Presented by Jerry Bridge President LifeWorks Education Healthcare Collections & Training.
Presented by Jerry Lynch
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Transcript of Presented by Jerry Lynch
The material contained in this presentation has been prepared solely for informational purposes by General Re-New England Asset Management, Inc. (“GR-NEAM”), and is not to be distributed outside of the organization to which it is presented. The material is based on sources believed to be reliable and/or from proprietary data developed by GR-NEAM, but we do not represent as to its accuracy or its completeness. This is not an offer to buy or sell any security or financial instrument. Certain assumptions, including tax assumptions, may have been made which have resulted in any returns detailed herein. Past performance results are not necessarily indicative of future performance. Changes to the assumptions, including valuations or cash flows of any instrument, may have a material impact on any results. Please consult with your tax experts before relying on this material. Additional information is available upon request. This document and its contents are proprietary to GR-NEAM. They were prepared for the exclusive use of your company. Neither this document nor its contents are to be given or discussed with anyone other than employees, directors, trustees or auditors of your company without our prior written consent.
Presented by Jerry Lynch
Life After Stimulus:
When Reflation Meets Deleveraging
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Conclusions
Deleveraging
Recession
Policy Response
Global
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U.S. Real Economic
Growth
Fiscal/ Monetary Stimulus
Global Forces
Secular Cyclical
Stimulus
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Where Are We Now?
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Real GDP Growth
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Unemployment Rate vs. Broader Total Unemployed*
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Source: www.calculatedriskblog.com
New Home Sales and Recessions
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U.S. Real Consumer Spending
Y/Y % Dec. – 1.7%
Source: ISI
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Source: Federal Reserve Board, Merrill Lynch
Capital Utilization
Manufacturing (SIC) SA, % of Capacity
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World Industrial Production
Source: Big Picture.com
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Sources of Remittances by Recipient Regions, 2008
Source: Global Economic Prospects 2006: Economic Implications of Remittances and Migration (World Bank). World Development Indicators 2007 and Global Development Finance 2007
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Classic Non-Classic
Recession
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Classic RecessionCharacterized by:
• Inventory cycle• 80% of decline in GDP due to de-stocking in manufacturing sector• Traditional stimulus almost always works to absorb excess by stimulating demand• Lasts 18 months
Non-Classic Recession
Characterized by:
• Balance sheet compression• Deleveraging• Debt elimination• Rising saving rates• Expansion of government’s balance sheet to offset contraction in private sector• 3 years or more
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Job Losses in Recent Recessions
Current RecessionCurrent Recession
Source: www.calculatedriskblog.com
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Job Losses* in Post WWII Recessions
Current Recession
Source: www.calculatedriskblog.com
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Job Losses in Post WWII Recessions
CurrentRecession
Source: www.calculatedriskblog.com
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Confidence New BankingSystem
Low Interest RatesLiquidity
LeverageLeverage
Leverage
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Claims of Banks on East European Countries, as % of GDP
Source: Big Picture.com
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Leverage
Deleveraging
Deleveraging is a process not an event.
Deleveraging
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Components of GDP
Consumption 70% +
Investment 16% +
Net Exports <1>% +
Government 15%
Source: BLS, GR-NEAM Analytics
=GDP 100%
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Total U.S. Debt
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The Leveraging of America
Source: Federal Reserve, via Haver Analytics The New York Times April 4, 2009
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Leverage
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Consumer
Source: NY Times
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Consumer
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GDP Growth: With and Without Mortgage Equity Withdrawal
GDP Growth
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Record Wealth Implosion
Source: Federal Reserve Board, Merrill Lynch
Households & Nonprofit Organizations: New Worth Difference – Year to Year NSA, Bil$
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Market Cap
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Stimulus
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Summary
(in billions)
Disbursements or Committed Funding
Potential
Federal Reserve 1,238 4,316
Treasury 332 3,912
Other Agencies 1 2,207
1,571 10,435
(in billions)
MEMO: U.S. Nominal GDP, Estimated 2008 $14,500 Billion
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GDP in U.S. Dollars
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
UnitedStates
Japan China Germany France UnitedKingdom
Italy Russia U.S.BudgetDeficit
Spain
'09
GD
P U
.S. $
(in
bill
ion
s)
Source: www.ritholtz.com
GDP in U.S. Dollars
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Mean Reverting Process
It’s a Non-Classic Recession
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PCE as a % of GDP & Population Demographics
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Personal Consumption Expenditures (PCE) & Household Debt
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Savings Rate Must Rise, And It Will
Source: Bureau of Economic Analysis, Merrill Lynch
Personal Saving Rate SAAR, %
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U.S. Homeownership Rate From 1965-2008
60
61
62
63
64
65
66
67
68
69
70
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
Annual Home Ow nership Percentage Average Home Ow nership Percentage from 1965 to 2008
Source: GR-NEAM Analytics
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Source: Federal Reserve Board, Merrill Lynch
Total Household & Business Credit/GDP: Ratio
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Ability of Policymakers to:• Recreate Credit Cycle • Reinflate Asset Values • Ignite a Consumer Led Recovery
Conclusion
Inhibited by Secular Change in Attitudes Toward:•Savings•Credit•Discretionary Spending•Homeownership
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New Normal
Global Economic Drivers
China
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Chinese Banks’ New Loans
(200)
0
200
400
600
800
1,000
1,200
1,400
1,600
Apr 04 Sep 04 Feb 05 Jul 05 Dec 05 Jun 06 Nov 06 Apr 07 Sep 07 Mar 08 Aug 08 Jan 09
(bn yuan)
Source: CLSA
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Capital Markets
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Worst Decade Yet
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Growth in Total U.S. Credit Market After-Tax U.S. Corporate Profits
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10yr U.S. Corporate A vs. 10yr U.S. Gov’t on the Run
Source: GR-NEAM Analytics
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Growth Story
Currency
Foreign Sales Trade
Inflation
Energy
Theme CyclicalSecular
Collapse in Demand
Deflation
Domestic
United States $
United StatesDeveloping Economies=
Restrained Capacity=
Higher Inflation=
International=
???=
=
Source: ISI
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Major Foreign Holders of U.S. Treasuries
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Foreign Exchange Reserves
2000
($ in Trillions) percent
$1.94 100%
0.78 40
1.16 60
2007(3rd Quarter)
($ in Trillions) percent
$6.0 100%
1.44 24
4.56 76
Total
Industrial Countries
Developing Countries
Source: IMF
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Composition of Foreign Exchange Reserves (Allocated)
2000 2007 2000 2007 2000 2007
U.S. Dollars 71% 63.8% 72% 69.7% 69.7% 60%
Pounds Sterling 3 4.7 2 3 3.5 6
YEN 6 2.7 6.1 3.1 5.8 2.5
Swiss France 0.5 0.2 0.2 0.2 0.3 0.1
Euro's 18 26 18 22 19.4 29
Other 1.5 2.1 1.7 1.6 1.3 2.5
Total Industrial Developing
Source: IMF
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Dollar Dominated
Note: Currencies have not been identified for another $2,536 trillion in foreign-exchange reserves
Source: International Monetary Fund
What currencies nations of the world keep their reserves in
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Source: International Monetary Fund
Note: Currencies have not been identified for another $2.67 billion in industrialized countries’ foreign-exchange reserves and another $2.533 trillion in developing countries’
reserves.
The Haves & The Have Moresforeign-exchange reserves, in trillions; quarterly data
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Total Workforce (LHS) /Total Employed (LHS)vs. Civilian Non-institutional Population (RHS)
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Source: Chinese Central BankThe New York Times April 13, 2009
Cutting Back
Quarterly growth in China’s foreign reserves, mainly invested in Treasuries and other American bonds, has slowed significantly
China’s quarterly change in foreign reserves