TMRS: What’s Next? | 2016 · 5/16/2016 · Dec-13 May-14 Oct-14 Mar-15 Jul-15 Dec-15 May-16 20...
Transcript of TMRS: What’s Next? | 2016 · 5/16/2016 · Dec-13 May-14 Oct-14 Mar-15 Jul-15 Dec-15 May-16 20...
Presentation
by
A. Gary Shilling, Ph.D.
to
The Texas Municipal Retirement System
Jan-59 Jan-65 Jan-71 Jan-77 Jan-83 Jan-89 Jan-95 Jan-01 Jan-07 Jan-132%
4%
6%
8%
10%
12%
14%
16%
50%
60%
70%
80%
90%
100%
110%
120%
130%
140%
Saving Rate (SAAR) - left axisHousehold Debt as a % of Disposable Personal Income - right axis
U.S. Personal Saving Rate and Household Debt (consumer plus mortgage) as a % of Disposable Personal Income
Last Points 4Q 2015- Saving Rate, 5.4%; HH Debt, 104.7%
Source: Bureau of Economic Analysis; Federal Reserve
1947-I 1959-III 1972-I 1984-III 1997-I 2009-III 58%
59%
60%
61%
62%
63%
64%
65%
66%
67%
68%
7%
8%
9%
10%
11%
12%
13%
14%
15%
Compensation of Employees - left axisCorp. Profits with IVA and CCAdj - right axis
Corporate Profits and Employee Compensationas a percentage of National Income
Source: Bureau of Economic Analysis
Last Points 4Q 2015 - Corp. Profits: 12.1%, Employee Comp: 62.6%
1980 1985 1990 1995 2000 2005 2010-6%
-5%
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-3%
-2%
-1%
0%
1%
2%
3%
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-6%
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-2%
-1%
0%
1%
2%
3%
4%
Avg. Real Weekly Wages of Production and Supervisory EmployeesReal Median Household Income
Real Weekly Wages and Household Incomesyear/year percent changes
Source: Bureau of Labor Statistics; Census Bureau
Last Points 2014- Income: -1.5%, Wages: 1.0%
Jan-07 Sep-08 May-10 Jan-12 Sep-13 May-15-50%
0%
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450%
-50%
0%
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400%
450%
Federal ReserveEuropean Central Bank
Bank of EnglandBank of Japan
Central Bank Assetschange since January 2007
Source: Bloomberg; The Central Banks
Last Points: April 2016
5
Jan-07 Dec-08 Dec-10 Dec-12 Dec-14600
800
1000
1200
1400
1600
1800
2000
2200
600
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1000
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2000
2200
S&P 500 Index
Source: Thomson Reuters
Last Point 05/16/16: 2,066.66
1997 1998 2000 2002 2004 2006 2008 2010 2012 2014100
150
200
250
300
350
400
450
500
100
150
200
250
300
350
400
450
500
Reuters/Jefferies CRB Index
Source: Haver Analytics, Thomson Reuters
Last Point 05/16/16: 184.58
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 20144%
6%
8%
10%
12%
14%
16%
4%
6%
8%
10%
12%
14%
16%
Chinese Real Gross Domestic Productyear/year percent change
Last Point 1Q 2016: 6.7%
Source: Bloomberg; Chinese National Bureau of Statistics
Jan-07 Sep-08 May-10 Jan-12 Sep-13 May-15-30%
-20%
-10%
0%
10%
20%
30%
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50%
60%
-30%
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-10%
0%
10%
20%
30%
40%
50%
60%
Chinese Exports year/year percent change
Source: China General Administration of Customs
Last Point April 2016: -1.8%
2004 2006 2008 2010 2012 2014150%
160%
170%
180%
190%
200%
210%
220%
230%
240%
250%
150%
160%
170%
180%
190%
200%
210%
220%
230%
240%
250%
Chinese Total Debt as a Share of GDPincludes corporate, household, government and bank debt
Source: Bloomberg
Last Point 2015: 246.8%
1997 1999 2002 2004 2007 2009 2012 201411.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
15.0%
15.5%
16.0%
16.5%
17.0%
United States Manufacturing Value Addedas % share of GDP
Source: Bureau of Economic Analysis; The World Bank
Last Point 3Q 2015: 12.1%
Jul-12 Mar-13 Nov-13 Jul-14 Apr-15 Dec-15
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40 7580859095100105110115120125130
USD/EUR - left axis (inverted)JPY/USD - right axis
Euro and Yen Exchange Rates
Last Points 05/16/16 - USD/EUR: 1.132; JPY/USD: 109.01
Source: Thomson Reuters
Stro
nger
U.S
. Dol
lar
Stro
nger
U.S
. Dol
lar
1996 1998 2001 2003 2006 2008 2011 201325
30
35
40
45
50
55
60
25
30
35
40
45
50
55
60
Non-OPECOPEC
Total Oil Output for Non-OPEC and OPEC Countriesmillion barrels per day
Source: Energy Information Administration
Last Points 3Q 2015 - Non-OPEC: 58.68; OPEC: 37.71
Dec-13 May-14 Oct-14 Mar-15 Jul-15 Dec-15 May-1620
30
40
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60
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110
120
20
30
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50
60
70
80
90
100
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120
Brent Crude OilWTI Crude Oil
Brent and WTI Crude Oil Pricesdollars per barrel; nearest futures contracts
Source: Thomson Reuters
Last Points 05/16/16 - Brent: $48.97; WTI: $47.72
Oil Breakeven Price for Major Petrostates $ per barrel
Source: Bloomberg; The Wall Street Journal
$52 $58$68 $70 $76
$89 $93 $96 $98 $105
$208
Kuwait Qatar
U.A.E. Iran Iraq
VenezuelaAlgeria
Saudi ArabiaOman
BahrainLibya
$0
$50
$100
$150
$200
$250
$0
$50
$100
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*Breakeven price needed in order to balance the national budget.
Current Brent Crude, $/barrel: $48.97
2001 2002 2004 2006 2007 2009 2011 2012 2014 20160
100
200
300
400
500
600
700
800
0
100
200
300
400
500
600
700
800
Saudi Arabia Foreign Exchange Reservesbillion USD
Source: Bloomberg; International Monetary Fund
Last Point March 2016: $587.08
United States Crude Oil Productionmillion barrels per day
Source: Energy Information Administration
Last Points 05/06/16: 8.80
2000 2001 2002 2004 2005 2006 2008 2009 2010 2012 2013 20140
1
2
3
4
5
6
7
8
9
10
0
1
2
3
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10
Crude Oil Rotary Rig Count and Average Oil Production Per Rig
Source: Bloomberg; Baker Hughes
Last Points April 2016: Rigs, 332; Oil Prod., 475
2008 2009 2010 2011 2012 2013 20150
200
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0
50
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Rig Count - left axisAverage Oil Production Per Rig (barrels/day) - right axis
A Successful Cartel
1. Involves a commodity that can otherwise be left in the ground, avoiding production and inventory costs until it’s needed.
2. Its product is so much in demand that buyers are relatively insensitive to price.
3. The commodity has few if any close substitutes.
4. It includes most of the low-cost suppliers and has few meaningful non-cartel competitors.
5. It involves relatively few cartel members, thereby promoting discipline.
6. It's sponsored by governments and even religious authorities that benefit from the cartel and protect it.
7. It operates in a period of strong economic growth and robust demand for the product.
8. It faces few technological improvements in the industry.
Unfavorable Climate for OPEC
1. Alternatives to oil, especially natural gas but also government-subsidized renewables, are growing.
2. Non-OPEC supplies are leaping, notably from Russia and especially American frackers.
3. Infighting among OPEC members has destroyed discipline.
4. Global economic growth is weak, and the ongoing shift from goods production to services in China and elsewhere is curbing oil demand.
5. Conservation is limiting oil demand.
6. Rapid technological advances in fracking, horizontal drilling, deep-water and Arctic drilling, etc. are mushrooming non-OPEC supplies at low and declining costs.
World Crude Oil Supply and Demandmillion barrels per day
Source: Bloomberg; International Energy Agency
Last Points 4Q 2015: Ex. Supply, 2.3; Demand, 94.8; Supply, 97.1
2001 2002 2003 2004 2006 2007 2008 2009 2011 2012 2013 2014-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
75
80
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90
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Excess Supply - left axisDemand - right axisSupply - right axis
Mar-11 Oct-11 May-12 Dec-12 Jul-13 Feb-14 Sep-14 Apr-15 Nov-1520%
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20%
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90%
Tank Net Available Shell Storage Capacity UtilizationTank Working Storage Capacity Utilization
Crude Oil Storage Capacity UtilizationCushing, OK
Source: Energy Information Administration
Last Points 05/06/16: Shell, 77.3%; Working, 92.9%
Note: Net available shell includes idle (not working) capacity.
Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16-5%
-4%
-3%
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-1%
0%
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United StatesEurozoneJapan
Producer Price Indexyear/year percent change
Source: Bloomberg; Bureau of Labor Statistics
Last Points 04/16: U.S., 0.0%; Japan, -4.2%; 03/16: EZ, -4.2%
Jan-07 Sep-08 May-10 Jan-12 Sep-13 May-15-5%-4%-3%-2%-1%0%1%2%3%4%5%6%
-5%-4%-3%-2%-1%0%1%2%3%4%5%6%
GoodsServices
U.S. Personal Consumption Expenditures Implicit Price Deflato year/year percent change
Source: Bureau of Economic Analysis
Last Points March 2016 - Goods: -1.8%; Services: 2.1%
Japanese CPI and Real GDP year/year percent change
Source: Japanese Cabinet Office
Last Points 4Q 2015- GDP: 0.8%; CPI: 0.3%
1981 1985 1989 1993 1997 2001 2005 2009 2013-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-10%
-8%
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6%
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10%
Real GDPConsumer Price Index
Jan-15 Mar-15 May-15 Jul-15 Oct-15 Dec-15 Feb-16 May-161.6%
1.8%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
1.6%
1.8%
2.0%
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
10 Year Treasury Yield30 Year Treasury Yield
10 and 30 Year Treasury Yields
Source: Federal Reserve
Last Points 05/16/16 - 10-Yr: 1.75%; 30-Yr: 2.60%
Jan-07 Dec-08 Nov-10 Oct-12 Sep-1470
75
80
85
90
95
100
105
70
75
80
85
90
95
100
105
U.S. Dollar Indexspot price
Source: Bloomberg
Last Point 05/16/16: 94.57
Stro
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. Dol
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Stro
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U.S
. Dol
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1980 1985 1990 1995 2000 2005 2010 2015-1600
-1400
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-200
0
200
400
-1600
-1400
-1200
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0
200
400
Federal Budget Balance$ Bil.
Source: Congressional Budget Office
Last Point 2015: -$439
26
Questions and Discussion