THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012...

45
THE NEW TWO POWER WORLD CFA Society – Dayton November 13, 2018 Brian K. Langenberg, CFA 917.301.3002 [email protected] www.langenberg-llc.com

Transcript of THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012...

Page 1: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

�THE NEW TWO POWER

WORLD��

CFA Society – Dayton�November 13, 2018�

��

Brian K. Langenberg, CFA���

917.301.3002 �[email protected]�www.langenberg-llc.com�

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BrianK.Langenberg,CFA917.301.3002

BETEDDYBRIGGS

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KEYPOINTS

Tectonicplatesareshiftingglobally.

BrianK.Langenberg,CFA917.301.3002

1.   U.S./China ItsaTwoPowerworld.

2.   Taxreform RebuildingtheArsenalofAmericanManufacturing3.   Trade Re-orientingsupplychain4.   Labor That70’sShow5.   Defense WakeUpCall 6.   Energy StructurallyPositive7.   Politics 1890sdynamics,inreverse8.   DebtBomb TheChickensarecominghome9.   RegionsandEndMarkets10.   WhattoSell,WhattoBuy

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#1

UNITEDSTATESVERSUSCHINA

ItsaTwoPowerWorld

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#1UNITEDSTATESVERSUSCHINA

BrianK.Langenberg,CFA917.301.3002

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#1UNITEDSTATESVERSUSCHINA

BrianK.Langenberg,CFA917.301.3002

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#1UNITEDSTATESVERSUSCHINA

BrianK.Langenberg,CFA917.301.3002

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#1UNITEDSTATESVERSUSCHINA

BrianK.Langenberg,CFA917.301.3002

Chinamilitaryspending(1)intheAsiaPacificregionlikelyexceedstheUnitedStatesandcontinuestorise.

(1)Adjustedforwagerates.

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#2TAXREFORM:HowToExplaintheBenefitsofCorporateTaxReformtoANYBODY(1)inlessthantwominutes.

BrianK.Langenberg,CFA917.301.3002

(1)Hasbeen100%effectivetodateincludingmillennials.HasnotbeenattemptedwithSenatorElizabethWarrenweputourprobabilitiesat1/1024thminimum!

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#2

CORPORATETAXREFORM

RebuildingtheArsenalofAmericanManufacturing

BrianK.Langenberg,CFA917.301.3002

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#2TAXREFORM:ProofinthePudding....NorthernIreland(1993)

BrianK.Langenberg,CFA917.301.3002

§  Rampant“Gang”Warfare§  40%taxrate§  Disillusionedpopulace

VerysimilartopartsofChicago.....

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#2TAXREFORMNegotiateaceasefire(1),slashthetaxrateandattractcapitaland...

BrianK.Langenberg,CFA917.301.3002

(1)KudostoGeorgeMitchell

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#2TAXREFORM

BrianK.Langenberg,CFA917.301.3002

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#3

TRADE

Re-orientingSupplyChain

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#3TRADE

BrianK.Langenberg,CFA917.301.3002

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#3TRADE

BrianK.Langenberg,CFA917.301.3002

China§  KeyRival§  MadeinChina2025targetsmultiplewesternindustrypositionsGermany§  ItAIN’Taboutthetradeimbalance§  Defense:Stopbeingsissies§  Iran:Whenwesaygetout,getout!

Mexico(andCanada)§  USMCAsurviveswithtweaks.DT+AMLObothlikedeal§  AMLOwildcard(Airportcancellation–opticsonlyorasignofthefuture?)§  MexicomaybenefitfromU.S.inspiteofitself

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#3TRADEMadeinChina2025

BrianK.Langenberg,CFA917.301.3002

1.  Newadvancedinformationtechnology (SiliconeValley)2.  Automatedmachinetoolsandrobotics (Japan,Germany)3.  Aerospaceandaeronautical (Boeing,UTX,HON,GE)4.  Maritimeequipmentandhigh-techshipping (Korea,Japan,N.Europe)5.  Modernrailtransportequipment (Alstom,Bombardier)6.  New-energyvehiclesandequipment (Big3,Japan,Cummins)7.  Powerequipment GE,Siemens,others8.  Agriculturalequipment Deere,Agco9.  Newmaterials 3M10. Biopharmaandadvancedmedical --

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#3TRADESupplyChainsAreRe-orienting

BrianK.Langenberg,CFA917.301.3002

RockwellAutomationhasalreadyidentifiedandsetmitigationplansfor$90MMChinatariffimpact($0.40pershare)–½price,½buyingelsewhere.Othersarewaitingformid-yeartoseehowitplaysoutbuttheirtonehaschanged.Theywon’tadmitit,buttheylikesomebodystandingupforthemontheIPside.

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#4

LABOR

That70’sShow

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#4LABORThe40yearflood....

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YEAR

POP(Mil.)

1970 750 US.W.Europe,Japan Twosuperpowers,10-20%ofworld.

1972 NixongoestoChina.

1979 +1,400 China Maodead.Gangof4putdown.Dengsays“Playball.”

1989 +300 Central,EasternEurope BerlinWalldown.

1998 +1,200 India NoticeChinagettinglove,stopblamingBritsforeverything.FiberboomenablesITexplosion.

3,650 =nearly400%increase

crushesbargainingpower

2008 AmericanCEOsstillthinkChinaisafreelunch.

2010 JeffImmeltactuallyfiguresoutthatain’tworking

2017 UnitedStates TaxReform

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#4LABOR

BrianK.Langenberg,CFA917.301.3002

Whenashortageisn’tashortage....§  Participation§  PublicEducation§  HigherEducationVs.Vocational§  Healthcare§  Immigration

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#4LABORMyth: LaborForceParticipationisDecliningowingtoRetirements

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#4LABOR

Fact: LaborForceParticipationhasdeclinedowingtoBadParenting!

BrianK.Langenberg,CFA917.301.3002

<<<<-----VeryBadParenting

<<<<-----Divorce,kidscollegedebt,nosavings?<<<<-----Sad.

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#4LABOR

Fact: AndPerhapsExcessiveWelfareBenefits

BrianK.Langenberg,CFA917.301.3002

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#4LABOR

PublicEducation

BrianK.Langenberg,CFA917.301.3002

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#4LABOR

HigherEducation

BrianK.Langenberg,CFA917.301.3002

Last30yearsadministratorsperstudentUp250%intheU.S.TheschoolIteachatshouldhave$3MMofannualoverheadspendnot$11MM.Andtobebluntabout1/3ofthestudentsreallyshouldnotbeincollegebutinatradeprogramwheretheywouldgraduatesooner,learnmore,andhavenoorlittledebt.

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#4LABOR

HealthcareImmigration

BrianK.Langenberg,CFA917.301.3002

§  Ongoingissue.§  Weneedcostinnovation,wearen’tgettingit.

§  Companieswanttocherrypick§  Bluecollarwantshigherwagesandrespect§  Administrationwantstomovepeopletoworkfromwelfare§  PoliticalopponentswantclientsLaborPricesWILLcontinuetoriseRequiringautomationandskilldevelopment

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#4LABOR

BrianK.Langenberg,CFA917.301.3002

HigherwagesrequirehigherlevelsofautomationGermany $43.76Japan $31.99Denmark $45.48U.S. $34.74China $5.00U.S.needsmore.(BLSstatisticsfor2012exChinawhichisanL&Cestimate)

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#5

DEFENSE

WakeUpCall

BrianK.Langenberg,CFA917.301.3002

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#5DEFENSE

BrianK.Langenberg,CFA917.301.3002

ItisallaboutChina...UnitedStatesVersusChina:$600billionversus$215billion-  NormalizeChinamilitarywagestoUSbase=7x=$130billion.-  Operations:U.S.musttravel5-10Kmilesjusttogettotheparty.-  Maintenance:Chinawages~$10K/year.U.S.averagebluecollar$31K.-  ChinaspendsprimarilyinAsia/Pacific,possiblyoutspendingU.S.onanadjusted

basis.

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#5DEFENSE

BrianK.Langenberg,CFA917.301.3002

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#5DEFENSE

BrianK.Langenberg,CFA917.301.3002

EuropeUnderspending2%commitmentby$100billionperyear.UnderspendingColdWar(1988)by$232billionperyear.DefenseMinistersofNorway,Sweden,GermanyandNetherlands

PutinThebestfightsdon’thappenbecausethebullyisdeterred.DoesPutinlookworriedaboutEuropeandefensecapability?

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#5DEFENSE

BrianK.Langenberg,CFA917.301.3002

U.S.needstoboostdefensespendbyatleast$100billionperyear.Europeaswell,butisn’t.Byrightsitshouldbehigher.Japangovernmentisraisingspendingwithinconstitutionalconstraintsandlimitedpublicsupport.

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#6

ENERGY

StructurallyPositive

BrianK.Langenberg,CFA917.301.3002

Page 35: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

#6ENERGY

BrianK.Langenberg,CFA917.301.3002

1.   Globalgrowth(evenifslower)2.   Venezuelaisashambles3.   Mexicomustrecapitalizeitsenergyassets4.   Iransanctions

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#7

POLITICS

1890’sDynamics,InReverse

BrianK.Langenberg,CFA917.301.3002

Page 37: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

#7Politics1890’sDynamics,InReverse

BrianK.Langenberg,CFA917.301.3002

1.   U.S.(1890’sinreverse)–socialistshave(most)leversofpower,populistswantlessgovernment.Mid-termsbroadlyasexpected.

2.   Germany–Merkelgoingdown,AfDatpeakifcentristscantakeback

CDU.3.   France–Macron’sstarfallingbacktoearth.4.   UK–remainsashambles.Theresa,Boris,Nigel,Jeremy.5.   Mexico–staytuned.6.   Canada-youknow,eh,itsCanada.

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#8

DEBTBOMB

TheChickensAreComingHometoRoost

BrianK.Langenberg,CFA917.301.3002

Page 39: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

#8DEBTBOMB

BrianK.Langenberg,CFA917.301.3002

20161.24%

Current3%

LTInfl.4%

19888%

FederalDebt(rounded) $21,000,000,000,000 $260.4B $630B $840B $1,680B

Population 330,000,000

Householdswithincome>$30K(2014)

88,923

=DebtPerPerson $63,636 $789 $1,909 $2,539 $5,078

=Debtperhousehold>$30K

$236,160 $2,928 $7,084 $9,446 $18,893

Page 40: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

#8DEBTBOMB

BrianK.Langenberg,CFA917.301.3002

Page 41: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

#8DEBTBOMB

BrianK.Langenberg,CFA917.301.3002

$630billion,or60-65%canbeexplainedbyincreasedwelfarespendingasa%ofGDP.Povertytiestosingleparenthoodandlackofeducation.WhatworksforMurphyBrowndoesNOTworkforYolanda.

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#8DEBTBOMB

BrianK.Langenberg,CFA917.301.3002

Idonotanticipateanymassiveinstantculturalshiftbuttherearethingswecandoovertime,including...(*=pipedream)§  CloseDepartmentofEducation(saves$100Bperannum).*§  Meanstestingofsocialsecurity.(Thiswillhappenin2028becausethatiswhen

Brianturns65).§  Greateremphasisonhealthcareinnovationtowardefficiencies(comeon,Jeff

Bezos!).§  Vocationalversuscollegestartinginhighschoolforthe50%whodon’tneed

college(orcollegedebt).Companiesgettingoffthe“degreeplusexperience”potwhichdoesn’twork.Seeingsignsalready.

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#9Regions&EndMarkets

BrianK.Langenberg,CFA917.301.3002

RegionalUS– YouCanStillRockinAmerica.LatAm–waitandseeonMexico,constructiveonBrazil.Europe–2%growthatbest.Chinaslowdown,MerkelgoingdownisunsettlingforGermany.China–U.S.tradeaggressivenessishavinganimpact.Capitalwantsout,badly.

EndMarketsPower– goodactivityforsuppliers(exGEwhichisashambles).Energy–oilpricepullback,talkofendingOPEChasspookedmany.Realityisthatlargeprojectsarestillneeded.Mining–strong.Construction–benefittingfromO&G,commercialactivityandmining.Infrastructurebillishighlyunlikely.Truck,Vehicle–Class8+,Auto=/-.EVforreal.Agriculture–Aviation–Defensestrengthwillcontinue.Commercialisstrong+busjetfinallykickingin.HVAC–steadybutunspectaculargrowthlikely.Automation–EMR,ROKtwoofthemostoptimisticcompanieswefollow.AlsoHON(theAmazonplay).

Page 44: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

#10WhattoSell,WhattoBuy

BrianK.Langenberg,CFA917.301.3002

Fightingsomeheadwinds.WeakEMcurrencies,slowingChina,risinginterestratesandvaluationsarefairtofull.

CurrentPrice

Target/FairValue

Ametek AME $74.45 $80 Endmarketsarestrong.Cashmachine.Gonutsbelow$70,fadeat$80.

Honeywell HON $150.32 $160 “Metoo”buy.Highgrowth(+7corein3Q)owingtoIntelligrated(Amazon)leverage.Loadupat$140.

UnitedTechnologies UTX $130.71 $150 Executingagainstmultipleheadwinds–Otispricing,GTFramp.RiskofCOLdealbeingdinged.

Emerson EMR $68.49 $80 Aggressiveat/below$70.Strongprocess,risingbacklogs,solidcashflowandstrongbalancesheet.

GeneralElectric GE $8.59 Review TrustinLarryCulp...hewillfigureitout.

Caterpillar CAT $126.91 $90-110 25%oflast3yearscashflowisunderspendingoncapexversusdepreciation.

DoverCorporation DOV $86.42 $90 Couldretestrecent$90highbutcostcuttingina4%GDPeconomydoesn’tseemright.

3M MMM $201.10 $200 Fairlyvaluedafterrecenthiccup.FX,ERP,RoofingandDrugDelivery.

RockwellAutomation ROK $169.27 $175 Grab’embelow$160.

Page 45: THE NEW TWO POWER WORLD · 11/13/2018  · China $ 5.00 U.S. needs more. (BLS statistics for 2012 ex China which is an L&C estimate) #5 DEFENSE Wake Up Call Brian K. Langenberg, CFA

?

BrianK.Langenberg,CFA917.301.3002