the end is nigh? - laingbuisson events · the world trade organization says china sought...

Wealth and Investment Management

William HobbsHead of Investment Strategy, Barclays Investment SolutionsMarch 2018

The end is nigh?

“On what principal is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us...”

Thomas Babington Macaulay (19th Century politician and historian)

All investments can fall in value. You may lose capital. Please note that past performance is not a guide to future performance.

Is the next recession imminent?


4

Source: Datastream, Barclays

US recessions have become more infrequent

1855 1875 1895 1915 1935 1955 1975 1995 2015

1855-1944 1945-2017US recessions


5


Long run growth outweighs recessions

0

2

4

6

8

10

12

14

16

18

1947 1957 1967 1977 1987 1997 2007 201

RecessionUS real GDP

USD trillions


6


Corporate profits closely linked to output

100

1000

10000

1950 1960 1970 1980 1990 2000 2010

US NIPA corporate profits

US nominal GDP

log scale (index = 100)


7

Source: IMF, Barclays

Recession triggers vary...

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Pre-85 (incl. 85) Post-85

Other

Financial crises

External demand shocks

Oil shocks

Monetary policy tightening

Fiscal policy contractions

Common recession triggers


8


Lead indicators tell us not yet (part 1)

30

35

40

45

50

55

60

65

-6

-4

-2

0

2

4

6

Dec-03 Dec-08 Dec-13

US real GDP

ISM manufacturing (advanced 2 quarters, rhs)

Year on year (%) Index


9


Lead Indicators tell us not yet (part 2)

-1

0

1

2

3

4

5

Jan-82 Jan-87 Jan-92 Jan-97 Jan-02 Jan-07 Jan-12 Jan-17

Recession 10 year - 2 year 10-Year - 3 month 10 year - policy/shadow rate

US government bond yield (%)


Does President Trump matter?


11

March 8 March 18 April 1 April 3 April 4 April 5Trump announces import tariffs of 25 percent on steel and 10 percent for aluminium, but exempts Canada and Mexico and offers the possibility to excluding other allies

Forty-five U.S. trade associations representing some of the largest companies in the country urge Trump not to impose tariffs on China, warning it would be “particularly harmful” to the U.S. economy and consumers. The group includes the U.S. Chamber of Commerce, the National Retail Federation and the Information Technology Industry Council.

China increases tariffs by up to 25 percent on 128 U.S. products, from frozen pork and wine to certain fruits and nuts, escalating the dispute in response to U.S. duties on imports of aluminum and steel. The tariffs were slated to take effect on April 2.

Trump raises the stakes, proposing 25 percent tariffs on some 1,300 industrial technology, transport and medical products to try to force changes in Beijing’s intellectual property practices. The products represent about $50 billion of estimated 2018 imports.

China announces it will impose additional tariffs of 25 percent on 106 U.S. goods including soybeans, autos, chemicals, some types of aircraft and corn products and other agricultural goods. The products targeted by the tariffs were worth $50 billion in 2017, according to a separate statement from the commerce ministry.

The World Trade Organization says China sought consultations with the United States, the first step in a WTO dispute.

The notification to the Geneva-based watchdog triggers a 60-day deadline for the two sides to settle the complaint or face litigation at the WTO by a neutral panel of arbitrators.

Data source: Reuters, Barclays

Timeline in US-China trade dispute so far


12

Data source: Datastream, Barclays

The ‘trade war’ so far in perspective

4.10 4.21

0

10

20

30

40

50

60

70

80

90

100

Relative to US imports from the rest of the world Relative to Chinese exports to the world

Relative to US imports from the rest of the world

Relative to Chinese exports to the world

Percent of merchandise threatened with new tariffs so far


13

Data source: USDA, Barclays

Soybeans are a glaring example of targeting...


14

Data source: BBC, Barclays

... with tariffs aimed at President Trump’s heartland


Is Brexit a disaster?



Brexit – likely unhelpful...


Peace in our time?


18

Share of violent deaths – Ethnographic evidence from nonstate societies

Source: OutWorldInData.org, Barclays

Ethnographic evidence in violence

Share of violent deaths – State societies

0% 10% 20% 30% 40% 50% 60%

Anbara, N. Australia (Hunter-Gatherer)Tiwi (Hunter-Gatherer)

TsimaneHiwi (Hunter-Gatherer)

GebusiAnggor

Casiguran Agta (Philippines) (Hunter-Gatherer)Huli

Modoc, Northern CaliforniaYanomamo

Dugum DaniXilixana

Mae EngaAyoreo (1920-1979) (Hunter-Gatherer)

Yanomamo-ShamatariTribal Montenegro (beginning twentieth century)

WariDani (Papua New Guinea)

The Murngin of Arnhem Land (Hunter-Gatherer)Jivaro

Gebusi (Papua New Guinea)Enga (Papua New Guinea)

KayapoArawete

AchuarBlackfoot tribe (Plain Indians), in 1805

The Waorani (Ecuadorian Amazon)

-10% 0% 10% 20% 30% 40% 50% 60%

World, 2007 (battle and one-sided violence deaths)U.S. and Europe, 1900-1960

Western Europe, 17th CenturyFrance, 19th Century

Ancient Mexico


19


Homicide rates in Europe since 1300

0

10

20

30

40

50

60

70

80

1300 1400 1500 1600 1700 1800 1900 2000

England

Netherlands and Belgium

Scandinavia

Germany and Switzerland

Italy

Homicides per 100,000 per Year


20

Violent Deaths per 100,000 People per Year


Rate of Violent Deaths in Nonstate and State Societies

0 200 400 600 800 1000 1200 1400 1600

Andamanese (Indian Ocean)!Kung (Kalahari) (after estab.of state authority)

!Kung (Kalahari) (before estab. of state authority)Eskimos (central Canadian Arctic)

Boko Dani, 1937-1962 (New Guinea)Tiwi 1893-1903 (Australia) (Hunter-Gatherer)

Yanomamo, 1970-74Gebusi, 1940-1982 (New Guinea)

Mohave, 1840s (Calif.-Ariz.)Yurok (California)

Yanomama, 1938-1958 (Brazil)Mae Enga, 1900-1950 (New Guinea)

Tauade, 1900-1946 (New Guinea)Murngin, 20 years (Australia) (Hunter-Gatherer)

Gebusi (New-Guinea)Auyana, 1924-1949 (New Guina)

Modoc (California)Manga, 1949-1956 (New Guinea)Dugum Dani, 1961 (New Guinea)

Goilala ( Papua New Guinea)Mtetwa, 1806-1814 (S. Africa)

Buin (Salomon Is.)Hewa (New Guinea)

Telefolmin, 1939-1950 (New Guinea)Chippewa, 1825-1832 (Minnesota)

Fiji, 1860s (Melanesia)Dinka, 1928 (N.E. Africa)

Piegan (North American Plains)Grand Valley Dani (New Guinea)Kato (Cahto), 1840s (California)

0 200 400 600 800 1000 1200 1400 1600

World, 2007 (battle and one-sided violence deaths)US, 20th century (war deaths)

Japan, 1900-1990Tepoztlan, Mexico (1922-55)

World, 20th Century (wars & genocides)France, 1800-1899Russia, 1900-1990

Germany, 1900-1990C. Mexico, 1419-1519 (Mesoamerica)

Mexican mestizo village (1961-65)


Conclusions


Difficult to time the end


6.6

12.6

22.4

55.1

68.8

-8.1-11.7

-16.6

-6.7

10.9

-1.5

0.95.8

48.5

79.7

-40

-20

0

20

40

60

80

100

3 months 6 months 12 months 24 months 36 months

Before After Net

Average S&P 500 returns around market peaks (%, 1936-2017)


MSCI World returns forfeited by staying out of market


-50%

0%

50%

100%

150%

200%

250%

1970 1980 1990 2000 2010

Total return in MSCI World forfeited by waiting until a price drawdown of 10% before investing


“This is my long-run forecast in brief. The material conditions of life will continue to get better for most people, in most countries, most of the time, indefinitely. Within a century or two, all nations and most of humanity will be at or above today's Western living standards… … I also speculate, however, that many people will continue to think and say that the conditions of life are getting worse.”

Julian Simon, “The State of Humanity”

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the end is nigh? - laingbuisson events · the world trade organization says china sought...

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