cssl august 5, 2011

Marvin R. ClarkManaging Principal

Chief Economist and Investment Strategist

Exploring Supply's Future: Megatrends, Volatility and the EconomyA.T. Kearney Center for Strategic Supply Leadership at ISM

August 5, 2011, Chicago, Illinois

Monsoon Wealth Management, LLC

Macro Economic Trends: Future Business Environments

Our World Today Investment bubbles and depressed markets Foreign wars, deficit spending, and a double-dip recession Political unrest over power, wealth, and natural resources Growing surplus of human labor and migration issues Overleveraged western nations Global affluence migrating from west to east Climate change and unpredictable business interruptions Physical and cyber-terrorism threats rising Seven billion individual economies all wanting Twitter

MacArthur ParkBy Jimmy Webb

CHORUSMacArthur's Park is melting in the darkAll the sweet, green icing flowing down...Someone left the cake out in the rainI don't think that I can take it'cause it took so long to bake itAnd I'll never have that recipe againOh, no!

World Economic Forum - January 2011An initiative of the Risk Response Network

1-866-931-1846 www.monsoonwealth.com

Historical Economic Perspective

Contemporary Economics

U.S. Post WWII Economic PoliciesKeynesian (John Maynard )

1933 - 1980

Higher Taxes Government Spending Social Safety Nets Union Wages Universal Health Care Raise workers standard of

living

Supply-Side

1981 – Current

Lower Taxes Smaller Government Free Markets No minimum wage law Few regulations Buyer beware


MAJOR CAUSES Of Post WW II Inflation

Vietnam War 1959-1975 Great Society Programs 1964-1968 Baby Boomers entering the workforce 1967-1982 Richard Nixon’s wage and price controls 1971 Leaving the gold standard 1971 The 1st oil embargo 1973 Excessive money supply growth 1974-1979 The 2nd oil embargo 1979 Antiquated manufacturing facilities


MAJOR CAUSES of Post WWII Deflation

The information and digital age 1981 Personal computers 1981 Declining oil prices 1981-2000 Declining interest rates 1981-2008 Deregulation 1981 - current Non-union domestic and foreign labor 1986-2007 Globalization 1989 North America Free Trade Agreement (NAFTA) 1994 Fiber-Optics and the Internet 1994 Cheap Capital 2002 -2008


Current Macroeconomic Analysis

Current Transfer Receipts and Government Current Receipts

Personal current transfer receipts (3–22) consists of income payments to persons for which no current services are performed and of net insurance settlements.

It is shown as the sum of government social benefits and current transfer receipts from business (net) (see 2–6). Government social benefits (3–23) includes benefits from government social insurance funds and social

assistance benefits from certain other programs

Government current receipts (4–27) is the sum of current tax receipts, contributions for government social insurance, income receipts on assets, current transfer receipts, and current surplus of government enterprises.

Current tax receipts (4–14) consists of personal current taxes (see 3–1), taxes on production and imports (see 1–6), taxes on corporate income (see 2–13), and taxes from the rest of the world (4–18), which are mostly income taxes received by the Federal Government from foreigners.


The Oughts' Decade “Punch Bowl”

Cowboy capitalism Excessive banking leverage Exotic derivatives investment products Lax regulatory supervision Federal deficit spending Lowered underwriting standards Securitization Unfunded wars Massive tax-cuts


The Oughts' Decade Five Bubbles

Dot.com stocks Residential and commercial real estate Personal and corporate debt Blue chip stocks Commodity speculation



2008: The Year Capitalism Died: Leading Causes

Bear Stearns Indy Mac Fannie Mae Freddie Mac Lehman Bros. Breaking the Buck TARP 6% GDP contraction

The New Normal

An endless U.S. L-shaped recovery Multi-year U.S. consumer credit contraction Fewer U.S. public services Austerity and a reduced standard of living Global deflation and inflation, together Developed nations going Neofeudalism BRIC(hina), Emerging, and Frontier Markets


Marv, 06/21/2009

Monetary Policy Analysis

Individual Wealth Analysis

Housing Analysis

Employment Analysis

Commodity Price Analysis

Digitas' Proprietary Study Abstract "Affluence in America: The New

Consumer Landscape

Digitas' Proprietary Study "Affluence in America: The New Consumer Landscape

53% of the Once-dominant "Mass Affluent" ($100-199K income) Now Consider Themselves Middle Class;

Rise of the "Class Affluent" ($200K + income) and the "Emerging Affluent" (35 years old or younger)

The study reveals that the future of affluence is not like the past, and that "mass affluence" has given way to the spending power of the truly and the up-and-coming affluent -- the "Class Affluent" and the "Emerging Affluent.“

Digitas' Proprietary Study "Affluence in America: The New Consumer Landscape"

The Mass Affluent ($100-$199K household income level) has disappeared. They don't have the leveraged spending power they once had and now have to live on income alone. Not surprisingly, an overwhelming majority (53%) classify themselves as middle class. They have been replaced by:

The Class Affluent -- earn $200K HHI or more yearly and 54% classify themselves as upper-middle class. The Emerging Affluent -- earn $100-$199K; same as the Mass Affluent YET are under 35 years old.


The Rise of the Class Affluent (in a "class" by themselves):

Earns between $200K HHI (the minimum threshold for true affluence in America according to our findings) and $1 million+ HHI annually. Represents the minority -- only 8.5 million in a country of 307 million people. Three tiers of Class Affluence.

The Affluent -- $200K–$499K HHI -- The Creative Class: The Affluent are the creative class. They are likely to work in creative fields or industries, like software design, publishing, architecture, advertising, or journalism.

The Wealthy -- $499K–$999K HHI -- The Money Class: Likely to work in Finance and Consulting.

The Rich -- $1 million+ HHI -- The Leadership Class: They are individuals who run companies and influence industry. They command the highest incomes and make decisions that affect many. They can be found in high-income careers, like financial or legal services, or break-out industries like Internet properties/services or real estate.


Emerging Affluent: 5.5 million people who are currently in the work force and on their way to affluence.

They have the same HHI as the Mass Affluent ($100K–$199K) but are younger, under 35.

The Emerging Affluent work in careers that will eventually deliver affluence -- financial services, legal services, and engineering -- but they are still in the low to middle management tiers.

This group has all the attitudes of the truly affluent. They consider themselves opinion leaders, follow trends, love to travel, and are passionate about food and dining. They pursue both stylish youth-oriented brands like Scion, Diesel, and Samsung and true luxury brands like H. Stern, Tiffany, St. Ives, and D&G.

What sets this group apart from all others is their intensely digital media behavior. Universally digital, members of this class use mobile devices for communicating, consuming content, enjoying music, and gaming. They use social networks and blog, and they prefer apps to 411 to research restaurants, recommend products, or get deals from marketers.

Possible Economic Outcomes


America’s Outlook: 2011-2014

Subpar GDP growth, probable double-dip recession Quantitative Easing III (QE III) Persistent high unemployment levels Decline in the middle class standard of living Rise in the affluent standard of living Loss of America’s AAA credit rating Extreme political and social unrest Unanticipated business disruptions Capital flight by business and the affluent


Global Outlook: 2011-2014

Hard Chinese economic landing Collapse in Brazil’s economy Greater regional political instability Realization of a “broken Japan” Greece defaults on their debt Implosion of the Economic Union and the Euro The next financial crisis

Trending Issues


Near-term Issues Local production and distribution of goods and services

Cloud computing and new areas of layoffs

Cyber-terrorism as a permanent way of life

China’s operational satellite system in 2012

Political elections and business scandals

Public health

Wikipedia

The continuing unwinding of the 20th century


Horizon Issues 3-D printing and fabrication technology

Declining Western economic clout

Declining usage of nuclear power

Peak oil

Climate change

Food security

Further 21st century geo/political realignment

International payment and settlement changes

Bitcoin – an internet currency. Does it have a future?

Conclusions


Pro-active Corporate Measures

Create small working group, studying the USSR’s demise

Create a F.D.I.C. insured financial institution

Re-evaluate the value of your markets and products

Scan for business innovation coming from other’s necessity

Prepare a rolodex of opposition leaders in politically unstable

countries for business continuity


Defensive Corporate Measures

Anticipate volatile price swings in raw materials

Anticipate disruptions in sensitive geo/political areas

Be prepared to abandon markets and products

Discount the overly optimistic Emerging Market thesis

Discount 20th century data sets and behavior patterns

Monsoon Wealth Management, LLC

www.monsoonwealth.com

cssl august 5, 2011

Economy & Finance