THE NEW TWO POWER WORLD · 11/13/2018 · China $ 5.00 U.S. needs more. (BLS statistics for 2012...
Transcript of THE NEW TWO POWER WORLD · 11/13/2018 · China $ 5.00 U.S. needs more. (BLS statistics for 2012...
�THE NEW TWO POWER
WORLD��
CFA Society – Dayton�November 13, 2018�
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Brian K. Langenberg, CFA���
917.301.3002 �[email protected]�www.langenberg-llc.com�
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BrianK.Langenberg,CFA917.301.3002
BETEDDYBRIGGS
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
#1
UNITEDSTATESVERSUSCHINA
ItsaTwoPowerWorld
BrianK.Langenberg,CFA917.301.3002
#1UNITEDSTATESVERSUSCHINA
BrianK.Langenberg,CFA917.301.3002
#1UNITEDSTATESVERSUSCHINA
BrianK.Langenberg,CFA917.301.3002
#1UNITEDSTATESVERSUSCHINA
BrianK.Langenberg,CFA917.301.3002
#1UNITEDSTATESVERSUSCHINA
BrianK.Langenberg,CFA917.301.3002
Chinamilitaryspending(1)intheAsiaPacificregionlikelyexceedstheUnitedStatesandcontinuestorise.
(1)Adjustedforwagerates.
#2TAXREFORM:HowToExplaintheBenefitsofCorporateTaxReformtoANYBODY(1)inlessthantwominutes.
BrianK.Langenberg,CFA917.301.3002
(1)Hasbeen100%effectivetodateincludingmillennials.HasnotbeenattemptedwithSenatorElizabethWarrenweputourprobabilitiesat1/1024thminimum!
#2
CORPORATETAXREFORM
RebuildingtheArsenalofAmericanManufacturing
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#2TAXREFORM:ProofinthePudding....NorthernIreland(1993)
BrianK.Langenberg,CFA917.301.3002
§ Rampant“Gang”Warfare§ 40%taxrate§ Disillusionedpopulace
VerysimilartopartsofChicago.....
#2TAXREFORMNegotiateaceasefire(1),slashthetaxrateandattractcapitaland...
BrianK.Langenberg,CFA917.301.3002
(1)KudostoGeorgeMitchell
#2TAXREFORM
BrianK.Langenberg,CFA917.301.3002
#3
TRADE
Re-orientingSupplyChain
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#3TRADE
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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
#3TRADEMadeinChina2025
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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 --
#3TRADESupplyChainsAreRe-orienting
BrianK.Langenberg,CFA917.301.3002
RockwellAutomationhasalreadyidentifiedandsetmitigationplansfor$90MMChinatariffimpact($0.40pershare)–½price,½buyingelsewhere.Othersarewaitingformid-yeartoseehowitplaysoutbuttheirtonehaschanged.Theywon’tadmitit,buttheylikesomebodystandingupforthemontheIPside.
#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
#4LABOR
BrianK.Langenberg,CFA917.301.3002
Whenashortageisn’tashortage....§ Participation§ PublicEducation§ HigherEducationVs.Vocational§ Healthcare§ Immigration
#4LABORMyth: LaborForceParticipationisDecliningowingtoRetirements
BrianK.Langenberg,CFA917.301.3002
#4LABOR
Fact: LaborForceParticipationhasdeclinedowingtoBadParenting!
BrianK.Langenberg,CFA917.301.3002
<<<<-----VeryBadParenting
<<<<-----Divorce,kidscollegedebt,nosavings?<<<<-----Sad.
#4LABOR
Fact: AndPerhapsExcessiveWelfareBenefits
BrianK.Langenberg,CFA917.301.3002
#4LABOR
PublicEducation
BrianK.Langenberg,CFA917.301.3002
#4LABOR
HigherEducation
BrianK.Langenberg,CFA917.301.3002
Last30yearsadministratorsperstudentUp250%intheU.S.TheschoolIteachatshouldhave$3MMofannualoverheadspendnot$11MM.Andtobebluntabout1/3ofthestudentsreallyshouldnotbeincollegebutinatradeprogramwheretheywouldgraduatesooner,learnmore,andhavenoorlittledebt.
#4LABOR
HealthcareImmigration
BrianK.Langenberg,CFA917.301.3002
§ Ongoingissue.§ Weneedcostinnovation,wearen’tgettingit.
§ Companieswanttocherrypick§ Bluecollarwantshigherwagesandrespect§ Administrationwantstomovepeopletoworkfromwelfare§ PoliticalopponentswantclientsLaborPricesWILLcontinuetoriseRequiringautomationandskilldevelopment
#4LABOR
BrianK.Langenberg,CFA917.301.3002
HigherwagesrequirehigherlevelsofautomationGermany $43.76Japan $31.99Denmark $45.48U.S. $34.74China $5.00U.S.needsmore.(BLSstatisticsfor2012exChinawhichisanL&Cestimate)
#5
DEFENSE
WakeUpCall
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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.
#5DEFENSE
BrianK.Langenberg,CFA917.301.3002
#5DEFENSE
BrianK.Langenberg,CFA917.301.3002
EuropeUnderspending2%commitmentby$100billionperyear.UnderspendingColdWar(1988)by$232billionperyear.DefenseMinistersofNorway,Sweden,GermanyandNetherlands
PutinThebestfightsdon’thappenbecausethebullyisdeterred.DoesPutinlookworriedaboutEuropeandefensecapability?
#5DEFENSE
BrianK.Langenberg,CFA917.301.3002
U.S.needstoboostdefensespendbyatleast$100billionperyear.Europeaswell,butisn’t.Byrightsitshouldbehigher.Japangovernmentisraisingspendingwithinconstitutionalconstraintsandlimitedpublicsupport.
#6
ENERGY
StructurallyPositive
BrianK.Langenberg,CFA917.301.3002
#6ENERGY
BrianK.Langenberg,CFA917.301.3002
1. Globalgrowth(evenifslower)2. Venezuelaisashambles3. Mexicomustrecapitalizeitsenergyassets4. Iransanctions
#7
POLITICS
1890’sDynamics,InReverse
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#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.
#8
DEBTBOMB
TheChickensAreComingHometoRoost
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#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
#8DEBTBOMB
BrianK.Langenberg,CFA917.301.3002
#8DEBTBOMB
BrianK.Langenberg,CFA917.301.3002
$630billion,or60-65%canbeexplainedbyincreasedwelfarespendingasa%ofGDP.Povertytiestosingleparenthoodandlackofeducation.WhatworksforMurphyBrowndoesNOTworkforYolanda.
#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.
#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).
#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.
?
BrianK.Langenberg,CFA917.301.3002