manias gold, all assets mrb may13
TRANSCRIPT
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 1/38
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 2/38
2M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
Chart 1 Manias Of The Post-WWII Era
1970 1980 1990 2000 2010
1
2
4
8
16The WaltDisney Co.(Nifty Fifty)
Gold Price($/oz)
JapaneseTopix
U.S.Nasdaq
U.S. HomebuildersStock Prices
Note: All manias rebased to 1 at beginning of the decade
MRB Partners Inc © 04/2013
Part II
Mania Recipe
s2 s3.
chart 1
ssss,
ss (please see
“Bubbles In Recent History
2 s
3
Asset manias
Only a few
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 3/38
3M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
Bubbles In Recent History
Nifty 50:s
s, pricing in
Gold: s
s as it
Japanese Risk Assets:
s
s
s
Global Technology Stocks:
s
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 4/38
4M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
s
s
Global Housing:
1) Liquidity:
s
Cheap money
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 5/38
5M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
Charts 2A & 2B Ending A Crisis Boosts Global Liquidity And Triggers A New Bubble
2,000
1,000
Japan: Topix
100
120
140 Residential
Commercial
Land Prices / Income*:
1
2
3
Core CPI Inflation** (%YoY)
1986 1988 1990 1992 1994
Japan
G7
2
4
6
Policy Rate (%):
* Land prices to average monthly wage; rebased to January 1985 = 100** Excluding food & energy
1000
2000
4000U.S.: Nasdaq
5
6
House Prices / Income*
1
2
3Core CPI Inflation** (%YoY)
2
4
6
1995 1996 1998 2000 2002 2004 2006 2008 2010 2012
U.S.
G7Policy Rate (%):
* Average single family house prices to average non-farm weekly wage;source: National Association of Realtors & U.S. Bureau of Labor Statistics
** Excluding food & energy
MRB Partners Inc © 04/2013MRB Partners Inc © 04/2013
The collapse of the Japanese equity and property bubble...
...triggered a
...and aggressive globalmonetary easing...
...whichfueled tech
creation after thetech mania fueled a housing bubble
Herewe goagain...
...lots of liquidity a home
charts 2A2B).
Asset manias are
the mirror image
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 6/38
6M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
s
s. Thus, real interest rates
s), the
Theme Reports .
MRB Theme Reports, " ", ", December 11, 2012," ",
not enough...
to speculate
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 7/38
7M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
chart 3
3) Theme:
An appealing
theme is critical
Chart 3 Risk On/Off Gives Way To An Upleg
100
200
300
Global: Stock / Bond Ratio*
98
100
102Leading Economic Indicator**
-10
0
10
1980 1985 1990 1995 2000 2005 2010
Global***U.S.
Industrial Production (%YoY):
* Global MSCI stock market total return index divided by 10-year globalgovernment bond total return index; rebased to January 1978 = 100
** Deviation from trend; includes OECD members plus six major non-OECD countries; source: OECD
*** Source: Netherlands Bureau for Economic Policy AnalysisNote: Shaded for NBER-designated U.S. recessions
MRB Partners Inc © 04/2013
Longer and mo
volatilethis tim
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 8/38
8M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
Chart 5
1964 1966 1968 1970 1972 1974 1976
40
80
MRB Manias Index*
* Average of Nifty Fifty (1960s), Gold (1970s), Japanese equities (1980s),Nasdaq (1990s) & U.S. homebuilders stocks (2000s); rebased at peak = 100;source: MRB Partners
Years
MRB Partners Inc © 04/2013
4) Catalyst: There is typically a catalyst that triggers
5) Accessibility:
are a few commonalities. Chart 4
), while
chart 5
Phase 1 (Bull-Run): Bubbles start as typical bull
Phase 2 (Pullback And Asymmetric Beta): Asset
Chart 4
P h a
s e 1
P h a
s e 3
P h a s e 5
Phase 6
Phase 2
Phase 4
Years
Phase 1: Bull Run
Phase 2: Pullback & Asymmetric BetaPhase 3: Parabolic Upleg
Phase 4: Correction & Failed Bounce
Phase 5: Crash
Phase 6: Revulsion
MRB Partners Inc © 04/2013
Stylized Mania
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 9/38
9M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
Chart 6 Asymmetric Beta Behavior
Nasdaq*Global**(for all panels)
200
400
800Stock Prices
0.4
0.8
Deviation From 52-Week Minimum (%)
1994 1996 1998 2000 2002
-0.2
-0.4
Deviation From 52-Week Maximum (%)
* Rebased to 100 at the beginning of the period** Rebased to 100 at the beginning of the period; source: MSCI
MRB Partners Inc © 04/2013
Larger gainsduring uplegs....
...and similar losses during
Reversed aft
necessarily mean that the asset has less of a beta than
term this as the “asymmetric beta phase” of a mania,
chart
6
theme will last. It is worth noting that the crash of
Phase 3 (Parabolic Upleg)
Phase 4 (Correction And Failed Bounce):
the tech crash (chart 7
prices from hitting new highs.
Phase 5 (Crash):
Manias follow a
common pattern
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 10/38
10M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
Chart 7 Investors Were Late To AcceptThe End Of The Tech Mania
1000
2000
4000
U.S.:Nasdaq
1996 1998 2000 2002
-10
0
10
20
Net New Cash Flow IntoU.S. Aggressive Growth Mutual Funds* (US$ bn)
* Source: Investment Company Institute
MRB Partners Inc © 04/2013
Well intothe crash...
...before investorsturned negative
Phase 6 (Revulsion): Following the crash, a lengthy
A Potentially Bubbly World
chart 8).
th MRB Theme Report 5).
th MRB Theme Report
5 MRB Theme Report , " MRB Theme Report , "This Is Not 1994
fertile for asset
speculation, but...
before new
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 11/38
11M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
April 25th MRB Theme Report
in economic growth in most economies. Thus, the global
chart 9).
policies. In turn, the migration into assets with higher
chart 10
(chart 11).
MRB Theme Report , "", April 25, 2013
Chart 8 Plenty Of Liquidity Being Created
2008 2010 2012
Reserves Held At Central BankCurrency In Circulation
4
8
G4 Change In Monetary BaseSince 2008* (% of GDP):
* GDP-weighted average of euro area, Japan, U.K. & U.S.
MRB Partners Inc © 04/2013
Chart 9 Fear Has Prevented Risk-Taking
20
30
40
50
U.S.:Cash Firepower* (% of GDP)
1960 1970 1980 1990 2000 2010
1
2
3
Interest On Cash Firepower* (% of Disposable Income)
* Cash in money market funds & savings deposits
MRB Partners Inc © 04/2013
Lots of cash...
...earninothing
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 12/38
12M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT April 30, 2013
Chart 10 The Great Migration
Cash
Government
Bonds
Investment
Grade
Corporate
Debt
Economic Risk Exposure
Emerging
Market
Debt*
High Yield
Corporate
Debt
High Dividend
Yielding
Defensive
Stocks
Growth
Sensitive
Cyclical
Stocks Asset
Mild
Appeal
Mild
Appeal
Reasonably
Attractive
AttractiveYields
NothingPoor
Value
Absolute Appeal
Expensive &
Vulnerable
* Local currency EM debt has considerably more absolute appeal than USD-denominated EM debt, albeit has more economic risk exposure MRB Partners Inc © 04/2013
Chart 11 An Abnormally Defensive Rally
100
140
Global Stock Prices*
80
100
Global Defensives / Cyclicals**:
Stock Prices*
1998 2000 2002 2004 2006 2008 2010 2012
-20
0
20
12-Month ForwardP/E Ratio*** (%)
* Local currency; rebased to January 1998 = 100; source: MSCI** Defensive sectors include: consumer staples, health care, telecom
services & utilities; cyclical sectors include: consumer discretionary,energy, industrials, materials & technology
*** % premium (+), discount (-) to global defensives
MRB Partners Inc © 04/2013
but...
...led by defensives
Relatively expensive
Final Word: The aggressive monetary support needed
Please Note: Part II
Phillip Colmar
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 13/38
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 14/38
2M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Phase 6
Phase 2
Years
MRB Partners Inc © 05/2013
Chart 1
Phase 1: Bull Run
Phase 2: Pullback & Asymmetric Beta
Phase 3: Parabolic Upleg
Phase 4: Correction & Failed Bounce
Phase 5: Crash
Phase 6: Revulsion
P h a s
e 1
P h
a s e
3
P h a s e 5
while those in the healthier parts of the world are trying to suppress interest rates in order
to prevent currency appreciation (see the March 27 th and April 25th MRB Theme Reports2).
If anything, the amount of excess liquidity available to global capital markets will spur
more assets manias than during previous investment cycles. In fact, an environment of
rotating bubbles is possible over the next several years. Also, speculative surges couldprove stronger and/or persist longer (due to the lack of policy headwinds) and crash
phases could be more shallow and/or drawn out.
This report (Part II ) examines the asset markets that have been, or are most likely to
each asset class
is currently in and provide investment recommendations. In short, we highlight which
and likely to crash. Chart 1 provides a summary of our conclusions.
Fixed Income (chart 2)
"High Quality" Government Bonds (charts 3 – 4)
Theme: Although it may be an exaggeration to label the sovereign debt market
as being in a bubble, government bonds in many countries now exhibit similar
2 MRB Theme Reports, "This Is Not 1994", March 27, 2013 and "Currency Wars & Extreme Policies",April 25, 2013
Globalequitieslevered tobusinessspending*
Germanequities &residential/ commercial property
Select emergingmarket equities**
Chinesehousing
Swisshousing
Speculative- grade spread product
Hong Kong residential/commercial property
Investment-grade spread product
Canadian housing
Japanese sovereign debt
P h a s e 4
Australianhousing
Globaltechnology stocks
Japaneseequities &residential/ commercial property
U.S. bank stocks &housing
Periphery euro areabank stocks& housing
Base metals & energy
Energy & materials stocks Australian & Canadian equities
U.K. housingNon-Japan high-quality sovereign debt
Gold
Stylized Mania
Excess liquidity
return on capital
is greatest
Fear and
policy distortionshave created
bubble-like
pricing in "high-
quality" debt
* Includes capital goods and technology stocks geared to business spending
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 15/38
3M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 2
P h a
s e 1
P h
a s e 3 P
h a s e 5
Phase 6
Phase 2
Phase 4
Years
Phase 1: Bull RunPhase 2: Pullback & Asymmetric Beta
Phase 3: Parabolic Upleg
Phase 4: Correction & Failed Bounce
Phase 5: Crash
Phase 6: Revulsion
MRB Partners Inc © 05/2013
Stylized Mania
characteristics. It has not been greed, but rather
fear that has driven investors into this asset class
most risky assets over the past several years. This
tendency has been reinforced by repeated growth
euro area sovereign debt crisis, and guarantees by
near zero for the foreseeable future.
In short, extreme investor caution and the chase for
“low risk” yield have led to a similar valuation endpoint
positive), most nominal government bonds are now
priced for years of economic stagnation. Rather than
this presenting a warning, investor sentiment towards
government bonds is holding near positive extremes.
In fact, many investors, commentators and academics
have tried to rationalize depressed interest rates
as an insurance premium against tail risks. Ignoring
traditional valuation metrics due to perceptions that
the world has fundamentally changed is also typicalduring the late stage of a mania.
Phase 4: Yields in most high-quality government bond
markets have been bumping along their bottom over
the past year. The exception is Japanese bond yields,
which plunged to fresh lows as the new leadership at
the Bank of Japan (BoJ) pledged to ramp up quantitative
across markets and the current global growth scare have
provided a bid for sovereign debt throughout the globe.
That said, we expect that yields in most markets have
already reached their secular lows. Even Japan may
have now bottomed. Indeed, sovereign debt markets
have already experienced the perfect storm of weak
manipulation. Government bond prices will likely
Chart 3
4
8
12 U.S.
U.K.
(for both panels)
5
10
1900 1920 1940 1960 1980 2000
MRB Partners Inc © 05/2013
Speculative- gradespread product
Investment-gradespread product
Japanese sovereign debt
Non-Japan high-quality sovereign debt
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 16/38
4M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 4
2
4
6
0
1
MRB Valuation Model***
Bonds
Bonds
1995 2000 2005 2010
25
50
75
alue Measure;
standardized
MRB Partners Inc © 05/2013
Extremely overvalued
Still lotsof bulls
only strengthen from current levels in the event of a
prolonged and/or deep global recession (and provided
that this outcome does not result in sovereign debt
strains in G7 countries). More likely, as the global
economy continues to strengthen (which we expect),
interest rates, and investors will continue to migrate
into assets with greater economic risk exposure. In
interest rates will rise, or it will fail and the country
will experience a sovereign debt crisis over the next
few years3. Regardless, 10-year JGBs are unattractive
at current yields.
Recommendation:
MRB Strategic Trader
MRB Quarterly Global Fixed Income
Spread Product (chart 5)
Theme:
banks will have to keep short-rates anchored for the foreseeable future in an attempt
to stimulate growth. Correspondingly, market participants have aggressively targeted
3 For further details on Japanese debt dynamics, see the MRB Country Report ," ", May 1, 2012
The "search
for yield" hasremoved the
absolute appeal
of most
spread product
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 17/38
5M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 5
2
4
6
8
U.S.
Euro Area
(for both panels)
10
20
1998 2000 2002 2004 2006 2008 2010 2012
* Source: BofA Merrill Lynch
MRB Partners Inc © 05/2013
No absolutevalue left
Still room torun in a low yield world
However, the “safest” yield plays are now expensive
and vulnerable.
Phase 3: Yields for investment-grade spread product
have collapsed to historical lows, due to bothdepressed underlying government bond yields and
historically compressed spreads. There is no absolute
return appeal left in these assets, with current
valuations now at extremes that are consistent with
late- of the . The “search for
yield” will likely persist, but spreads no longer provide
asset class over the next year. Investors have alsopiled into speculative-grade debt, causing spreads to
narrow to depressed levels. However, yields are still
mildly attractive in this yield-starved world. Thus, we
expect further absolute returns, albeit single digit
gains over the next year (i.e. these debt markets are
consistent with mid-).
Recommendation:
Commodities (chart 6)
Gold (charts 7 – 8)
Theme: Gold is a leading barometer of excess liquidity
and thrives in a world with low real interest rates
Chart 6
P h a
s e 1
P h
a s e 3
P h a s e 5
Phase 6
Phase 2
Phase 4
YearsPhase 1: Bull Run
Phase 2: Pullback & Asymmetric Beta
Phase 3: Parabolic Upleg
Phase 4: Correction & Failed Bounce
Phase 5: Crash
Phase 6: Revulsion
MRB Partners Inc © 05/2013
Stylized Mania
Base metals & energy
Energy &materials stocks
Gold
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 18/38
6M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 7
100
400
1600
500
1000
1500
2000
0
5
1970 1975 1980 1985 1990 1995 2000 2005 2010
MRB Partners Inc © 05/2013
as part of a renormalization process from oversold
and undervalued levels) was initially boosted by the
collapse in interest rates and the monetary policy
response to the fallout from the technology mania.
Likewise, fundamentals for the precious metal
strengthened further during the Great Recession
and euro area debt crisis, as central banks worked
aggressively to stimulate their economies.
sovereign debt, along with fears of “printing money”,
have caused investors to search for a “hard currency”
alternative. In this regard, gold is a long call option on
a collapse in the world’s reserve currencies and the risk
their debt problems (so far this has not been the case).
All of these factors triggered a stampede into gold,
causing it to surge until mid-2011.
Phase 5: Gold prices have closely traced the typical
bull run from 2001 to early 2008, nearly quadrupling in
price (i.e. ). Gold prices then fared relatively well
metal declined by 31%, the setback was brief and not
nearly as deep as most other risk assets (including
global equities). Likewise, gold held up during the 2010 and 2011 double-dip scare
and managed to outperform during the rally phases (i.e. ). This “asymmetric
we disagree, this sort of “bulletproof logic” is typical in triggering a parabolic upleg
(i.e. ). Indeed, gold prices surged 65% in the year leading up to their August
). The asset has since
broken lower in a series of waves (i.e. ).
to cut positions (see the November 8th 2011 MRB Theme Report 4). Still, we hesitated
4 MRB Theme Report , "Gold: Favorable Liquidity Tailwinds, But Expensive Insurance", November 8, 2011
Gold is following
the typical
...it is now in
the crash phase
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 19/38
7M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 8
800
2004 2006 2008 2010 2012
MRB Partners Inc © 05/2013
P h a s e
1
Phase 2
P h a s e
3
Phase 4
P h a s
e 5
in adding short positions until earlier this year as most
actively engaging in competitive currency devaluation.
large increase in global liquidity, an environment
increased monetary stimulus has panned out, with the
BoJ recently committing to ramp up its quantitative
to anchor interest rates. Yet, gold has been unable to
rally, highlighting how crowded and overvalued this
asset had become.
Heading forward, fundamentals will gradually
deteriorate for gold. Many investors have bought
alleviating the need for the hedge). In addition, real interest rates have bottomed and
will gradually grind higher, increasing the opportunity cost of holding a zero yielding
asset. This will not be an overly bearish trend, but it is a risk given the valuation starting
for gold. Sentiment measures and net speculative positions suggest that investors are
still not negative on gold, but this is typical until the crash phase is quite extended.
Recommendation:
MRB Strategic Trader
Base Metals & Energy (charts 9 – 10)
Theme:
industrialization and wealth creation within emerging Asia. The potential for a dramatic
increase in Chinese commodity consumption has already captured the imagination
of the masses. At this point, everybody in the investment community has seen the
Gold is extremely
over-loved and
overvalued, and
fundamentals
will deteriorate
The structural
bull run in
economically-
sensitive
commodities
has ended
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 20/38
8M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
100
200
300
0
50
1800 1825 1850 1875 1900 1925 1950 1975 2000
March 2013 = 100
MRB Partners Inc © 05/2013
11 yrs
23 yrs
18
yrs
8 yrs
!
9 yrs
11 yso fa
Chart 9
charts showing the long-term rise in the quantity of
energy, base metals and agricultural commodities
demanded if China’s per capital income/consumption
counterparts, let alone that of the developed world.
This triggered an extended bull market starting early
last decade, and a parallel capital spending binge.
That said, we suspect that the structural bull market in
economically-sensitive commodities has now ended
(see the September 25th and October 2nd MRB Theme
Reports5). Investors should keep in mind that history
has been largely unrewarding for natural resource
investments over the long haul. There have been several
powerful and extended bull markets over the past twocenturies, corresponding to either supply disruptions or
the early years of a persistent demand shock (i.e. before
commodity producers are able to respond). However,
an eventual supply response has always ensured that
real natural resource prices resume their long-term
downtrend and relative pricing power ultimately shifts
back towards the more technologically or intellectually
enhanced parts of the value chain. Compared with past
episodes, the current bull-run has been extended interms of both magnitude and duration.
Moreover, the fundamental tailwinds have eroded
since 2008. Aggressive monetary policy and dislike for
However, this tailwind has masked the deterioration
in the demand/supply balance for commodities, which
is more important over the long term. The global
economy and commodity consumption has expanded
at a much slower pace since the Great Recession, with
a large portion of the developed world deleveraging,
emerging markets unable to export as much, and
China targeting a slower economic growth rate. At the
Chart 10
1998 2000 2002 2004 2006 2008 2010 2012
300
600
r; rebased to January1998 = 100
supply
MRB Partners Inc © 05/2013
5 MRB Theme Reports, "End Of The Commodity Boom (Part I)",September 25, 2012 and "End Of The Commodity Boom (Part II)",October 2, 2012
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 21/38
9M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
same time, a dramatic ramp-up in capital spending
over the past decade has increased commodity supply,
particularly for base metals.
Industrialization of emerging Asia (and the emerging
world in general) will remain a compelling longer-termtheme, but this does not imply ever rising commodity
prices. The analogy would be that the technology
revolution continues today, yet the NASDAQ stock
index peaked in 2000 and remains far below its high.
Phase 5: Base metals and energy have deviated from
the due to the macro environment
over the past several years. In short, after an extended
bull market, a sharp speculative surge in commodities
(particularly oil prices) took hold in 2008, as investors
began to extrapolate the positive fundamental
correcting dramatically in 2008, economically-sensitive
commodity prices rebounded sharply with some base
these commodities are in the early stages of .
Recommendation:
Energy & Materials Stocks (charts 11 – 12)
Theme: There are cyclical and secular cross-currents for the energy and materials
sectors, with the former likely to become mildly positive and the latter negative
(see the April 19th MRB Weekly Macro Strategy ). Over the next few months, a slowly
improving global growth outlook should boost cyclical demand for economically-
Chart 11
0
3
0
10
98
100
102
1998 2000 2002 2004 2006 2008 2010 2012
istrationics
MRB Partners Inc © 05/2013
The secularoutperformance
of energy
and materials
stocks is over
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 22/38
10M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 12
Energy Stock Prices* (LS)
150 –
300 –
1 –
2 –
4 –
1998 2000 2002 2004 2006 2008 2010 2012
Materials Stock Prices* (LS)
Industrial Metals*** (RS)
150 –
300 –
1 –
2 –
4 –
* U.S. dollars; rebased to January 1998 = 100; so*** U.S. dollars; rebased to January 1998 = 100; so
MRB Partners Inc © 05/2013
sensitive commodities (from depressed levels) and
spur a rebound in relative earnings for these sectors.
In the past, commodity demand has been correlated
with the global leading economic indicator, implying
that commodity prices should strengthen in the comingmonths. However, economic activity is likely to improve
at an historically slow pace and the secular commodity
outlook is more challenging than in the last decade as
new supply is coming on stream and demand drivers
are less favorable (as noted above). Correspondingly,
the beta of commodity prices to global growth will be
lower than in recent cycles, which will translate into less
relative earnings upside for the energy and materials
sectors, even during upswings. Moreover, relativevaluations for energy and materials stocks are still more
consistent with a secular bull market than with the
mature outlook that is now the reality.
Phase 5: Price performance of these equity sectors
are highly correlated with the underlying commodities
and have also therefore entered (i.e. the bear market or crash phase) of the
. That said, we expect these stocks to hold up better than their
underlying commodities, given that valuations are arguably more appealing and the
broad equity market should provide some underlying support. Correspondingly, these
stocks may not crash, but rather decline in a series of waves.
Recommendation:
Regional Risk Assets (chart 13)
Hong Kong: Residential/Commercial Real Estate (chart 14)
Theme:
directly capitalize on the Chinese industrialization process. The corresponding wealth
Energy and
materials stocksshould hold
up better than
the underlying
commodities
The positive Hong
Kong property
story is well
understood and
largely priced
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 23/38
11M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
gains translate into stronger domestic growth and
participants have mandates allowing them to play this
theme, Hong Kong is open for international real estateinvestment (unlike mainland China).
and inappropriately accommodative monetary policy has helped fueled domestic growth
conditions. In turn, the combination of a strong economy (i.e. increased wealth gains)
and depressed interest rates (i.e. low mortgage rates) has turbo-charged a speculative
frenzy in the Hong Kong real estate market. Finally, the currency peg helps alleviate
exchange rate risk for international investors as well as provides a “free” call option for
those looking to bet on the end of the peg (and a revaluation of the Hong Kong dollar).
Phase 3: Hong Kong real estate prices have already been experiencing a parabolic
upleg for some time, making this asset class consistent with late- of the MRB
already extreme. Timing an exit will be critical for investors. Manias often end up falling
on their own weight but clear catalysts for a crash in Hong Kong real estate prices
would be a hard landing in the Chinese economy or revaluation of the Hong Kong
Chart 13
P h a
s e 1
P h
a s e
3
P h a s e 5
Phase 6
Phase 2
Phase 4
Years
Phase 1: Bull RunPhase 2: Pullback & Asymmetric Beta
Phase 3: Parabolic Upleg
Phase 4: Correction & Failed Bounce
Phase 5: Crash
Phase 6: Revulsion
MRB Partners Inc © 05/2013
Stylized Mania
Globalequitieslevered tobusinessspending*
German equities& residential/ commercial property
Select emergingmarket equities**
Hong Kong residential/ commercial property
Canadianhousing
Chinese housing
Swiss housing
Australian housing
Australian &Canadian equities
U.K. housing
U.S. bank stocks &housing
Chart 14
Residential (RS)
200 –
400 –
1 –
1 –
Hong Kong: House Prices
8100 –
200 –
Real House Prices*
0
10
1995 2000 2005 2010
= 100
MRB Partners Inc © 05/2013
Surging pricesfueled by...
...very easy policy
This is the most
rewarding, but
dangerous phasefor Hong Kong
property investors
* Includes capital goods and technology stocks geared to business spending
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 24/38
12M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
dollar (neither is likely at this point). Still, escalating
force a material tightening of credit conditions to
curb speculation, as occurred in China. Combined with
frothy valuations, this could lead to a peak.
Recommendation:
China: Housing (chart 15)
Theme:
extremely frothy, residential property in mainland China
has not yet run ahead of underlying fundamentals. The
increase in Chinese home prices in recent years has
been outpaced by rising per capita household income.
despite concerns by some observers. Select high-end
That said, the Chinese property market shares similar
positive underlying fundamentals as Hong Kong.
monetary policy. Interest rates are being held well below economic/wage growth.
This macro environment tends to fuel housing demand and typically results in rapid
used credit controls to limit bank mortgage lending. See the December 4 th MRB China
Country Report 6 for further analysis on China.
Phase 2: Chinese housing has already experienced an extended traditional bull
market, with gains in line with positive underlying fundamentals (i.e. ). Housing
corrected modestly in 2009 and 2011-2012 (due to policy tightening) before recovering
6 MRB Country Report , " ", December 4, 2012
Chart 15
0
4
8
100
150
200
2006 2008 2010 2012
60
80
au of Statisticsional Bureau of
Statistics
MRB Partners Inc © 05/2013
Affordability hasimproved
Chinese housing is
not in a bubble...
...but has
this tendency
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 25/38
13M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
rapidly (i.e. typical of ). There is now a tendency
for the property market to shift into and
experience a parabolic upleg, given inappropriately
suppressed borrowing rates. This was evident by the
surge in house prices in 2007 and again in 2009-2010.
However, policymakers are trying to prolong the
controlled bull-run through the use of credit controls.
credit controls will need to be continuously imposed
in order to prevent a surge in home prices. Even then,
importance. There is very limited downside risk to
Chinese housing as policymakers are not looking for
a contraction (merely trying to slow appreciation) and
lending restrictions can be unwound rapidly if needed.
Recommendation:
Germany & Periphery Euro Area: Real Estate & Equities (charts 16 – 18)
Theme:
sovereign states into a monetary union, the decision to adopt a single currency (and
normal cyclical trends to become more structural in nature.
The formation of a single central bank in January 1999 initially resulted in monetary
conditions which were far too accommodative for the faster growing and more vibrantperiphery economies (including Greece, Ireland, Italy, Portugal and Spain), while
Germany). The result was a massive decade-long regional wealth transfer and the
building of substantial excesses/imbalances within the periphery countries.
The tables have turned in recent years. The credit binge in the periphery came to an
Chart 16
0
2
4
Euro Area:
1999 2000 2002 2004 2006 2008 2010 2012
Euro Area
6
10
14
*** Source: Eurostat
MRB Partners Inc © 05/2013
Germany needs
tightening
Periphery requires QE
Massive
divergen
healthy economy
and overly
easy policy...
...the reverse
is true for
the periphery
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 26/38
14M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 17
90
100
110
Real**
(for both panels)
House Prices*:
100
200
300
1995 1996 1998 2000 2002 2004 2006 2008 2010 2012
Periphery Euro Area***
* Rebased to January 1995 = 100 Spain
MRB Partners Inc © 05/2013
Now it'sGermany's turn
shock. In contrast, extended restructuring and
economic underperformance in Germany and other
have left these countries structurally sound and
competitive. These members are now experiencing a
more sustained cyclical economic recovery, albeit with
some weakness in recent months.
The current divergences in economic trends within
the euro area will persist, given that there is a lack of
policy tools within the common currency zone to help
redistribute growth away from the stronger/healthier
members to the weaker periphery economies. In
fact, due to the rigidities within the euro area, the
macro/policy factors that typically help redistributegrowth will instead foster further divergences. The
process is now more advanced. The country has at
Phase 1 (German Real Estate & Equities):German risks
assets are in a traditional bull-run phase, with prices
rising in line with improving underlying fundamentals.
Indeed, German stocks have outperformed within the
region but have not yet received a relative valuation
lift, even compared with the periphery markets (on a
12-month forward P/E basis). Discrimination and strong
builds and investors begin to search for solid growth
opportunities. Similarly, German house prices have
after declining since the mid-1990s. Relatively solid
domestic growth and employment, coupled with the
inability for monetary conditions to tighten, is a recipe
for substantial residential and commercial real estate
price appreciation.
Phase 5 (Periphery Euro Area Housing & Bank
Stocks): Many of the periphery euro area countries
had housing bubbles that are still in the process of
Chart 18
(for both panels)
100
200Stock Prices*
1999 2000 2002 2004 2006 2008 2010 2012
10
20
30
MRB Partners Inc © 05/2013
Germany outperforms...
...but hasnot yet beenre-rated
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 27/38
15M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
for the euro area authorities in order to resolve the
debt crisis (see the February 27th MRB Theme Report 7
for details on the
). In the interim, weakness
systems and relatively tight policy conditions, should
act as a weight on house prices in these countries.
Likewise, the poor macro backdrop and ongoing house
banking sector).
Recommendation:
Switzerland: Housing (chart 19)
Theme: The Swiss National Bank (SNB) has been
aggressive in attempting to shield the economy
independence and adopting the euro area’s monetary policy. Conceptually, as long
as this policy remains in place, it is equivalent to Switzerland being a member of the
already outliving its usefulness, given that Switzerland does not have the same cyclical
or structural headwinds. Monetary conditions are now too accommodative, much like
our analysis for Germany (see above).
system with excess liquidity, at a point when the monetary transmission mechanism is
7 MRB Theme Report , "Can The European Monetary Union Be Salvaged? ", February 27, 2013
Chart 19
Real**
90
110
130
0
4
1995 1996 1998 2000 2002 2004 2006 2008 2010 2012
0
5
Mean
tional Bank
MRB Partners Inc © 05/2013
Housingboom...
...fueled by easy policy
Swiss credit
and housingbubbles will be
fueled as long
as the currency
ceiling persists
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 28/38
16M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
not impaired (as is the case in much of the euro area).
Broad money and credit are now expanding at a healthy
rebounded sharply, signaling that economic growth
will accelerate. Indeed, business activity is recovering
and both employment and housing activity/prices
are very strong (with the latter materially outpacing
incomes). Trade and current account balances remain
in healthy surpluses. To dampen property price
appreciation, the Swiss authorities have increased
capital requirements for banks in their mortgage
materially slow the housing market.
Phase 3: early- in the . The adoption
of extremely accommodative policy in Switzerland is
causing the housing bull-run to outpace underlying
fundamentals. There is also the potential for a
speculative surge in prices. That said, if the SNB
abandons its currency ceiling or implements
materially tighter credit controls, we would shift this
asset back to late- as a parabolic upleg would
likely be avoided.
Recommendation:
MRB Strategic Trader
Emerging Markets: Select Equity Markets (charts 20 – 22)
Theme:
for their exports, most do not face domestic deleveraging headwinds. Indeed, most
emerging markets have limited imbalances and superior fundamentals than advanced
economies, making them a less risky proposition. This has not yet been discounted
Chart 20
2
3
Prices*
0
20
8
12
16
10
20
30
1990 1995 2000 2005 2010
Financial / IBES*** U.S. dollars; source: IMF
MRB Partners Inc © 05/2013
Cheap...
...despite befundament
Massive gap
Willrebound as investor builds
EM equitieswill come back
in favor...
...focus on
domestically-
geared and non-
commodity stocks
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 29/38
17M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
in the equity market. In fact, a cloud of mistrust still
particularly China.
Moreover, global economic uncertainty has
encouraged investors to favor stocks with stable cash
continue their leadership. This, along with a strong
home bias, has contributed to the underperformance
of growth-sensitive emerging market equities.
However, as the global economy continues to
strengthen and investors gradually become more
search for stocks with strong earnings potential will
develop. Correspondingly, realization of the relativelystrong growth and lower risk backdrop in the emerging
world will attract more global capital, pushing equity
valuations in select markets to a decisive premium.
equity sectors and bourses outside of commodity-
based economies have the most upside potential.
Phase 1: Emerging market equities are still in a
traditional bull market phase (i.e. late). They
have experienced lower volatility than their developed
market counterparts in recent years, but this and their
relatively favorable fundamental backdrop is not yet
change, there will be an increased potential for a
parabolic upleg and a substantial re-rating in some of
these equity markets.
Recommendation:
MRB Quarterly Emerging Market Equities
Chart 21
2006 2008 2010 2012
0.0
0.2
MRB Partners Inc © 05/2013
Chart 22
40
60
80
100
8
10
12
2000 2002 2004 2006 2008 2010 2012
* Source: IMF
** U.S. dollars; source: IMF
MRB Partners Inc © 05/2013
Healthy public
Lots of reserves
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 30/38
18M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Chart 23
100
140
Stock Prices*
100
120
140
Stock Prices*
1998 2000 2002 2004 2006 2008 2010 2012
0
25
* Local currency; rebased to January 1998 = 100; es;
MRB Partners Inc © 05/2013
New highs,but...
...defensihave led
?
Relativelycheap
Global: Equities Levered To Business Spending
(charts 23)
Theme: Increased uncertainty and poor risk appetites
have encouraged investors to focus on defensive
stocks. Although aggregate global equity benchmarkshave gained ground since June, they have been driven
predominantly by defensive sectors. Heading forward,
we expect cyclical sectors to take leadership as
investors gradually gain comfort in the sustainability
of the global economic recovery.
Among cyclical stocks, we prefer those levered to
should favor capital goods stocks and business-
geared technology (including software and services).
held back spending due to economic and political
uncertainty. There is room for an improvement
as these clouds start to clear in the months ahead
(see the February 12th MRB Theme Report 8). Also,
historically depressed interest rates help to improve
net present value estimates and should bolster capital
Phase 1: Capital goods and technology stocks
(including those focused to business spending, such
as software & services) have strengthened along
with the rally in equity benchmarks. However, they
have trailed the improvement in underlying fundamentals as well as their defensive
counterparts. These stocks should start to outperform as global growth strengthens
further, albeit it will likely still take a few years before investors start to speculate
on these assets.
Recommendation:
April 2nd April 23rd
MRB Theme Reports 9
8 MRB Theme Report , "U.S. Business Investment: Back On Track ", February 12, 20139 MRB Theme Reports " Assessing Prospects For The Global Capital Goods Industry ", April 2, 2012 and
"Global Technology: Superior Growth At Bargain Prices", April 23, 2013
Capital goods and
technology stocksare appealing
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 31/38
19M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Australia & Canada: Housing & Equities
(charts 24 – 25)
Theme: Australian and Canadian risk assets are an
extension of our analysis of economically-sensitive
commodities. Other regional commodity-based markets
are also tied to this theme. However, we single out these
two countries, given that they have become heavily
levered and reliant on the natural resource boom.
natural resources and have experienced tremendous
windfall gains over the past decade on the back of
rising commodity prices. This created substantial
activity, employment and consumption. At the same
subdued in these economies due to currency strength
banks (particularly the Bank of Canada) inappropriately
overemphasized the economic drags resulting from
currency strength. In short, policymakers compromised
long-term economic stability for short-term gains.
Overly accommodative monetary conditions led to
substantial imbalances, including housing bubbles
and excessive household sector leverage. The
Australian and Canadian economies also have
advanced Dutch disease, vulnerable banking
systems, and a lack of competitiveness (see the
November 6th and January 29th MRB Country
Reports10). Correspondingly, both countries are
now at risk as the commodity boom ends and thecorresponding wealth and employment tailwinds fade.
Phase 3 & 4 (Housing): Australian house prices peaked in late 2010 and contracted
mildly throughout much of 2011 and 2012. Real estate prices are regaining traction
due to recent RBA rate cuts, but upside will prove limited as commodity producers
are now moving to slow their investment and hiring plans (i.e. the asset class is in
Chart 24
Real House Prices**
120
180
240
Australia
100
130
160
100
120
140
U.S.
Household Debt
100
150
1998 2000 2002 2004 2006 2008 2010 2012
* Rebased to January 1998 = 100** Rebased to January 1998 = 100; deflated by head
MRB Partners Inc © 05/2013
Excessivehousehold debt
Banks arevulnerable
Substantialhousing booms
10 MRB Country Reports, "Canada: More Cracks In The Foundation", November 6, 2012 and
"The Australian Boom: Not Over, But Past Its Prime", January 29, 2013
Australian
and Canadian
risk assets
have peaked
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 32/38
20M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
). The Canadian housing market has surged
in recent years but is now showing evidence of
cracks due to extreme valuations, overbuilding and
tightening credit conditions (i.e. late-).
Phase 5 (Equities): The Australian and Canadianequity markets have similar vulnerabilities as the
global materials and energy sector. Normally, we
would expect the national bourses to hold up better,
However, the substantial imbalances within these
focused stocks also at heightened risk.
Recommendation:
U.K.: Housing (charts 26 – 27)
Theme:
late-1990s (due to overly accommodative policy and
inappropriately lax bank lending standards) made
prices during the Great Recession was not as dramatic and prices have edged higher
linked to short-term variable interest rates. Thus, central bank rate cuts immediately
foreclosure rates. Currency depreciation also helped by making London property
Chart 25
Australia (LS)
80 –
120 –
8 –
1 –
130 –
190 –
250 –
1 –
1 –
2 –
60
80
100
4
8
1
Australia
90
100
110
4
6
8
1995 2000 2005 2010
* U.S. dollars; rebased to January 1995 = 100; soada
MRB Partners Inc © 05/2013
housing bubble
was much larger
remains intact
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 33/38
21M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
However, underlying fundamentals are poor.
unable to match the increase in the cost of living,
as a percentage of disposable income mushroomed last decade to levels well above
th MRB U.K. Country Report 11 and
the April 16th MRB Theme Report 12
Phase 4:
expect to be a failed bounce (i.e. the asset class is late in ). Already, home prices
outside of the internationally-appealing London property market are declining. Our
expectation for a broadening recovery in the global economy and improvements in
11MRB Country Report , "U.K.: Living On Borrowed Time", December 18, 2012
12 MRB Theme Report , " ", April 16, 2013
Chart 27
200
300U.K.*
U.S.**(for all panels)
House Prices
100
140
Household Debt
40
60
1995 2000 2005 2010
Household Debt
* Source: U.K. Office for National Statistics
MRB Partners Inc © 05/2013
U.K. has alarger bubble
More leveredthan the U.S.
Chart 26
5
6
7
8U.K.:
0
2
2001 2002 2004 2006 2008 2010 2012
* Source: Eurostat r National Statistics
MRB Partners Inc © 05/2013
Realwages arecontracting
Lack
of jobs
housing is only
a matter of time
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 34/38
22M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
may need to back away from their tightening
measures and the central bank must stay aggressively
stimulative to keep housing propped up.
Recommendation:
U.S.: Housing & Bank Stocks (chart 28)
Theme:
is over (see the May 7th MRB Theme Report 13). Home
prices have bounced sharply over the past year and
homebuilders are seeing a rebound in sales activity,
and mortgage rates plunged). Lending standards are
tighter than last decade, but have eased since 2008.
Moreover, the overhanging stock of unsold homes has steadily declined because of the
lack of new supply since 2007 and an expanding population. Also, sales have recently
been boosted by large-scale purchases from investment pools buying properties to
rent (i.e. part of the search for yield theme), albeit it is hard to forecast whether this
source of demand will persist.
gradually improving over the past year.
Phase 6:
oversold/undervalued levels, the upleg should slow beyond the next few months.
Low interest rates will remain supportive, but house prices are more likely to grind
of the
). A generation of owners and speculators/investors has been burnt,
so one should be wary of expecting a return to more normal conditions. Likewise,
more appealing than their European and Canadian counterparts.
13 MRB Theme Report , "U.S. Economy: Solid Foundations", May 7, 2013
Chart 28
100
120
140
Real**
U.S.:
2
4
1995 2000 2005 2010
2000 –
3000 –
* Rebased to January 2000 = 100reau
MRB Partners Inc © 05/2013
housing and bank
stocks is over...
...but further
upside should
be more
grinding thanthe recent bounce
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 35/38
23M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Recommendation:
MRB Theme Report
Assets Exiting The
A lengthy range-trading environment typically unfolds following a post-bubble crash (as
outlined in Part I of this MRB Theme Report 1). The asset class that was once the focus of
attention/speculation becomes shunned and does not participate in the next investment
cycle ( of the ). Prices spend years locked in an extended
consolidation. Once this revulsion phase ends, the asset begins to experience cyclical
swings in line with shifts in underlying fundamentals (much like experienced before it
underwent a mania). These may or may not turn into future mania candidates. There are
a couple asset classes that have recently advanced to this point:
Global Technology Stocks: The technology sector was largely ignored by investors
for a decade following the post-bubble crash in the early 2000 s. However, underlying
fundamentals have improved materially over the past several years, and the painful
memories of the tech fallout have now been overshadowed by housing busts and
repeated debt crises. As the hunt for yield among investors slowly gives way to the
search for growth, we expect a gradual migration towards cyclical stocks, favoring
be future mania candidates (see above). See the April 23rd MRB Theme Report 14 for
further analysis on the global technology sector.
Japanese Real Estate & Equities: Japanese policy blunders following the bursting of the
domestic asset bubbles in the early 1990s, led to more than two decades of economic
The policy initiatives are already helping halt the contraction in domestic real estate
prices. Also, they have attracted the attention of international investors, leading to strongequity gains. Japan should be able to sustainably exit the revulsion phase provided that
th MRB Weekly Macro
Strategy
Final Word:
14 MRB Theme Report , "Global Technology: Superior Growth At Bargain Prices", April 23, 2013
Investors
should gradually
migrate towards
tech stocks
The revulsion
towards Japanese
risk assets
is over...
...provided
policymakers
follow through
plans
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 36/38
24M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
Candidates For Manias In The Distant Future
The two mania candidates listed below should be on investor radars. However, neither
frenzy, for the foreseeable future. They are merely meant to provide longer-term ideas.
For now, investors should remain focused and continue to allocate capital to the themes/candidates listed above.
Environmentally Friendly Equipment & Products
receiving increased media attention. The world is gradually waking up to the consequences
that our choice of life-style is having on the planet. In response to this shift in public
interest, companies are taking interest in green initiatives and both portfolio managers
(which include environmental, social and governance factors).
That said, it is still early for the environment and related equipment/products to be a
broad-based investment theme. At the moment, these investments are largely reserved
for those that are interested in making a statement and reducing their carbon footprint
to minimize the burden placed on future generations. In this regard, it is bit more like a
charitable contribution than an opportunistic investment.
the environment: industrialization of emerging Asia is leading to massive air pollution
and global commodity extraction damages the land as well as uses up non-renewable
tighten environmental regulations and enforce taxation or other penalties to account for
especially given the tough economic environment and ongoing deleveraging pressures
in much of the developed world.
It may be only once the environment deteriorates to the point where there becometangible consequences to the existing generation, that public outcry will force a
substantial change. There is plenty of evidence showing the longer-term problems
resulting from our current actions, but these will be paid by future generations. The
massive buildup in sovereign debt over the past few decades within the developed world
grandchildren. Change will likely take a crisis, or at least compelling evidence that the
deterioration in the environment causes a material reduction in health conditions across
There is increasedawareness
about the
environment...
...but it is early
for this to be a
mania theme
Not many willpay substantially
more for green
products, or
to clean up
the planet,
unless there
are immediate
consequences...
deleveraging
and the EM is
industrializing
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 37/38
25M R B P A R T N E R S I N C . w w w . m r b p a r t n e r s . c o m C o p y r i g h t 2 0 1 3 © ( s e e f i n a l p a g e f o r f u l l c o p y r i g h t )
mrb THEME REPORT May 8, 2013
the globe (e.g. air quality via global wind patterns). If the consequences remain isolated
to those in the emerging world, it is unlikely that material change will be demanded by
governments and consumers in wealthier nations.
Recommendation:
Biotechnology
For years, investors have prematurely suggested biotechnology as a potential theme.
Indeed, most structural changes become recognized by the public well before they turn
into true investment themes. For the latter to develop, there needs to be an immediately
in recent decades. Moreover, as the baby boomer generation ages, there is becoming
an increased demand for medical advancements. However, the testing/trial process is
if life-expectancy rates start to decline materially in advanced economies (there are
drop could occur due to the quantity/quality of food consumed or the quality of air
breathed. In this respect, this investment theme may be linked to our previous regarding
the environment: widespread awareness of the linkages between the environment and
future generations. This would enact environmental change and heighten demand as
well as investment in medical solutions to increase longevity.
Recommendation:
Phillip Colmar
health solutions
are provided,
biotech isunlikely to
become a bubble
7/27/2019 MANIAS Gold, All Assets MRB May13
http://slidepdf.com/reader/full/manias-gold-all-assets-mrb-may13 38/38