Se
p-16
Jan-
17M
ay-1
7Se
p-17
Jan-
18M
ay-1
8Se
p-18
Jan-
19M
ay-1
9
Milli
ons
Unemployed Job Openings
Source: BLS, Haver
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Unemployment Rate vs Natural Rate
13
Source: BLS, Haver, NEAM
3.00
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
Mar
-00
Sep-
00M
ar-0
1Se
p-01
Mar
-02
Sep-
02M
ar-0
3Se
p-03
Mar
-04
Sep-
04M
ar-0
5Se
p-05
Mar
-06
Sep-
06M
ar-0
7Se
p-07
Mar
-08
Sep-
08M
ar-0
9Se
p-09
Mar
-10
Sep-
10M
ar-1
1Se
p-11
Mar
-12
Sep-
12M
ar-1
3Se
p-13
Mar
-14
Sep-
14M
ar-1
5Se
p-15
Mar
-16
Sep-
16M
ar-1
7Se
p-17
Mar
-18
Sep-
18M
ar-1
9
Perc
ent
NAIRU Actual Most Recent
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Wage Growth
14
Wages vs. Unemployment
Source: BLS, Haver, NEAM
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0
Atlan
ta Fed
Wag
e Trac
ker
US Unemployment Rate (Adv 9 months)
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Labor Force
15
Labor Force Participation Rate
Source: BLS, Haver, NEAM
59.3 59.2
61.5
64.8
66.7 66.2
64.7 64.1
63.7 63.3
62.9 62.7 62.8 62.9 62.9 63.0
56.0
58.0
60.0
62.0
64.0
66.0
68.0
1950s 1960s 1970s 1980s 1990s 2000s 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019YTD
LFPR
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Inflation
16
0.0
0.5
1.0
1.5
2.0
2.5
3.0
YrYr
%
CPI Inflation
Core
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Consumer Confidence is High
17
Source: Conference Board, Haver, NEAM
0
20
40
60
80
100
120
140
160Ja
n-80
May
-81
Sep-
82Ja
n-84
May
-85
Sep-
86Ja
n-88
May
-89
Sep-
90Ja
n-92
May
-93
Sep-
94Ja
n-96
May
-97
Sep-
98Ja
n-00
May
-01
Sep-
02Ja
n-04
May
-05
Sep-
06Ja
n-08
May
-09
Sep-
10Ja
n-12
May
-13
Sep-
14Ja
n-16
May
-17
Sep-
18
(SA
1985
= 10
0)
Consumer Confidence
Recession Consumer Confidence Current (July 2019)
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Household Debt to GDP
Source: FRB, Haver, NEAM
74
40
50
60
70
80
90
100
110M
ar-8
0M
ar-8
1M
ar-8
2M
ar-8
3M
ar-8
4M
ar-8
5M
ar-8
6M
ar-8
7M
ar-8
8M
ar-8
9M
ar-9
0M
ar-9
1M
ar-9
2M
ar-9
3M
ar-9
4M
ar-9
5M
ar-9
6M
ar-9
7M
ar-9
8M
ar-9
9M
ar-0
0M
ar-0
1M
ar-0
2M
ar-0
3M
ar-0
4M
ar-0
5M
ar-0
6M
ar-0
7M
ar-0
8M
ar-0
9M
ar-1
0M
ar-1
1M
ar-1
2M
ar-1
3M
ar-1
4M
ar-1
5M
ar-1
6M
ar-1
7M
ar-1
8M
ar-1
9
Perc
ent
18
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Savings Rate
Source: Source: BEA, NBER, Haver, NEAM
8.5
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Savi
ngs
Rat
e %
19
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Savings Rate – Extended Time Series
20
Source: Source: BEA, NBER, Haver, NEAM
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0Ja
n-59
Mar
-60
May
-61
Jul-6
2Se
p-63
Nov
-64
Jan-
66M
ar-6
7M
ay-6
8Ju
l-69
Sep-
70N
ov-7
1Ja
n-73
Mar
-74
May
-75
Jul-7
6Se
p-77
Nov
-78
Jan-
80M
ar-8
1M
ay-8
2Ju
l-83
Sep-
84N
ov-8
5Ja
n-87
Mar
-88
May
-89
Jul-9
0Se
p-91
Nov
-92
Jan-
94M
ar-9
5M
ay-9
6Ju
l-97
Sep-
98N
ov-9
9Ja
n-01
Mar
-02
May
-03
Jul-0
4Se
p-05
Nov
-06
Jan-
08M
ar-0
9M
ay-1
0Ju
l-11
Sep-
12N
ov-1
3Ja
n-15
Mar
-16
May
-17
Jul-1
8
Perc
ent
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Oil Prices
21
Source: Bloomberg, NEAM
20
40
60
80
100
120
140
Jul-09 Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19
Pric
e Pe
r Bar
rel (
USD
)
Brent
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Corporate Profit Margins
22
Source: BEA, Haver, NEAM
5.0
7.0
9.0
11.0
13.0
15.0
17.0
19.0M
ar-0
0Se
p-00
Mar
-01
Sep-
01M
ar-0
2Se
p-02
Mar
-03
Sep-
03M
ar-0
4Se
p-04
Mar
-05
Sep-
05M
ar-0
6Se
p-06
Mar
-07
Sep-
07M
ar-0
8Se
p-08
Mar
-09
Sep-
09M
ar-1
0Se
p-10
Mar
-11
Sep-
11M
ar-1
2Se
p-12
Mar
-13
Sep-
13M
ar-1
4Se
p-14
Mar
-15
Sep-
15M
ar-1
6Se
p-16
Mar
-17
Sep-
17M
ar-1
8Se
p-18
Mar
-19
Perc
ent
Corp Profit Margins
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Corporate Tax Rates (US vs other OECD Countries)
23
20
25
30
35
40
4519
90
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Corp
orat
e Ta
x Ra
te
US OECD (ex US)
Source: OECD/ NEAM
21%
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Global Central Bank Balance Sheets
24
Source: European Central Bank, Federal Reserve Board, Bank of Japan, NEAM
Forecasts*
0
50
100
150
200
250
300
350
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
USD
Bill
ions
Total Assets of 3 Major Central Banks (USD)[Stock of QE, LHS]
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Source: Bloomberg, NBER, NEAM
Nonfinancial Corporate Debt to GDP
20
25
30
35
40
45
50M
ar-4
5De
c-46
Sep-
48Ju
n-50
Mar
-52
Dec-
53Se
p-55
Jun-
57M
ar-5
9De
c-60
Sep-
62Ju
n-64
Mar
-66
Dec-
67Se
p-69
Jun-
71M
ar-7
3De
c-74
Sep-
76Ju
n-78
Mar
-80
Dec-
81Se
p-83
Jun-
85M
ar-8
7De
c-88
Sep-
90Ju
n-92
Mar
-94
Dec-
95Se
p-97
Jun-
99M
ar-0
1De
c-02
Sep-
04Ju
n-06
Mar
-08
Dec-
09Se
p-11
Jun-
13M
ar-1
5De
c-16
Sep-
18
Perc
ent
25
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Bank Tier 1 Capital Ratios
26
Source: FDIC, Haver, NEAM
9.8
13.4
7.0
8.0
9.0
10.0
11.0
12.0
13.0
14.0
Mar
-90
Dec
-90
Sep-
91Ju
n-92
Mar
-93
Dec
-93
Sep-
94Ju
n-95
Mar
-96
Dec
-96
Sep-
97Ju
n-98
Mar
-99
Dec
-99
Sep-
00Ju
n-01
Mar
-02
Dec
-02
Sep-
03Ju
n-04
Mar
-05
Dec
-05
Sep-
06Ju
n-07
Mar
-08
Dec
-08
Sep-
09Ju
n-10
Mar
-11
Dec
-11
Sep-
12Ju
n-13
Mar
-14
Dec
-14
Sep-
15Ju
n-16
Mar
-17
Dec
-17
Sep-
18Ju
n-19
Perc
ent
Bank Capital
Bank Tier 1 Capital Ratio
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Trade Dispute with China
Source: China Briefing News, NEAM
34 34 16 16
200
60
325
540
120
US - Value of Imports Subjectto Tariffs/ Proposed Tariffs
(USD bn)
US - Value of 2018 Importsfrom China (USD bn)
China - Value of ImportsSubject to Tariffs/ Proposed
Tariffs (USD bn)
China - Value of 2018 Importsfrom US (USD bn)
Proposed Tariffs
Sept 2018 Tariffs (Increased % Tariff May/ June 2019)
Aug 2018 Tariffs
July 2018 Tariffs
27
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
-1.9%
-0.4% -0.4% -0.3%-0.2% -0.2% -0.2% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1% -0.1%
-2.5%
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
China[Mainland] Mexico Japan Germany Vietnam Ireland Italy Malaysia India Korea Thailand Canada Taiwan France Switzerland
Source: Census Bureau, Haver, NEAM
Trade Deficits by Country
28
Trade Balance (Goods) as a % of GDP
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Trade with China
Source: Census, BEA, Haver, NEAM
-2.1
-2.0
-1.9
-1.8
-1.7
-1.6
-1.5Ja
n-09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Jan-
12
May
-12
Sep-
12
Jan-
13
May
-13
Sep-
13
Jan-
14
May
-14
Sep-
14
Jan-
15
May
-15
Sep-
15
Jan-
16
May
-16
Sep-
16
Jan-
17
May
-17
Sep-
17
Jan-
18
May
-18
Sep-
18
Jan-
19
May
-19
Perc
ent o
f GD
PUS Trade Balance with China
29
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Trade with China
Source: Census, BEA, Haver, NEAM
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
Jan-
90O
ct-9
0Ju
l-91
Apr-9
2Ja
n-93
Oct
-93
Jul-9
4Ap
r-95
Jan-
96O
ct-9
6Ju
l-97
Apr-9
8Ja
n-99
Oct
-99
Jul-0
0Ap
r-01
Jan-
02O
ct-0
2Ju
l-03
Apr-0
4Ja
n-05
Oct
-05
Jul-0
6Ap
r-07
Jan-
08O
ct-0
8Ju
l-09
Apr-1
0Ja
n-11
Oct
-11
Jul-1
2Ap
r-13
Jan-
14O
ct-1
4Ju
l-15
Apr-1
6Ja
n-17
Oct
-17
Jul-1
8Ap
r-19
Perc
ent o
f GD
P
US Trade Balance (Goods) with China
30
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Policy Uncertainty at the Forefront
31
Source: Bloomberg, NEAM
0
50
100
150
200
250
300
350
Jun-
97De
c-97
Jun-
98De
c-98
Jun-
99De
c-99
Jun-
00De
c-00
Jun-
01De
c-01
Jun-
02De
c-02
Jun-
03De
c-03
Jun-
04De
c-04
Jun-
05De
c-05
Jun-
06De
c-06
Jun-
07De
c-07
Jun-
08De
c-08
Jun-
09De
c-09
Jun-
10De
c-10
Jun-
11De
c-11
Jun-
12De
c-12
Jun-
13De
c-13
Jun-
14De
c-14
Jun-
15De
c-15
Jun-
16De
c-16
Jun-
17De
c-17
Jun-
18De
c-18
Jun-
19
Inde
x
Global Economic Policy Uncertainty Index
Global Economic Policy Uncertainty Index
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Business Sentiment is Falling
32
Source: Business Roundtable, Haver, NEAM
-20.0
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0M
ar-0
5
Sep-
05
Mar
-06
Sep-
06
Mar
-07
Sep-
07
Mar
-08
Sep-
08
Mar
-09
Sep-
09
Mar
-10
Sep-
10
Mar
-11
Sep-
11
Mar
-12
Sep-
12
Mar
-13
Sep-
13
Mar
-14
Sep-
14
Mar
-15
Sep-
15
Mar
-16
Sep-
16
Mar
-17
Sep-
17
Mar
-18
Sep-
18
Mar
-19
Perc
ent
CEO Economic Outlook
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Global PMIs
33
Source: Bloomberg, NEAM
48
49
50
51
52
53
54
55
Jan-
17
Feb-
17
Mar
-17
Apr-
17
May
-17
Jun-
17
Jul-1
7
Aug-
17
Sep-
17
Oct
-17
Nov
-17
Dec-
17
Jan-
18
Feb-
18
Mar
-18
Apr-
18
May
-18
Jun-
18
Jul-1
8
Aug-
18
Sep-
18
Oct
-18
Nov
-18
Dec-
18
Jan-
19
Feb-
19
Mar
-19
Apr-
19
May
-19
Jun-
19
Inde
x (5
0+ =
Exp
ansi
on)
Global PMI
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
US ISM Manufacturing
34
47.8
25
30
35
40
45
50
55
60
65
70
75
ISM
Mon
thly
Man
ufac
turin
g In
dex
U.S. ISM Manufacturing with Recessions
According to ISM, reading of 47.8 equates to +1.5% real GDP Growth.Readings below 42.9 indicate contraction.
Source: ISM, NBER, Bloomberg, NEAM
Recession Risks
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Leading Economic Indicators
-25.0
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
Jan
-76
Jan
-77
Jan
-78
Jan
-79
Jan
-80
Jan
-81
Jan
-82
Jan
-83
Jan
-84
Jan
-85
Jan
-86
Jan
-87
Jan
-88
Jan
-89
Jan
-90
Jan
-91
Jan
-92
Jan
-93
Jan
-94
Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
Jan
-19
Pe
rce
nt
Ch
ange
Leading Indicators
Recession 12 month Change in Leading Indicators
Source: Conference Board, NBER, Haver, NEAM
36
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Yield Curve Inversion
Source: FRB, Haver, NEAM
37
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Signal History of Yield Curve
38
Inversion Date Recession Date Lead Time
Aug-78 Jan-80 1 Yr, 5 Months
Sep-80 Jul-81 10 Months
Jan-89 Jul-90 1 Yr, 6 Months
Jun-98 Mar-01 2 Yrs, 9 Months
Dec-05 Dec-07 2 Years
Source: Cornerstone Macro, NEAM Analytics
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Initial Jobless Claims
39
150
170
190
210
230
250
270
290
310
330
in T
hous
ands
Initial Jobless Claims 12 week moving average
Source: Bloomberg, NEAM
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Wage Gains vs. Unemployment
Source: BLS, NBER, Haver, NEAM
1.0
3.0
5.0
7.0
9.0
11.0
13.0
Jan-
80D
ec-8
0N
ov-8
1O
ct-8
2Se
p-83
Aug-
84Ju
l-85
Jun-
86M
ay-8
7Ap
r-88
Mar
-89
Feb-
90Ja
n-91
Dec
-91
Nov
-92
Oct
-93
Sep-
94Au
g-95
Jul-9
6Ju
n-97
May
-98
Apr-9
9M
ar-0
0Fe
b-01
Jan-
02D
ec-0
2N
ov-0
3O
ct-0
4Se
p-05
Aug-
06Ju
l-07
Jun-
08M
ay-0
9Ap
r-10
Mar
-11
Feb-
12Ja
n-13
Dec
-13
Nov
-14
Oct
-15
Sep-
16Au
g-17
Jul-1
8Ju
n-19
Perc
ent
Recession UER AHE
40
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Projected U.S. Budget Deficits
Source: Haver, CBO, NEAM
41
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
New York Fed Recession Probability Index
42
Source: HAVER, FRBNY
0
5
10
15
20
25
30
35
40
45
50
Apr-
84M
ar-8
5Fe
b-86
Jan-
87De
c-87
Nov
-88
Oct
-89
Sep-
90Au
g-91
Jul-9
2Ju
n-93
May
-94
Apr-
95M
ar-9
6Fe
b-97
Jan-
98De
c-98
Nov
-99
Oct
-00
Sep-
01Au
g-02
Jul-0
3Ju
n-04
May
-05
Apr-
06M
ar-0
7Fe
b-08
Jan-
09De
c-09
Nov
-10
Oct
-11
Sep-
12Au
g-13
Jul-1
4Ju
n-15
May
-16
Apr-
17M
ar-1
8Fe
b-19
New York Fed Recession Probability Index
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
0%
10%
20%
30%
40%
50%
60%
70%
2014 2015 2016 2017 2018 2019
Percentage of ICE BofAML Euro Broad Market Index…
EUR Negative Yielding Bonds
Source: BofA Merrill, Bloomberg
43
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Rationale for Buying Negative Yielding Bonds?
44
o Positive real yieldo Further Anticipated Appreciationo Safe Asseto Currencyo Index Fundso Bankso Insurance Companies & Pension Fundso ECB
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Fiscal Financial Situation
45
Budget metrics, Germany, core countries versus US etc.
Source: IMF, Haver
Germany
Japan
US
Italy
China
0
50
100
150
200
250
-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00
Gov
ernm
ent D
ebt (
% o
f GD
P)
Fiscal Balance (% of GDP)
Capital Markets
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
1.67
2.11
3.243.43
1
1.5
2
2.5
3
3.5
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
YIEL
D (%
)
YEARS TO MATURITY
9/30/2019 11/8/2018 (Peak in Rates)
10 YR TSY
30 YR TSY
U.S. Treasury Yield Curve
47
Source: Bloomberg
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
30 Year U.S. Treasury Yield
Source: Bloomberg, NEAM
1.5
2.5
3.5
4.5
5.5
6.5
7.5
8.5
9.5
10.5
Perc
ent All Time Low
48
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
8.5%
12.6%
7.4% 7.7%
5.6%
15.4%
20.6%
11.6%
0%1%2%3%4%5%6%7%8%9%
10%11%12%13%14%15%16%17%18%19%20%21%22%
BarclaysAggregate
CorporateInvestment
Grade
Muni (TE)MarketIndex
TreasuryMaster
MBS All PreferredStock
S&P 500(Total
Return)
MSCI WorldEx US (Total
Return)
Year-to-Date Total Return (as of 09/30/19)
Capital Market Performance as of September 2019
49
Source: Bloomberg, Barclays
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
10.3%
12.6%
5.4%
10.5%
7.8%
10.1%
4.3%
-1.2%-2%-1%0%1%2%3%4%5%6%7%8%9%
10%11%12%13%14%
BarclaysAggregate
CorporateInvestment
Grade
Muni (TE)MarketIndex
TreasuryMaster
MBS All PreferredStock
S&P 500(Total
Return)
MSCI WorldEx US (Total
Return)
Trailing 12 Months Total Return (as of 09/30/19)
Capital Market Performance Trailing 12 Months
50
Source: Bloomberg, Barclays
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Corporate Spreads Remain Tight
51
0
100
200
300
400
500
600
700
800
Aug-08 Aug-09 Aug-10 Aug-11 Aug-12 Aug-13 Aug-14 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19
Basi
s Po
ints
BBB Nonfinancial Corporate Spreads
BBB Nonfin Corp Spreads 10 Yr Average
Source: Bloomberg, ICE, NEAM
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
High Yield Spreads…Flashing Yellow
52
Source: Bloomberg, ICE, NEAM
200250300350400450500550600
Basi
s Po
ints
U.S. CorporatesHigh Yield Spreads
Source: Bloomberg Barclays HY Index, NEAM
300
400
500
600
700
800
900
Basi
s Po
ints
ICE BAML BB-CCC Corporate Spread
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
S&P 500 Market Cap Relative to GDP
53
1.3 1.1
0.2
0.4
0.6
0.8
1
1.2
1.4
Mar
-65
Sep-
66M
ar-6
8Se
p-69
Mar
-71
Sep-
72M
ar-7
4Se
p-75
Mar
-77
Sep-
78M
ar-8
0Se
p-81
Mar
-83
Sep-
84M
ar-8
6Se
p-87
Mar
-89
Sep-
90M
ar-9
2Se
p-93
Mar
-95
Sep-
96M
ar-9
8Se
p-99
Mar
-01
Sep-
02M
ar-0
4Se
p-05
Mar
-07
Sep-
08M
ar-1
0Se
p-11
Mar
-13
Sep-
14M
ar-1
6Se
p-17
Mar
-19
Rat
io
SPX Market Cap to GDP
Source: S&P, BEA, Haver, NEAM
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Corporate Spreads vs. Fed Funds
54
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
0
100
200
300
400
500
600
700
800
900
Fed
Fund
s Rat
e %
Spre
ad in
bps
.
IG Corporate Spreads vs. Fed Funds
IG Corporate Spreads Fed Funds Rate (RHS)
During easing cycles, spreads widen
?
Source: Bloomberg, NEAM
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Observations and Conclusions
55
• Slowing, but solid US economic growth
• Persistent low yield and flat yield curve environment
• Keys to success in current environment:
Carry
Take advantage of volatility
Diversifying alternatives Dividend stocks Preferred stocks Specialty high yield
Questions?
Proprietary & Confidential | ©2019 New England Asset Management, Inc. |
Biography
57
Patrick W. Scully, CFA Patrick is a Senior Client Strategist at NEAM, Inc. and is responsible for delivering investment and capital management services to our clients. He joined the Firm in 2010 having been employed as a Consultant by WellsCanning (now Willis Towers Watson), where he was responsible for advising insurance clients on their investment portfolios. Prior to joining WellsCanning, he was the Assistant Treasurer for Tufts Health Plan, a regional health insurance company in Massachusetts. Patrick is a CFA Charterholder, a graduate of the University of Colorado with a Bachelor of Arts in History and holds an MBA from the Olin Graduate School at Babson College. He has been employed in the investment industry since 1993.