2009-04 global monitor final

8/14/2019 2009-04 Global Monitor Final

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April 2009 BCM Global MonitorSummary: Economy has peaked in terms of spending, production & employment

Global economy in Stage 5 Early Downturn

Stocks: May have further downside risk (perhaps 20%)Commodities: Likely to have formed a bottom

Government Bonds: Likely to have formed a top

Firm Strategy: Budget offerings, look for long-term supplier contracts

Personal Strategy: Protect job, expand skills, reduce spending, rent


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April 2009 BCM Global Monitor

2Global Economic Summary, Asset, Personal & Business Strategy

Global Economy1. Consumer sentiment remains at historical lows

2. Consumer wealth is falling with stocks down and

property falling

3. Consumer spending (demand) growth continues to

contract

4. Business production/service activity continues tocontract

5. The global manufacturing/services PMI appears to

have bottomed

6. Global unemployment continues to rise

7. Leading indicators in several economies have, or

are close to bottoming

8. The OECD World CLI may bottom as early as June

9. The global economy is early in Stage 5 Early

Downturn

Asset Classes1. Equities: Possible short-term bottom in place,

further risk to downside

2. Property: Further falls ahead in November 2010

3. Bonds: A likely top has been achieved

4. Commodities: At or near bottom

Personal Strategy1. Conservative Investor: Cash is king, wait for

transition to equities

2. Aggressive Investor: Long-term government bonds

3. Property: Rent over buy if possible

4. Employment: Protect job, expand skills

5. Finances: Reduce debt and spending

6. Debt: Look to refinance at lower interest rates

Business Strategy

1. Competitive Strategy: Continue budget offerings

2. Operational Strategy: Continue cost reductions,reduce inventory

3. Human Resources: Review remuneration

conditions

4. Supplier Strategy: Anticipate upcoming purchase of

capital equipment

5. Acquisitions/Divestments: Anticipate possible

acquisitions


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3Global Economy: What stage are we in?

Stagnating

At 50

Rising

To 50

Rising

Below 50

Stagnates

Below 50

Falling

Thru 50

Falling

to 50

Stagnating

Above 50

Rising

Above 50PMI

UnemploymentRate

OECD Reference

Series (100)

Business

Investment

OECD Leading

Indicator (100)

8. Late7. Early6. Late5. Early4. Late3. Early2. Late1. Early

Reserve Bank

Funds Rate

Stagnating

At 50

Rising

To 50

Rising

Below 50

Stagnates

Below 50

Falling

Thru 50

Falling

to 50

Stagnating

Above 50

Rising

Above 50PSI

Industrial

Production

Consumer

Spending Grth

Consumer

Sentiment

RecoveryDownturnSlowdownExpansion

ActualEconomy

8 Stage Business Cycle

The business cycle is

currently in Stage 5 Early Downturn.

Over the next few

months we expect to see

further declines in

economic indicators untilconsumer sentiment and

spending recovery.

The trigger for the

transition to Stage 6 is

increasing consumer

sentiment and spending,

leading to a reversal in

production related

series.

For now the momentum

appears to be to thedownside.


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48 Stage Asset Class Cycle: Where to invest?

Commodity

Sectors

Government

Bonds

Stock

Market


RecoveryDownturnSlowdownExpansionAsset

Classes


Stock Market

The stock market is predicting a smooth recovery based on early positive economic results (e.g. US PMI) Stocks may have further downside (~30%) once the March 6 rally concludes

The current rally does not appear supported by economic fundamentals

Commodity Sector

Commodities, particularly copper and oil, are rising strongly

The Baltic Dry Index has been falling in contraction to commodity strength Sound long-term commodity fundamentals have commodities ahead of our 8-stage economic model

Bond Sector

Extreme central bank interest rate interventions have bonds ahead of our 8-stage model predictions

The top in bonds appears to have been achieved in Dec 2009


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58 Stage Firm Business Cycle: Business Strategy Ideas?

New Cust.

Quality Offers

Move to short-

term contracts

Consider short-

term contracts

Key Customers

Budget Offers

Move to long-

term contracts

Consider long-

term contracts

Sales

Strategy

Quality

OfferingsNew Customers

Budget

OfferingsKey Customers

Competitive

Strategy


Seek long-term

funds

Procure capital

equip

Ensure credit

availability

Seek short-term

funds

Sell assets,

reduce debt

Debt (Loan)

Management

Press qualityMove to long-term

Press fordiscounts

Move to short-term

SupplierContracts

Make

acquisitions

Plan for

acquisitions

Avoid acq., Sell

assets

Acquisitions/

Divestments

Hire StaffEnter wage

negotiation

Review

conditions

Avoid wage

negotiationLimit Hires

Human

Resources

ExpandOperations

Plan ExpansionMore costcutting

Cost cuttingOperationsStrategy

RecoveryDownturnSlowdownExpansion

BusinessStrategy


Firm Business Cycle Strategy Ideas

Continue to focus on budget offerings, consumers/customers/clients are under financial pressure Target sales activity towards key customers with budget offerings (recognise their financial pressure)

Look to use the crisis to implement cost cutting, institute more efficient work practices/processes

Look to review wage remuneration rates to lock in lower unit labour costs

If cashed up, start planning for acquisitions that will expand market share or product offering

Continue to press for discounts from your major suppliers


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68 Stage Personal Business Cycle: Personal Strategy Ideas?

Stock MarketStock

Market

Transition to

stock marketTerm DepositTerm Deposit

Transition to

cashStock MarketStock Market

Conservative

Investing Strat.

Pursue

promotion

Assume

responsibility

Plan next

career moveExpand skills

Become

indispensible

Seek secure

employmentSeek wage rise

Pursue

promotion

Employment

Strategy

Take long-term

debt

Buy major

itemsEssential only

Focus on

retiring debt

Cut back,

retire debt

Spending & Debt

Strategy

Try to buy here, prices and

sentiment subdued

Avoid buying here, lower as

lower prices are ahead

Avoid buying here, prices and

sentiment buoyant

Housing

Considerations

Stock MarketTransition to

Stocks

Corporate

Bonds

High Quality

Long Bonds

High Quality

Long BondsCommodities

Stocks &

Commodities

Stocks &

Commodities

Aggressive

Investing Strat.


RecoveryDownturnSlowdownExpansionPersonal

Strategy


Personal Business Cycle Strategy Ideas

Conservative investors remain in cash. Begin planning your stock investments as we approach Stage 6

Aggressive Investor may look to transition towards corporate bonds or look for a stock market bottom

This is a time to expand career skills through skills training or difficult assignments

Focus on essential purchases only at this stage, look to retire debt

Avoid buying property here if possible, lower prices are ahead


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7Global OECD Composite Leading Indicators

Global Economic Maps

Most nations CLI remain in downturn (below 100 and decelerating). The rate of deceleration for Russia,

Brazil and China in particular suggest further declines ahead. Korea and Italy have accelerating CLI

suggesting a near term recovery for these nations.


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8Global OECD Standardised Unemployment Rate


All nations shown now have rising unemployment over a 3month period. Whilst Spain remains in

unemployment purgatory, we see the US and Canada leading OECD nations into recession induced high

unemployment with high and increasing unemployment rates.


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9Global OECD Standardised Consumer Confidence


Consumer confidence appears closer to a bottom than business confidence with the rate of decline

beginning to slow. The UK, Australia, Korea, Brazil and Spain have stable consumer confidence (i.e. not

falling, near Y-axis). China has low and declining consumer confidence.


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10Global OECD Standardised Business Confidence


Business confidence remains subdued everywhere except Korea. US business confidence looks to be

improving, Australias has stabilised, and confidence in most other OECD nations continues to decline.


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11OECD Standardised Consumer Confidence History

Global Economy

Historical lows reflect severity of the 2008 Financial Crisis.The good news is that sentiment may have bottomed for the cycle.

OECD World Consumer Confidence


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12JP Morgan Global All-Industry PMI

Contracting at slower rate40.137.4Output

Falling at faster rate41.345.1Input Prices

Note index is a diffusion index, >50 indicates improvement over previous

month,


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13JP Morgan Global Manufacturing PMI

Contracting at slower rate37.235.8Global PMI

Falling at faster rate34.235.1Input Prices


month,


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14JP Morgan Global Services PMI

Contracting at slower rate41.538.6Output/activity

Costs falling at faster rate43.347.9Input Prices


month,


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15OECD World/NAFTA CLI & Industrial Production

Global Leading Indicators

The World* CLI declined 0.82 to 91.41 in February

(previous month decline 1.05). If the trend of a

slowing rate of decline continues the CLI should

bottom in 4 months (June 2009).

Industrial production continues to collapse. A 6-9

month delay on the CLI suggests an economic

recovery in 1st quarter 2010.

The NAFTA CLI declined 1.00 to 90.52 in February

(previous month decline 1.22). If the trend of a

slowing rate of decline continues the CLI should

bottom in 5 months (July 2009).


month delay on the CLI suggests and economic



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16OECD Major 4 Europe/Major 5 Asia CLI & Industrial Production

Global Leading Indicators

The Major 4 Europe CLI declined 0.06 to 94.42 in

February (previous month decline 0.39). The

Major 4 Europe CLI will likely bottom in March


month delay on CLI bottoming suggests an

economic recovery in 4th quarter 2009.

The Major 5 Asia CLI declined 0.92 to 90.47 in

February (previous month decline 1.12). If the

trend of a slowing rate of decline continues the CLI

should bottom in 5 months (July 2009).


month delay on the CLI suggests and economic



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17OECD CLI Analysis: US, China, Australia, & World

The peak rate of decline of the US (consumer), China (manufacturer) and World CLI was in November 2008. Australia

(commodities) decline rate peaked in January 2009. We anticipate global CLI bottoming around Qtr 4 2009, with an

economic recovery in 1H 2010.

Leading Indicator Analysis


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18US, UK & Australian House Price Index

Global Property

Global house prices continue to decline. US, UK and Australian prices are down 30%, 19% and 4%

respectively. The US market peaked in June 2006, the UK in October 2007 (US +16 months), and

Australian in March 2008 (US + 21 months).

S&P Case-Shiller Futures data suggests US house prices will bottom in November 2010 with a peak-

trough decline of 35.9% (115.2 on the index).


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19US, UK & Australian House Price Annualised Rate of Change

Global Property

Global house prices continue to decline with the US, UK and Australian prices falling at 19.4%, 15.7%

and 3.0% per annum respectively. The gain from June 1994 to the peak was 194%, 261%, and 204%

respectively (Perth, Australia 351%).

Only UK house prices are showing a slowing in the rate of house price declines.


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20OECD United States CLI & Industrial Production

US Economy

The US CLI declined 1.12 to 89.87 in February (previous month decline 1.36). If the trend of a slowing

rate of decline continues the CLI should bottom in 5 months (July 2009).

Industrial production continues to collapse. A 6-9 month delay on the CLI suggests an economic



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21OECD US Standardised Consumer Confidence History

US consumer confidence forming a bottom.

US Economy

OECD US Consumer Confidence


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22US Consumer Sentiment and Personal Consumption

US Economy

US Consumer Confidence (via Uni Michigan survey)declined to near record lows.

Look for a rise above 65 towards 70+ as evidence

of recovery.

Real personal consumption spending contracted ata slower rate (~-1.2%) compared to the previous

month.

We need to see a rise in spending as a precursor to

a general recovery.


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23US Industrial Production & Unemployment Rate

US Economy

Industrial production continues to collapse, down12% year-on-year. Lower production means less

need for workers

Unemployment is sky-rocketing, above 8% andrising rapidly.

Falling employment will lead to lower spending

and further US house price declines.


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24US GDP and Private Employment

US Economy

US GDP continues to decline, currently -0.8% yoy.The rate of decline in production and employment

suggest further declines ahead.

Private employment growth, our bellwetherindicator, continues contract (-4.2%). USPRIV is

indicating Stage 5 Early Downturn for the US

economy.


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25ISM PMI/NMF: Historical of New Orders and Production/Activity

Production and services activity improved for the month, continuing to suggest peak contraction has past. Most note-

worthy is the continued rise in manufacturing new orders, although new services business contracted further.

US Economy


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27OECD Euro Area Harmonised Unemployment Rate

Euro Economy

Continues to rise, up 0.3% to 8.5% in February. Further rises ahead


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28EC Euro Economic Sentiment, Business Climate & Production

Euro Economy

Economic sentiment for March is showing signs of recovery in the EU and EA led by the services and

construction sector. Business climate remains in a steadfast downtrend.


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29OECD Japan CLI & Industrial Production

Japan Economy

The Japan CLI declined 1.48 to 89.74 in February (previous month decline 1.55). The decline rate of

the CLI is stable making predictions of a CLI bottom difficult.

The plunge in Japanese industrial production defies description. Medium term this will have major

impacts on the Japanese economy.


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30Japan Unemployment Rate

Japan Economy

Rose 0.3% to 4.4% in February continuing the business cycle uptrend. Further rises likely ahead


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31OECD Japan Standardised Consumer Confidence History

Japan Economy

New record low and still declining without a bottom in sight.

OECD Japan Consumer Confidence


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32OECD China CLI & Industrial Production

China Economy

The Euro Area CLI declined 0.74 to 90.08 in February (previous month decline 1.10). If the slowing rate

of CLI decline continues, the China CLI may bottom in 2 months (May 2009).




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34OECD German CLI & Industrial Production

German Economy

The German CLI declined 0.31 to 90.32 in February (previous month decline 1.08). It is likely that the

German CLI will bottom in March.


recovery in 4th quarter 2009.


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35German Harmonised Unemployment Rate

German Economy

German unemployment rises continues to rise, up to 7.4% in February from 7.3% in January. Germanywas perhaps the last OECD nation to experience a rise in unemployment.

d d d f d


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36

German Economy

OECD German Standardised Consumer Confidence

Consumer sentiment plunging, no bottom in sight.

OECD German Consumer Confidence


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38U it d Ki d H i d U l t R t


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38United Kingdom Harmonised Unemployment Rate

United Kingdom Economy

UK unemployment continues to rise, up to 6.4% in December 2008 from cycle lows in December 2007.

39OECD UK Standardised Consumer Confidence History


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39OECD UK Standardised Consumer Confidence History

United Kingdom Economy


OECD UK Consumer Confidence

40OECD France CLI & Industrial Production


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40OECD France CLI & Industrial Production

France Economy

The France CLI rose 0.09 to 96.41 in February (previous month decline 0.03) marking a bottom in this

series.


recovery in 4th quarter 2009.


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42OECD France Standardised Consumer Confidence History


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42OECD France Standardised Consumer Confidence History

France Economy


OECD France Consumer Confidence

43OECD Italian CLI & Industrial Production


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43OECD Italian CLI & Industrial Production

Italian Economy

The Italian CLI rose 0.35 to 96.70 in February (previous month rise 0.09). The Italian CLI bottomed in

December 2008.


recovery in 3rd quarter 2009.

44Italian Harmonised Unemployment Rate


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44Italian Harmonised Unemployment Rate

Italian Economy

Unemployment held steady in December at 6.9%. However the trend is for continued increases from theMay 2007 lows.


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46OECD Canadian CLI & Industrial Production


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46OECD Canadian CLI & Industrial Production

Canadian Economy

The Canadian CLI declined 1.16 to 90.61 in February (previous month decline 1.29). If the slowing rate

of CLI decline continues, the CLI may bottom in 9 months (November 2009).


recovery in 2nd quarter 2010.

47Canadian Unemployment Rate


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p y

Canadian Economy

Unemployment following the US and rising rapidly.

48OECD Canadian Standardised Consumer Confidence History


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y

Canadian Economy


OECD Canadian Consumer Confidence

49OECD Australian CLI & Industrial Production


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April 2009 BCM Global Monitor Australian Economy

The Australian CLI declined 0.96 to 96.05 in February (previous month decline 0.79). If the slowing rate

of CLI decline continues, the CLI may bottom in 7 months (September 2009).


recovery in 2nd quarter 2010.

50Australian Unemployment


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April 2009 BCM Global Monitor Australian Economy

The growth rate in full-time equivalent

employment negative (contracting).

Further falls in full-time employment is certain.

Unemployment has bottomed for the cycle and is

now rising rapidly.

Unemployment above 7-8% is expected.


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52Inflation v Deflation (via US 10 Year Treasury Yields)


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April 2009 BCM Global Monitor Global Economy (via US Economy)

Implied 10yr future inflation predictions have widened, though remain at very low levels (1.2%). Lowinflation predictions reflect the dire economic predictions due to the current crisis (deflationary

expectations), however these have widened recently. Note the November 2008 10yr inflation

predictions were effectively 0% amidst the financial gloom.

53US Consumer Debt Outstanding & Debt Servicing Payments


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Consumer debt growth again hit a series low of0.4%. The current crisis can be described as peak

credit as the fall in credit-fueled spending is one of

the major causes of the economic contraction.

Debt service payments are down slightly to a still-very-high 14.0%. The high payments and inability

to expand credit further are a major drain on the

economy.

54US GDP, Consumer Debt & Personal Consumption


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The fall in annualised GDPis easily seen in light ofchanges in annual consumer credit growth.

Much of the GDP growth since 1983 has beenfueled by credit growth expansion (particularly

since 2001).

Consumer spending growth is clearly driven by consumer credit (debt) growth. And this is plunging!!!

55US Personal Savings Rate


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US consumers have reversed their spending patterns of the last decade, achieving a savings rate notseen since 1995. The need to save is driven by record high indebtedness and debt servicing payments.

Whilst this chart is provided for the US, it is representative of the savings patterns of consumers in

other OECD nations such as the UK and Australia.

56Oil Price Change (annualised) and Industrial Production


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Oil price changes tell us much about the state ofthe economy. This series may be predicting a rise

in economic activity (as occurred at previous lows).

Industrial production continues to decline, not yetconfirming a bottom in the oil series.

57Commodities Basket


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April 2009 BCM Global Monitor Commodities

Falling commodities reflect weak demand in a weak economy. Commodities have recovered around13% from their February 2009 lows suggesting that economic recovery may be imminent.


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59Dr Copper and the Baltic Dry Index


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Rising copper is suggesting increasing economic

activity and thus a possible imminent recovery.

Copper is a useful leading economic indicator as it is a key material

in the manufacture of durable goods, particularly electrical and

plumbing items.

The BDI has fallen since its early March high,

seemingly in contradiction to the recent runup in

commodities prices. As the BDI appears to lead

commodities, changes in BDI/commodities over

then next few months will be important.

The Baltic Dry Index is the daily shipping rate for bulk dry cargo

ships carrying goods such as iron ore, coal and wheat. It is believed

to provide a good leading indicator of economic activity.

60Agriculture (Grains) & Livestock


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Agricultural grains prices continue to strengthen

off their December 2008 lows though are yet to

break out of the 260-320 range.

Livestock prices are trending higher from their

March 2009 lows. Having exceeded 220, the trend

appears higher suggesting a strengthening

economy.

61Gold and the US Dollar


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Gold has weakened in March having retested the

$960/ounce level.

The uptrend in the US dollar appears intact. The

USD seems headed towards the 88-90 range

which should place downward pressure on

commodity prices.

62Stock Market: Developed Economies


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April 2009 BCM Global Monitor Stock Markets

Consistent with early signs of a recovering economy, developed stock markets have rallied from the

March 6, 2009 lows. Most markets are approaching resistance formed by the January 2009 highs.

The index covers the US (^GSPC), Japan (^N225), UK (^FTSE), Germany (^GDAXI), France (^FCHI), Australia (^AORD), Canada (^SPTSE),

Spain (^SMSI), and Italy (^SPMIB).

63Stock Market: Emerging Economies


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April 2009 BCM Global Monitor Stock Markets

Emerging markets (BRIC) recovered on March 9, 2009 along with developed markets. Emerging markets

have exceeded their January 2009 highs indicating a new bullish trend may be inplace.

The index covers Brazil (^BVSP), Russia (^RTS.RS) and India (^BSESN), China (^HSI). The US (^GSPC) is provided as a reference series to

enable a comparison with developed markets above.

64Bond Market: US 7-10 & 20+ Year Treasury Bonds


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Bond prices (long and shorter duration) may have peaked for the cycle in December 2008. US Treasury

purchases by the US Federal Reserve are likely to limit further price declines with prices stabilising atcurrent levels.

The index covers the iShares Lehman 7-10yr Treasury Bond Fund (IEF) and iShares Lehman 20+yr Treasury Bond Fund (TLT). The US

(^GSPC) is provided as a reference series to enable a comparison with developed markets above.

Bond Markets

65OECD CLI & Industrial Production (Nations 1-4)


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April 2009 BCM Global Monitor Global Composite Leading Indicators



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70OECD CLI & Industrial Production (Nations 21-23, South Africa)


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71BCM Book of the Month: Meltdown

Meltdown: A Free Market Look at Why the Stock Market


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Collapsed, the Economy Tanked, and Government BailoutsWill Make Things Worse

Is Capitalism the Culprit?

The media tells us that "deregulation" and "unfettered freemarkets" have wrecked our economy and will continue to

make things worse without a heavy dose of federalregulation.

But the real blame lies elsewhere. In Meltdown, bestsellingauthor Thomas E. Woods Jr. unearths the real causesbehind the collapse of housing values and the stock market--and it turns out the culprits reside more in Washington

than on Wall Street. And the trillions of dollars in federal bailouts? Our

politicians' ham-handed attempts to fix the problems theythemselves created will only make things much worse.

Available on the BCM Website:

Podcasts

Book Reviews

Websites

72


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Interested??Dont forget to subscribe to this publication and

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Alternatively, you can register for our

BCM US Monitor ($0.99/month), or our

BCM Australian Monitor ($1.49/month).

These country specific publications provide far greater

detail on their respective economies. Essential for theactive monitor!!

Understand, monitor and exploit the business cycle

73Disclaimer, Fair Use, Copyright

Disclaimer. Mark Walmsley B.Eng, MSc, MBA is the Business Cycle Monitor editor. The statements, opinions, buy orsell signals and analysis presented in this document are provided as a general information and are for news


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sell signals, and analysis presented in this document are provided as a general information and are for news

commentary and educational services only. All opinions, estimates, buy or sell signals, and predictionsexpressed herein constitute the judgment of the author as of the date indicated and are subject to changewithout notice. The information contained in the newsletter is expressed in good faith, but its accuracy is notguaranteed. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investmentadvice, nor is it to be relied upon in making any investment or other decision. Prior to making any investmentdecision, you are advised to consult your financial planner, broker or other appropriate tax or financialprofessional to determine the suitability of any investment. Neither Business Cycle Monitor nor Mark Walmsleyshall be held responsible or have any liability for investment decisions based upon, or the results obtained from,

the information provided.

Fair Use Policy. The BCM Global Monitor is sold to customers for personal use only. BCM considers it fair use toforward one copy of the BCM Monthly to friends, family or associates for the purpose of introducing saidindividuals to BCM monthly publications. Such introductions lead to increased subscribership, greater researchresources and a higher quality report. BCM does not consider it fair use to repeatedly forward BCM productsto individuals thus circumventing this policy.

Copyright. Copyright 2009. All rights reserved.

Business-Cycle Information. This summary should be read in conjunction with the business cycle articles andreferences provided at www.business-cycle-monitor.com. These provide additional information on how thebusiness cycles functions.

Description and References. Additional information on these indicators, global maps, the simplified economic modeland the sources used in this publication can be found at the BCM website.

www.business-cycle-monitor.com

2009-04 global monitor final

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