Where Are We Into Days Global Market Cycle David Fuller
Transcript of Where Are We Into Days Global Market Cycle David Fuller
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49th Annual Contrary Opinion ForumDavid Fuller 6th October 2011
Where are we in todaysglobal market cycle?
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S&P 500 Index since 1957
Secular valuationcontraction
1966 to 1982
Secular valuationcontraction
2000 to 2016?
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We are currently experiencinga cyclical bear market
within a secular valuation contraction(which some call a secular bear market)
Todays cyclical bear has probably
commenced its latter stages but thereare still risks to the downside and noclear signs that the lows have been seen
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Main causes of the cyclical bear:Europes sovereign debt crisis
US economic weakness, debt and politicsMonetary tightening by growth economiesSpikes in commodity prices earlier this year
(This latter factor is mentioned less frequently butspikes in commodity prices, especially crude oil,
have always resulted in economic slowdown orrecession. Commodity price inflation is arguably abigger problem for Asian-led growth economies
than the wests economic problems.)
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Key European Indicator:
Spread between Italian and
German 10-Yr Govt bond yieldsHigher levels reflect Greece
contagion fears
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Key European Indicator:
Spread between Italian and
German 10-Yr Govt bond yields
Higher levels reflect Greececontagion fears
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Key European Indicator:
Euro STOXX Bank Index
Needs upward dynamicas seen in March 2009
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Key European Indicator:Germany DAX Index
Potentially building support
above 2008/9 base
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Fullermoney European Forecasts:
Reports of the euros demise are premature Greece will have an orderly, controlled default Portugal may as well, although not immediately The new European Financial Stability Facility
(EFSF) should contain risk of further contagion The European Stability Mechanism (ESM) may bebrought forward from 2013 to replace EFSF
The necessary fiscal union for a single currencywill be negotiated and eventually ratified
Europe will remain a slow-growth region but has
a number of world-class multinational companies
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The Autonomies(Fullermoneys moniker for the worlds most
successful multinational companies)
Many of todays successful
multinational companieshave become quasi-autonomous,
mobile principalities.
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Western corporate Autonomies
are the antitheses of their
home countries
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Most developed economies have:high debt, high unemployment,
slow GDP growth,crumbling infrastructure
and questionable governance.
Fortunately, as investorswe buy companies -
not economies.
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The Autonomies(successful multinational companies)
have strong balance sheets and
improved governance since 2008.
They profit from global GDP growth bymanufacturing where they receive
competitive costs and entry tooverseas markets, and sell where they
earn the best returns.
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Most Autonomies pay dividends andsome are Dividend Aristocrats
Excluding the financial sector,
dividends of S&P 500 companiesare now 20 percent higher than at
the 2007 peak.The Wall Street Journal
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The USA has far more Autonomiesthan any other country
They are household names such as:
Amazon, Apple, Bristol-Myers Squibb,Coca-Cola, Colgate-Palmolive, Costco,
Google, Heinz, IBM, Johnson &
Johnson, MasterCard, McDonalds,Nike and Visa
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Amazon
Excellent relative strengthwhile it remains aboveits rising 200-day MA
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Coca-Cola
Excellent relative strengthwhile it remains above
its rising 200-day MA
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McDonalds
Outstanding relative strengthalmost recession and
bear market proofYields 3.2%
f ll O h E Th h K l d
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Stock market question:
Do two severe bear markets within
eight years make it moreor less
likely that another dramaticdeclinewill occur within a few years?
We are about to find out over thenext few months, meanwhile
f ll O th E t Th h K l d
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Investors Intelligence
Oversold but falls furtherin significant bear trends
f llermone com O th E t Th h K l d
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S&P 500 Index
QE2August lownear 1100
under pressure
fullermoney com O th E t Th h K l d
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Nasdaq 100 Index
QE2
Relativestrength
but also top
heavyand needs
to rallyback above
MA to offsetlower scope
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Many US economic commentatorssay that America is in a depression!
We also heard this in 1974, 1987,
2001 and 2008.
This crisis is serious, but
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What we actuallyhave is the worstcredit crisis recession since the 1930s.
100 years of historyshow that it takes five to seven years
for an economy to recover from acredit crisis recession.
If the US recession ended in 2Q 2009,we are less than halfway into the third
year of the convalescence
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Fullermoney USA Views & Forecasts:
Second difficult decade due to myriad reasonsfrom governance to bubbles, war and debt
US corporate success shows decline not systemic Inspired governance required then America canrediscover its core values and historic strengths
Shale oil and gas will help fuel the US economy toenergy self-sufficiency within ten to fifteen years
This eliminates the deficit and a govt. surplus
funds infrastructure rebuilding across the USA Americas creative culture reinvigorates economyled by technology, manufacturing and services
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Asia remains the global GDP growthengine but it has been slowedby the fight against inflation
A change in Asian monetary policy
from restrictive to accommodativeis needed to revive global GDP growth
Lower commodity prices would
enable monetary easing in Asia
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China Shanghai A Index
Record share offeringsand monetary squeeze
have weighed on marketbut valuations are approaching
historic lows
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India BSE Sensex Index
12 consecutive rate hikesmonetary reversal
required
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Indonesia Jakarta Comp Index
Relative strength standoutsuccumbs to global bear trend
prior to another buyingopportunity
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Fullermoney Asia Forecasts:
Asia remains the engine room for global GDP growthdue to capitalism, population and demographics
Asias proportion of global GDP growth will increase Asias inflation will remain a problem, not least whenstrong growth causes commodity prices to surge
China is not a bubble economy but it is bubble prone Intra-Asian trade will expand significantly Asias middleclass will continue to increase rapidly
Asian demand for most commodities grow steadily Environmental problems especially drought arethe main risks to Asian economic prosperity
Cambodia, Myanmar and North Korea will eventuallyadopt Asias state-led capitalism
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Rising yields make equities
increasingly attractive index yields:
Asia Pacific: Australia AS51 5.0%, Hong Kong HSI3.8%, New Zealand NZSE 5.5% Singapore FSSTI4.1%
Europe: France CAC 5.4%, Germany DAX 4.3%,Sweden OMX 4.7%, United Kingdom FTSE 3.9%
South America: Brazil IBOV 4.4%North America: Canada SPTSX 2.9%, United StatesS&P 2.2% Note: in 2Q 1982 the S&P yielded 6.2% as
the last secular valuation contraction ended
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September1981 US 10-Yr Bond Yield
Does it make senseto buy 10-year
Treasuries at 2%?
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Fiat Currencies
The least bad in a growth environment:Those of Asia-led growth economies, resources
exporters, financial currencies (Singapore $)
Higher risk:
Debtor currencies US$ appeal mainly as a liquidreserve currency and haven in times of crisis
In the future:Chinese Renminbi will become another reservecurrency a few years after full convertibility is
established
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Asian
crisis
Asian Dollar IndexFrom Oct 1994
USbankcrisis
Europeansovereign
crisis
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Commodities
Secular bull market, but volatile:
Supply inelasticity meets rising demand
Gold has been remonetised in the eyes ofinvestors
Commodity price inflation an opportunityas recession ends but an increasing risk
when global GDP growth increases
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y p g g
Continuous Commodity Index (Old CRB) since 1954
Brobdingnagianflatline base,
until Nixon endsBretton Woods
Agreement in 1971
Paul Volckersdisinflationary
secular bear forcommodities commences
Greenspans monetary expansionand China-led GDP growth
cause secular bull in commodities
recessionscommence
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y p g g
Continuous Commodity Index (Old CRB)since Oct 2006
Global monetary
tightening
Global monetaryreflation
Asian monetary
tightening
QE2
Commodityreset occurringAsian monetaryeasing to follow
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y p g g
Crude Oil NYME
Spikes in oil pricescause recessions
July2008
April2011
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Brent Crude Oil IPE
This contractis more representative of
oil import costs in Europeand Asia
Ranging lower -a further decline
would seed globaleconomic recovery
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Copper CME
Some further downsidebut should bottom
well above 2008 lows
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y
Rogers Int AgriculturalCommodity IndexFood price inflation
February 2008
Food price inflationFebruary 2011
The problem isnow abating
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Ron Paul to Ben Bernanke earlier this year:
Is gold money?
Ben Bernanke, after hesitation:
Its an asset.Ron Paul:Why have people used it as money for thousands
of years?
Ben Bernanke:
Tradition.Fullermoney view:Gold remains the worlds most enduring monetaryasset.
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Gold Bullion since 1957log scale
Nixon endsBretton WoodsAgreement on
August 15, 1971
Volcker appointedFed Chairman onAugust 1, 1979
monetary squeeze
commences
Greenspan appointedFed Chairman onAugust 11, 1987
Bernanke FedFeb 1, 2006
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Gold monthly since 1990
Brobdingnagian base
Trend accelerates
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Gold weekly (5-years)
We are currently experiencinga medium-term pause
in a secular bull market
Reversion to MAsupport buildingrequired, some
risk of contagion
while stockmarkets are weakand USD strong
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Lastly, for equity investors the mostimportant comment in this
presentation:
Wealth is createdin down marketsand realised in up markets
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Thank you very much
Fullermoney is a
Global Strategy Serviceproduced by
David Fuller&Eoin Treacy
We invite you to visit our site:
www.fullermoney.com
http://www.fullermoney.com/http://www.fullermoney.com/