May 2018Kurt Benn

Can Goldilocks outrun the three bears?

Goldilocks

• Cheap, abundant liquidity• Benign inflation• Rising growth

The “just right” cocktail

Cheap, abundant liquidityCompliments of the major central banks

Source: BLOOMBERG, ABAM

0

1000

2000

3000

4000

5000

6000

USD

(Bn)

FED Assets BOJ Assets ECB B/S

Benign inflationOECD inflation still well below long-term trend

Source: IRESS

Rising growth expectationsGDP estimates significantly upgraded since September 2017

Source: IRESS

Risk assets dominateJan 2009 to end September 2017

Source: IRESS

Waiting in the woods

• Rising US rates & corporate debt

• Equity Valuations• Chinese liquidity extraction

The three bears

35,00%

37,00%

39,00%

41,00%

43,00%

45,00%

47,00%

49,00%

Mar

-90

Apr-

91M

ay-9

2Ju

n-93

Jul-9

4Au

g-95

Sep-

96O

ct-9

7N

ov-9

8De

c-99

Jan-

01Fe

b-02

Mar

-03

Apr-

04M

ay-0

5Ju

n-06

Jul-0

7Au

g-08

Sep-

09O

ct-1

0N

ov-1

1De

c-12

Jan-

14Fe

b-15

Mar

-16

Apr-

17

US Corporate Debt/GDP

Rates are risingCorporate balance sheets look dangerously stretched

Source: BLOOMBERG, ABAM

Recessions followed

Equity valuations are stretchedMSCI World Index

Source: INET, Bloomberg, ABAM

Chinese credit impulse still tighteningIndustrial activity slowing even more…risk to commodity prices

Source: INET, ABAM

What if Goldilocks gets caught?Drawdowns greater than 20%

ALL Share Duration (mths) Major Drawdowns1969 to 1971 30 -61%1974 to 1976 30 -43%1980 to 1982 20 -47%1987 to 1988 6 -43%1998 3 -40%2002 to 2003 11 -32%2008 to 2009 9 -33%Average 16 -43%

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