demographics, debt, dollar and deflation -...

© 2015 Douglas C. Robinson

Demographics, Debt, Dollar and Deflation

Is the next Great “Reset” coming?

CMTA Advanced Investment WorkshopJanuary 28, 20145

Presented by Douglas C. Robinson

RCM Robinson Capital Management LLCSEC Registered Investment Advisory Firm

Advisory services offered through RCM Robinson Capital Management LLC

Securities offered through Foothill Securities, Inc., a Registered Broker/Dealer, Member FINRA/SIPC

RCM Robinson Capital Management, and Foothill Securities are unaffiliated.


2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009

Data Source: U.S. Census Bureau, National Center for Health Statistics, Dent Research

Immigration Adjusted Birth Index


Consumer Life Cycle of Spending

Spen

ding

20Age

25 30 35 45

20Workforce Entry

2628

Childbirth- Infant Furniture

3133

25

Childcare/ Babysitting

First/Starter Home

Marriage

4142

Mortgage Interest

Trade-up Home; Potato Chips/Groceries

First Car

Data Source: Bureau of Labor Statistics, Dent Research


Consumer Life Cycle of Spending Peak

45Age

48 51

4846

53College Tuition

Motorcycles;Vacation Homes

Furniture; Tires

43 54

51 Autos

Home Improvement

54


Spen

ding


Consumer Spending Over 50

55Age

60 65 70 75 80 85

China/ Dinnerware

55

58

Life Insurance; Doctor’s Fees

60

Garden/ Lawn Care

70

Vacation and Retirement Homes

77

Nursing Homes

81

Prescription Drugs

Hospitals; Travel

65 Trusts, Cruise Ships,

74

Medicare Co-Pay

84


Spen

ding


Men's Shirts Men's Shirts

0

20

40

60

80

100

20 30 40 50 60 70 80

Expe

nditu

res

AgeSource: U.S. Bureau of Labor Statistics Consumer Expenditure, H.S. Dent


Spending on Drugs

020406080

100120140160180

20 25 30 35 40 45 50 55 60 65 70 75 80

Age

Expe

nditu

res

Source: U.S. Bureau of Labor Statistics Consumer Expenditure, H.S. Dent


Funeral, burial or cremation

0

50

100

150

200

250

300

20 30 40 50 60 70 80


Expe

nditu

res

Age of Head of Household


Healthcare Spending WaveBirths on a 80-Year Lag

Healthcare Spending WaveBirths on a 80-Year Lag

2500000

3000000

3500000

4000000

4500000

5000000

2004 2014 2024 2034 2044 2054

Imm

igra

tion-

Adj

uste

d B

irths



Total U.S. Debt Outstanding1977- Q3 2014

$-

$10

$20

$30

$40

$50

$60

1977 1982 1987 1992 1997 2002 2007 2012

Trill

ions

Federal Govt Trust FundsFederal GovtState and Local GovtFinancial SectorForeignCorporateConsumer CreditHome Mortgage

Data Source: Federal Reserve Flow of Funds Report, Treasury Direct, 2014

Government$20.9Trn

Financial$14.0Trn

Corporate$12.6Trn

Consumer$12.6Trn

Total:$62.2 Trn

Foreign$2.9Trn

© 2015 Douglas C. RobinsonData Source: Advisor Perspectives – Doug Short, 2015

Real Gross Domestic Product


Total U.S. Debt Growth vs. GDP1983-2014

$-

$10

$20

$30

$40

$50

$60

$70

1983

1984

1986

1987

1989

1990

1992

1993

1995

1996

1998

1999

2001

2002

2004

2005

2007

2008

2010

2011

2013

2014

Trill

ions

GDP Total U.S. Debt

GDP Growth= 313%

Debt Growth= 839%

Current Debt is 3.54x GDP

Data Source: Federal Reserve, 2015

Debt Growth=2.68x GDP Growth


China Debt Growth vs. GDPQ1 2000 - Q3 2014

$0

$5

$10

$15

$20

$25

$30

2000 2002 2005 2008 2011 2013

Trill

ions

GDP China Total Debt

Data Source: Bloomberg, 2015

GDP Growth= 768%

Debt Growth= 2,635%

Debt Growth=3.43x GDP Growth Current Debt is 2.64x GDP


Iron Ore2000-2014

$0

$50

$100

$150

$200

$250

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Iron Ore, $/ Metric Ton

Data Source: Bloomberg, 2015, Quarterly Prices Prior to 2008


Copper2009-2015

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

Jan-

09

Jul-0

9

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Data Source: Bloomberg, 2015


U.S. Total Debt as Percent of GDP by Sector, 1916-2014

Data Source: “Deleveraging? What Deleveraging?” Geneva Reports on the World Economy 16, Luigi Buttiglione, Philip R. Lane, Lucrezia Reichlin and Vincent Reinhart, St. Louis Fed, 2014

TotalGovernment

GSE

Financial

Corporate

Consumer

150%

390%

50%

During the last great economic “reset”, non-government debt fell dramatically to 50% of GDP. Today all debt exceeds 360% of GDP.


1.45

1.55

1.65

1.75

1.85

1.95

2.05

2.15

2000 2002 2004 2006 2008 2010 2012 2014

Source: Bloomberg, 2015

The Velocity of MoneyGDP divided by M2 Money Supply


Record NYSE Margin Debt

Source: NYSE, Bloomberg, Advisor Perspectives – Doug Short, 2015


The Buffett Indicator

Source: Federal Reserve Bank of St. Louis, Advisor Perspectives – Doug Short, 2015

Mar

ket V

alue

of E

quiti

es O

utst

andi

ng to

GD

P ov

er 2

sta

ndar

d de

viat

ions

from

mea

n


U.S. Dollar Index (DXY)1978 - 2016

60

80

100

120

140

160

180

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

Data Source: Bloomberg, 2015 Future assumptions are the opinions of RCM Robinson Capital Management LLC and are not guaranteed.

-58%

+62%


US Labor Force Participation Rate

Total

56

58

60

62

64

66

68

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

Perc

ent

Source: Bureau of Labor Statistics, Bloomberg, 2015



Age 20 to 24

586062646668707274767880

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

Perc

ent




Age 65 & Over

81012141618202224262830

1948

1951

1954

1957

1960

1963

1966

1969

1972

1975

1978

1981

1984

1987

1990

1993

1996

1999

2002

2005

2008

2011

2014

Perc

ent



Who’s Working?

Source: Advisor Perspectives – Doug Short, 2015


The Great Shift in Labor Force Participation

60-64 65-69 70

-74

75+

16-1920-24

25-2930-3435-3940-4445-4950-54

55-59

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Change in Participation Rate From Peak Employment in November 2007 to Current

Percent Change by Age Group

Data Source: Bureau of Labor Statistics, Dent Research, 2014


Median (Real) Household Income Declines from Peak Year

Source: Bureau of Labor Statistics, Bloomberg, Chained in 2013 dollars Advisor Perspectives – Doug Short, 2015

Age Bracket of Head of Household

Peak Year Peak Income

2013 Income

Percent Change

15 to 24 2000 $37,669 $34,311 -8.9%

25 to 34 2000 $60,079 $52,702 -12.3%

35 to 44 2000 $72,724 $64,973 -10.7%

45 to 54 1999 $79,550 $67,141 -15.6%

55 to 64 2007 $64,472 $57,538 -10.8%

65 and older 2013 $35,611 $35,611 0.0%


The Top 10% Income Share1917-2012

30%

35%

40%

45%

50%

55%

1917

1921

1925

1929

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

2005

2009

Source: http://topincomes.g-mond.parisschoolofeconomics.eu/


US Household Debt Service RatioLowest in 35 years

9.5

10

10.5

11

11.5

12

12.5

13

13.519

8019

8219

8419

8619

8819

9019

9219

9419

9619

9820

0020

0220

0420

0620

0820

1020

1220

14

Perc

ent

Source: Federal Reserve, Bloomberg, 2015


Los Angeles, Fresno and Sacramento Counties

80120160200240280320360400440480520560600640

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: California Association of Realtors, Bloomberg, 2015

Median Home Prices

Sacramento +205%

Fresno+199%

LA +212%

4.6%

, 5.3

%, a

nd 6

.5%

Ave

rage

Ann

ual R

etur

n


S&P Index ‘Wide Channel’1916-2045

1

10

100

1000

10000

100000

157,000

24,500

Source: Bloomberg, 2014, Projection channels assume continuation of 4.52 slope rate. Regression rate is 4.95. Future return assumptions are the opinions of RCM Robinson Capital Management LLC and are not guaranteed.

65,000

Dow


5 Year Treasury Channel1980-Present

02468

10121416

Jan-

80Ja

n-82

Jan-

84Ja

n-86

Jan-

88Ja

n-90

Jan-

92Ja

n-94

Jan-

96Ja

n-98

Jan-

00Ja

n-02

Jan-

04Ja

n-06

Jan-

08Ja

n-10

Jan-

12Ja

n-14

Yiel

d



5 Year Treasury TechnicalsReady for 1.00 or lower?


Major Resistance

Target Area


Will the Markets follow Demographics?

Births Lagged for Peak Spending

2,200,000

2,700,000

3,200,000

3,700,000

4,200,000

4,700,000

5,200,000

1,000

4,000

7,000

10,000

13,000

16,000

1956 1966 1976 1986 1996 2006 2016 2026 2036 2046 2056

Data Source: Dent Research, U.S. Census Bureau, Bloomberg, 2015

Dow Adjusted for

InflationImmigration-

adjusted Births Lagged for

Peak Spending

Questions?

Available at iUniverse, Amazon, Barnes & Noble, and Borders.com

These views represent the opinions of RCM Robinson Capital Management LLC and are not intended as investment advice or to predict or depict performance of any investment. These views are subject to change based on subsequent developments. Advisory services offered through RCM Robinson Capital Management LLC, SEC Registered Investment Advisor. Securities offered through Foothill Securities, Inc., Member FINRA/SIPC. Douglas C. Robinson, Registered Representative.

Douglas C. Robinson Independent Registered Investment Advisor Doug Robinson is the principal of RCM Robinson Capital Management, an SEC registered investment advisory and management firm specializing in institutional fixed income management and OPEB trust asset allocation strategies.

Doug is a frequent guest speaker and long-time member of the California Municipal Treasurers Association. With over thirty years in the investment industry, he is the editor of robinsoncapital.com, an educational web site providing investors with information on institutional fixed income, GASB 45 mitigation strategies and portfolio management. Doug is also a Branch Manager and Registered Principal with Foothill Securities. Doug received his Bachelors of Science degree in Economics from University of Missouri-Columbia and is co-author of “Boom or Bust - Understanding and Profiting from a Changing Consumer Economy”. Doug and his wife Mary of twenty-five years have one daughter, Christine, who is attending a music conservatory in Paris, France while working toward her degrees in piano theory and performance. www.robinsoncapital.com/fi_main.htm

RCM Robinson Capital Management LLC Foothill Securities, Inc. 3030 Bridgeway, Suite 212 Sausalito, CA 94965 [email protected] Phone: 415-771-9421 Fax: 415-762-1980

The information contained herein is based on sources and data believed reliable, but is not guaranteed. Advisory services offered through RCM Robinson Capital Management LLC, SEC Registered Investment Advisor. Securities offered through Foothill Securities, Inc., Member FINRA/SIPC. Douglas C. Robinson, Registered Representative.

http://www.robinsoncapital.com/fi_main.htm

demographics, debt, dollar and deflation -...

Documents